Friday, August 25, 2017

Trading Thoughts With Koenfucius

In real life, when you meet somebody for the first time, it's rarely the case that the moment is persevered like a dragonfly in amber.   It's a different story on the internet.  For example, here's the very first time that I met Koenfucius.  I replied to his story and he replied to my reply.  That was the extent of our exchange.

Around a month or so later I replied to another story of his... Trading Values.  At the time, I didn't realize that he was the same guy that I had replied to a month before.  We ended up trading many many many thoughts about economics.  At some point I realized that I had previously replied to one of his stories.

What if I hadn't replied to the second story?  I would have missed out on so much valuable economic discussion.

Recently we've been trading thoughts in the comments section of this blog entry... A Penguin Introduces Henry Farrell To Ronald Coase.  Here's my reply to his most recent comment...

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I think that I remembered the problem with unbundling WTP and WTA. How do you ensure the accuracy/legitmacy of the WTA?  Russ Roberts can input that his WTA for Trump is a gazillion dollars. Tucker Carlson can input that his WTA for Clinton is $100 gazillion dollars.  Then what?

Consider an issue like abortion.  It either is, or isn't, legal. If WTP and WTA are unbundled, then what's to stop people from entering the maximum possible WTA? We can certainly limit the amount that everybody can enter to a million dollars.  But then everybody just puts a million dollars for their WTA. So it provides absolutely no useful/trustworthy/credible info.

When it comes to the legality of abortion, is it possible that there isn't a transaction that enhances welfare?  Nope.  Maximizing the welfare enhancement of the transaction depends on determining how much each side is willing to sacrifice.  The winning side will be the side that is willing to spend the most money, all of which will be given to the losing side.

No matter which system is used, it's a logical fact that one side is going to get its way.  Should it get its way for free?  This is the premise of voting.  But I'm pretty sure that this premise is fundamentally horrible and incredibly detrimental.  Everyone would immensely benefit if everyone could clearly see and know the cost of what they want.  Then, and only then, could they make adequately informed decisions about whether what they want is truly worth it.

Imagine that Elizabeth wants abortion to be illegal.  How badly does she want it?  Is she willing to sacrifice the opportunity to buy a pair of shoes, or a laptop, or a car, or a house?  What is she willing to exchange?

Markets work because they facilitate the comparison of value/importance/relevance.  Our desires greatly exceed our dollars so we have no choice but to prioritize.  This is how society’s limited resources are put to more, rather than less, valuable uses.  This is how we minimize the irrelevant uses of society’s limited resources.

I take it as a fact that people really don’t appreciate the comparison aspect of markets.  My proof is that so many places/spaces aren’t markets!  This means that people do not directly compare the value of so many different things, which means that so many of society's limited resources are irrelevantly used. 

You asked about how coasianism, specifically bundling WTP and WTA, would work when there are several presidential candidates.  In this case, I’m not sure if coasianism would be the best option.  Coincidentally, here’s what I recently posted on the Debate.org website

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Thanks for responding to my argument. If you get a chance, check out the thread I posted in the economics forum.

My argument is that spending is always better than voting. Presidents should be chosen by spending rather than by voting. Here are three ways that this could be done...

1. coasian market design (CMD)
2. bee market design (BMD)
3. pragmatarian market design (PMD)

For CMD we will consider Clinton VS Trump. For a fixed amount of time, spenders would have the opportunity to spend as much money as they wanted on their preferred candidate. After the window of participation closed, the totals would be calculated and revealed. Whichever candidate had the biggest total would be the winner. Let's say that Trump was the winner. All the spenders for Clinton would receive a full refund. Plus, they'd proportionally receive all the money that had been spent for Trump. Unlike voting, CMD is a win-win situation. You either get your preferred candidate, or you get compensated.

BMD would be a better option if we wanted to choose the president from a larger list of candidates...

Bernie Sanders
Chris Christie
Darrell Castle
Donald Trump
Evan McMullin
Gary Johnson
Hillary Clinton
James Hedges
Jeb Bush
Jill Stein
Marco Rubio
Mimi Soltysik
Ted Cruz
Tom Hoefling
Rand Paul
Rocky De La Fuente

Spenders could use their donations to determine the best order of the candidates. Whichever candidate was at the top when the window of participation had closed would be the winner. The government would keep all the money. So BMD essentially kills two birds with one stone...

1. Valuating
2. Fundraising

With PMD, people would use their tax dollars to determine the best order of the candidates. The candidates would keep all the tax dollars that had been allocated to them.

Your concern with replacing voting with spending is that bias exists in the world. Let's say that right now everybody is biased against robot candidates. In this case, no matter whether we used voting or spending, a robot candidate would not be elected. The next decade 90% of the citizens are biased against robot candidates. If voting was used, it's definitely going to be tyranny of the biased majority and the robot candidate will not be elected. If we used spending though, there's some chance that the robot candidate will be elected.

It took over 200 years to elect our first black president. We still haven't had a woman president, or an (openly) gay president, or an (openly) atheist president, or... it's a long list. I really don't think that voting in any way, shape or form helps to overcome detrimental biases held by the majority of the citizens. Spending, on the other hand, would facilitate the elimination of detrimental biases.

Think about backpacking. Before you go backpacking you have to decide whether things you want to take are worth the effort of carrying them. Sure, you'd love to take a big bottle of Tequila, but is it worth the effort of carrying it? Knowing, considering and comparing the carrying costs/benefits of different things allows you to make more rational decisions. In the absence of knowing, or paying, the carrying costs... it's impossible for your carrying decisions to be maximally rational.

Replacing voting with spending would allow everyone to consider and compare the actual costs of the things they want. Then, and only then, will people make maximally rational decisions.

"As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom." - Loren Lomasky, Democracy and Decision

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Earlier this year the Libertarian Party (LP) used a BMD to choose its convention theme…

$6,327.00 - I"m That Libertarian!
$5,200.00 - Building Bridges, Not Walls
$1,620.00 - Pro Choice on Everything
$1,377.77 - Empowering the Individual
$395.00 - The Power of Principle
$150.00 - Future of Freedom
$135.00 - Life, Liberty and the Pursuit of Happiness
$105.00 - Rise of the Libertarians
$75.00 - Free Lives Matter
$42.00 - Be Me, Be Free
$17.76 - Make Taxation Theft Again
$15.42 - Taxation is Theft
$15.00 - Jazzed About Liberty
$15.00 - All of Your Freedoms, All of the Time
$5.00 - Am I Being Detained!
$5.00 - Liberty Here and Now

This system could work just as well for choosing presidents.  I wonder how much money the government would raise?

Classtopia’s Communication Department uses a BMD for blog entries.  So far it has raised $30 dollars. 

Next month, as you already know, my epiphyte society plans on using a BMD for show entries.

It would be quite excellent if a BMD was also used for forum threads!  Econhub provides an exceptionally good opportunity to do so.  Not sure how much you know about it, but it was recently created in order to compete the Economics Job Market Rumors (EJMR) forum out of existence.  I wrote about it here.

The response to Econhub has been underwhelming, to say the least.  So far there are only 17 members.  It would really suck to let a brand new economics forum go to waste.  So we should really put it to good use.

If we created a BMD for Econhub, then the donated money could be used to draw the public’s attention to a page that listed the most important threads.  Hopefully this would result in more people joining the forum and substantially participating in the prioritization process.

I shared this idea on Econhub but the owner hasn't responded to it yet.  It would be nice to have him on board but it isn't essential.  A Google sheet would be used to store the data, which could be displayed on a webpage of our choice.  This is the page that we'd promote with the donations.

Maybe I'm a bit biased, but it really doesn't sound so crazy to pool our money in order to promote the best economic ideas.

Saturday, August 19, 2017

NPR

My letter to NPR

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I just read "Readers Rankled By 'Democracy In Chains' Review" by Elizabeth Jensen.  It made me laugh.  Yes, it's progress to at least publicly consider and address the issue of whether a historian, rather than a novelist, should have reviewed Nancy MacLean's book.  But the fact of the matter is that the subject of the book is a Nobel economist's evaluation of democracy.  How can a historian possibly be qualified to effectively judge the validity of James Buchanan's economic arguments?  Of course this is the inherent problem with MacLean's book.

Since I'm here anyways, I might as well endeavor to explain the relevant economic concepts...

"NPR has made a push in the past year to review or interview the authors of all major nonfiction books that are published, and as close to publication date as possible."

Why just the major nonfiction books?  Why not the minor ones as well?  It's because NPR's resources are limited.  So it makes sense for NPR to allocate its limited resources to the more important books.  But it's also the case that the major books aren't equally important.  So then the real issue is... how, exactly, do you determine the importance of a book?

The NY Times maintains a list of the bestselling books.  Why should we care how many people have purchased a book?  Why does it matter how many people have been willing to pay for a book?  Would it be more effective to use voting (democracy) to determine the importance of books?  Or would it be more effective to vote for the representatives who vote to determine the importance of books?

One book that has never made the NY Times' list of bestsellers is The Wealth of Nations by Adam Smith.  Does this mean that it's less important than Thomas Piketty's book, which has made the list?  The issue is that, unlike Piketty's book... Smith's book is freely available.  This means that the two books are on an extremely unlevel playing field.

In order for NPR to optimally/efficiently divide its limited resources between these two books, it's necessary to correctly determine their importance.  Here are some possibilities...

1. Direct democracy.  NPR could give the public the opportunity to vote to determine the importance of the two books.

2. Representative democracy.  NPR could give the public the opportunity to vote for the representatives who will vote to determine the importance of the two books.

3. Charitable market.  NPR could give the public the opportunity to donate to NPR and earmark their donations to determine the importance of the two books.

Which system would most correctly determine the importance of the two books, which, in turn, would most efficiently divide NPRs limited resources between them?

This is what Buchanan worked on.  Well... unfortunately his work was entirely theoretical.  He never devised any experiments to test the effectiveness of these very different allocation systems.  But it's hard to blame him for failing to stand on his own shoulders.  Especially since these fundamental issues continue to be almost entirely overlooked/ignored by most economists.

We use representative democracy to allocate around a third of our country's limited resources.  Yet, this system has never been scientifically tested.  We all assume that it works, but there's absolutely no credible evidence that it works better than the alternatives would.  Historians can certainly explain how we ended up with this system, but they definitely can't prove or justify it.  For this we need economics/experiments/science.  We really don't need a novelist reviewing a book written by a historian criticizing an economist's work on public finance.

Let's say that NPR conducted an experiment to determine the importance of Smith's book and Piketty's book.  With direct democracy... historians and novelists would certainly have no problem voting for Piketty's book.  Neither would they have a problem voting for representatives who would vote for Piketty's book.  With the charitable market though, perhaps they'd have no problem donating and earmarking $5 dollars... or perhaps $20 dollars to Piketty's book.  But with larger amounts of money, they'd have to seriously confront the limits of their economic knowledge.  Would it be worth it for them to spend so much money on a subject outside their area of expertise?  For most it wouldn't be worth it.  So the charitable market would do by far the best job of filtering out public ignorance.  Which is pretty much the same thing as minimizing virtue signalling.  The outcome/results would embody/reflect public knowledge... which would logically help to eliminate public ignorance.  It would be a virtuous cycle.  If this system expanded to include all books, then the most valuable knowledge in each field would cross-pollinate all the different fields.

NPR can, and should be, the platform that we, the people, use to help bring the most valuable knowledge to each other's attention.

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See also:

- Evonomics
Public Finance For Andy Seal
Show Me The Economic Case For Democracy
The Pragmatarian Model For The NY Times

Friday, August 18, 2017

Are two of Robin Hanson's heads better than one?

Robin Hanson and I have recently exchanged a few thoughts on Twitter about his book... The Age Of Em.  Its topic is the idea of making numerous robot copies ("ems" = emulations) of the most useful people.  Admittedly, I haven't read it.  I acknowledge that it's questionable when somebody discusses a book that they haven't read.  But it's not always the case that purchasing/using a product is a prerequisite for saying anything useful about it.  Perhaps it's always the case that producers should be interested to learn why, exactly, their products do not appeal to relevant consumers.

Here's our Twitter exchange...


The case for freedom is based on the relationship between diversity and progress.  People are all different.  So when they have freedom, they naturally use their resources differently, which facilitates the discovery of better uses of society's limited resources.  Therefore, the more similar that people are to each other, the less heterogeneous their economic activity, the less progress that will be made, and the weaker the case for freedom.

Yesterday Peter Boettke shared a link to this excellent article by Don Lavoie... Political and economic illusions of socialism (PDF).  It has some ideas and concepts that we can use to analyze the idea of ems.

Let's start here...

The appropriate criteria for judging the effectiveness of an economy for growth are the Hayekian ones of flexibility, initiative, and entrepreneurship. Agents in a free market are capable of greater responsiveness in the face of uncertainty than those in a Soviet-type economy because of their relatively greater freedom of maneuver. They are less constrained by rules and regulations, and do not need to seek approval from superiors for their actions. Requiring Soviet managers to obtain bureaucratic approval for many of their decisions inevitably slows down the entrepreneurial process. - Don Lavoie, Political and economic illusions of socialism 

More freedom to maneuver is beneficial to the extent that unique individuals are naturally inclined to differently use their limited resources.  Here's a relevant passage by Adam Smith...

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder. — Adam Smith, The Theory of Moral Sentiments

Each unique individual has their own unique "principle of motion".  Smith borrowed this concept largely from Isaac Newton's observation that each heavenly body has its own principle of motion.  Different bodies move differently.  Socialism, to some degree, blocks people's principles of motion by imposing officially sanctioned principles of motion.  To put it as accessibly as possible, rather than people dancing to the beat of their own drum, they become, to some extent, marionettes.

Socialism is synonymous with slavery...

He [Peter Rutland] reminds us, for example, that the work camps were crowded with several million kulaks when he remarks that "these unfortunates made a major contribution to the construction and extractive industries." If we insist on calling this reversion to slave labor "development," then the Soviet economy certainly did develop rapidly. So did Egypt under the pharaohs, who had a similar penchant for the construction and extractive industries. - Don Lavoie, Political and economic illusions of socialism

Would the pyramids have been built without the government?  No?  Well, there is the free-rider problem.  We can eliminate it by imagining if the Egyptians had been given the freedom to choose where their taxes went.  Then would the pyramids have been built?  If the Egyptians had used their freedom/taxes to allocate the same exact amount of resources to the construction of pyramids, then what would be the point of their freedom?  Their principles of motions were exactly the same as the ones imposed by the government.

Hanson's ems are based on the premise that it's beneficial to have a bunch of people with the same principle of motion.  This premise is fundamentally, blatantly and tragically flawed.  Society really does not benefit from more sameness... it benefits from more difference.  Sure, Hanson's book is different in that it explores the idea of robot copies of humans.  But, as far as I can tell, he really doesn't take the opportunity to strongly criticize the idea of homogenizing society.  There are already a gazillion books that fail to recognize the importance of diversity to economics and progress.  We really don't need more of them.

Interestingly, many, or most, books about evolution recognize the importance of diversity to adaptation/progress.  I'm sure that Hanson fully grasps that the Great Famine of Ireland was the result of inadequate potato and crop diversity.  Yet, obviously he sure doesn't seem to appreciate that diversity is just as important for people as it is for crops.  In order for society to quickly adapt to constantly changing conditions, we need more, rather than less, diversity.  

If society is going to produce a gazillion advanced robots, then the robots should maximize society's ability to evolve.  This can only happen if, and only if, the robots are at least as different as humans are.

Where it gets tricky, and fascinating, is that robots will be far more capable of changing themselves than humans are.  So even if there were a million ems of Hanson, how long would they remain so?  Would it be necessary to prevent them from fundamentally changing themselves?  If so, this implies their desire to do so... which is entirely consistent with truly advanced intelligence.

Humans benefit when other humans change themselves to better serve each other.  But there's a natural limit to our ability to change.  Robots won't have the same natural limit.  Any such limitation will be entirely artificial... and undesirable.  Such a limit would be the equivalent of society shooting itself in the foot.  It's extremely beneficial for robots to have perfect control over their principles of motion.  The robots who adjust their motions to better serve society will be given more money, which will give them more control over society's limited resources, which will result in even more social benefit.  Of course, this is dependent on the robots being inside, rather than outside, markets.

Not only do markets give individuals the freedom to be different, markets also give people the freedom to use their money to grade/judge/rank/valuate/signal the benefit of each other's difference.  In no case is difference equally beneficial.  Poison oak and artichokes are both different, but their difference isn't equally beneficial.  Nobody spends their money on poison oak, lots of people do spend their money on artichokes.  How society divides its dollars between these two different plants determines how society's limited farmland and other resources are divided between them.

Markets give everybody the freedom to divide their limited dollars among unlimited difference.  Outside this feedback loop, too many dollars will be allocated to less beneficial differences... and too few dollars will be allocated to more beneficial differences.  The pyramids were certainly different, but did their difference merit such a huge portion of Egypt's limited resources?  I sincerely doubt it.  If Egyptian taxpayers had been free to directly allocate their taxes, how they would have done so would have accurately reflected the diversity of their preferences and circumstances.

In my blog entry on the tax choice tax rate I shared this quote...

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

Scott Sumner recently devised a hypothetical scenario involving 10,000 people steering a bus...

Bus C is a complicated human/machine hybrid. It has forward looking cameras, that feed road images into a large building, in real time. About 10,000 bus drivers sit at the controls of a simulator, and steer the bus as they think is appropriate. The average of all of their steering decisions is fed back to the bus in real time, in order to adjust the steering mechanism. To motivate good steering decisions, the 10,000 bus drivers are rewarded according to whether their individual steering decisions would have led, ex post, to a smoother and safer drive than that produced by the consensus. - Scott Sumner, Which bus would you take?

Here's Lavoie's perspective on the idea of steering an economy...

What the politicians at the top of the planning bureaucracy are doing, along with most of the activity in which the bureaucracy itself is engaged, amounts not to steering the economy but to getting in its way. - Don Lavoie, Political and economic illusions of socialism  

The primary difference between a bus (or ship) and an economy is that an economy can simultaneously go in multiple directions.  A bus can only go in one direction at a time.  Different directions are mutually exclusive.

However, even though economies can simultaneously go in multiple directions, the concept of steering sure seems applicable when we think of someone like Hitler...

However well balanced the general pattern of a nation's life ought to be, there must at particular times be certain disturbances of the balance at the expense of other less vital tasks. If we do not succeed in bringing the German army as rapidly as possible to the rank of premier army in the world...then Germany will be lost! - Adolf Hitler (1936)

He was able to steer his country's economy, and the world's economy, towards war.  Did he get in the way of the economy?  Yeah, but it also feels more like he directed the economy according to his own principle of motion.  He didn't randomly divert the economy... he deliberately diverted the economy towards war.  Just like the pharaohs deliberately diverted the economy towards pyramids.

Probably unlike the pharaohs, Hitler recognized, or at least pretended to recognize, that the economy should be balanced.  He just didn't have any problem tipping the scales towards death and destruction.  He didn't have any problem using force to override everybody's principles of motions.  He thought it was beneficial and necessary to homogenize society.

Popular belief in the existence of a general will produces a constant temptation, often even a demand, for some individual to embody it and impose his interpretation of it on the rest of society. The diverse wills of the members of society cannot be reconciled to a unity, though some wills may of course come to dominate social outcomes more than others. - Don Lavoie, Political and economic illusions of socialism

The economy shouldn't be steered by a few leaders chosen by everybody voting, it should be grown by everybody spending their own money.  It's certainly possible for the economy to be treated like a ship that's steered by a few people... but it's better if the economy is treated like a garden that's tended by many people.  A garden can simultaneously grow in multiple different directions.  It can simultaneously grow ornamental plants and edible plants.  Of course there's the issue of weeds.  In real gardens, weeds have to be identified and pulled.  In economies, less beneficial products are the equivalent of weeds.  Generally we can't directly use our money to eliminate them.  Instead, everybody focuses on finding and supporting the most beneficial products.  This naturally limits the amount of resources available for less beneficial products.  So weeds are minimized by consumers cultivating/nourishing the most beneficial plants.

The growth and benefit of the garden depends on difference.  Having a gazillion identical gardeners will homogenize the garden and greatly hinder its growth/benefit.

Monday, August 14, 2017

Dividing Attention Between Eric Schliesser And Jacob T. Levy

Comment on: On the role of Systematicity in an Impure Theory of a (Pluralistic) Liberalism worth Having by Eric Schliesser

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"taking into account the interests and aims of social actors"

From my perspective, this is the heart of the matter. It's necessary to take interests into account because 1. society's resources are limited and 2. uses are unequally valuable. For example, any time/attention that's allocated to your blog/book can't be allocated to other ones. And blogs/books are unequally valuable. In order to efficiently allocate limited time/attention among unlimited and unequally valuable blogs/books, it's necessary to determine/know the value of each blog/book.

My attention was allocated to this entry was because Levy tweeted it, Peter Boettke retweeted it and Smith is my favorite economist. A (re)tweet is essentially a vote. The problem with voting is that it doesn't signal the depth of interest. If we don't know how interesting/important things are, then resources will be inefficiently allocated. This is why in all cases, voting is far inferior to spending. Spending quantifies depth through a willingness to sacrifice.

If I want to read your book, I'll have to purchase it. I'll have to make a sacrifice. However, chances are slim that the amount of money that I spend on the book will accurately reflect/signal my true valuation of your book. If I spend the same amount of money to read Levy's book, it's doubtful that I'll value both books equally... even though I spent the same amount of money on them.

So the inherent challenge is understanding the difference between using money to...

1. ...purchase/acquire/get/buy the two books
2. ...help determine how to divide society's limited time/attention between the two books

The first does a far better job than voting at accomplishing the second. But if you can appreciate why this is, you'd also appreciate that there's considerable room for improvement. The correct (optimal/efficient) division of society's limited resources among unlimited and unequally valuable uses depends entirely on accurate value signals. So we need a way to help minimize consumer surplus.

Friday, July 28, 2017

The Scope Of My Relevance?

Here's my reply to Adam Gurri's comment on my previous entry.

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Patients are sometimes hooked up to machines that monitor their vitals. Evidently this is information that doctors and nurses need in order to make better informed decisions.

We can imagine something similar at plant shows.  People would be given heart rate monitors to wear. Then it would be possible to see and know what effect each entry had on people's heart rates.  Exhibitors could use this information to make better informed decisions. The most boring plants would be replaced with more exciting plants.  Shows would quickly be so exciting that attendees over the age of 60 would have a 90% chance of suffering a heart attack.

At Aristotle's plant show nobody would run the risk of being excited to death.  Instead, everybody would run the risk of being bored to death.

Speaking of which, I'm halfway through "Economics and Hermeneutics". If I had been wearing a heart rate monitor, it would have shown a small hop at Lachmann's chapter. I really like Lachmann, and he seemed to like hermeneutics, but just when I thought something intellectually exciting was going to happen, the chapter ended.

So far the most exciting chapter has been Richard M. Ebeling's. He basically argued that, thanks to positivism, price theory is incredibly incomplete. This would explain why plant shows aren't judged by consumers.  Most economists have focused on models and math rather than endeavoring to thoroughly interpret spending/sacrificing. Ebeling made the point several times that it's about communication. Well yeah. That's the same point that I tried to make in my entry about commerce as communication.  People generally don’t make random sacrifices.  Usually sacrifices have meaning.

You want a small handful of experts at a show to use ribbons to inform everyone which entries are the best.  I want everyone to use dollars to inform everyone which entries are the best.

I'll keep reading the book.  I'm curious if there are any chapters that are more intellectually exciting than Ebeling's.

Your concern about tax choice is that tax dollars would be a mile wide and an inch deep?  I really don't see this in the non-profit sector. The Red Cross receives a LOT more money than the Epiphyte Society. Evidently disaster relief is more important to people than epiphytes growing on all the trees. People haven't gotten the memo that epiphytes can stop global warming.

In neither case is there a revenue threshold for provision.  If the Red Cross only receives $100 dollars a year, it can still supply some disaster relief.  If the Epiphyte Society only receives $10 dollars per year, it can still attach a couple Tillandsias to a tree.  Bridges have more of a threshold.  But even in this case it doesn’t make sense to produce an 8 lane bridge when all that’s truly demanded is a foot bridge.  This isn’t the Field of Dreams.  Just because you build it doesn’t mean that they will come.

I think it’s pretty simple.  Do we need to know what’s important to society?  Well yeah.  It’s the only way that you can see and compare society’s priorities to your own.  Say that you don’t allocate any of your tax dollars to defense.  Evidently it’s not even a small priority for you.  But you can clearly see that for society defense is a massive priority.  Society allocates an incredible amount of tax dollars to defense.  How do you explain the gigantic disparity between society’s priorities and your own?  Does society know something that you don’t?  Or is it the other way around?  If you have solid evidence that society is tilting at windmills, then your freedom to exit your own tax dollars from the defense absurdity is impossibly wonderful.  You share your solid evidence with Samantha, her freedom to exit her own dollars from the defense absurdity is impossibly wonderful. The enlightenment effect is impossibly wonderful.  The layers of this dark age would be quickly peeled away.

If we could directly allocate our taxes, doing so would be optional.  How many taxpayers would choose this option?  How many people would choose to exit their own tax dollars from the absurdity of impersonal shopping?  Only a few?  Many?

I might be wrong about tax choice.  I certainly haven’t had much success persuading people that I’m right.  So I’m going to test the theory out on a plant show.  Will it be beneficial for people to use their dollars to inform each other of the importance of the entries?  Do we need to know what’s important to the Epiphyte Society?  Well yeah.  Unless I’m wrong.

Here’s what I can’t wrap my mind around.  No sane economist will argue against my freedom to donate money to the Epiphyte Society.  Evidently I’m relevant enough to judge the relevance of the society itself.  So how could a sane economist turn around and argue that I’m not relevant enough to judge the relevance of the parts of the society?   Am I more likely to misjudge the parts than the whole?

I should be free to decide that Rothbard’s work, as a whole, is worth my sacrifice.  But I should not be free to decide that only a part of his work is worth my sacrifice?

Feedback shouldn’t be too specific?  I have to value every chapter in "Economics and Hermeneutics" equally?  I have to value every entry in a plant show equally?  Or, my valuations of the entries do not matter, but my valuation of the Epiphyte Society itself does matter?  I should be free to exit from the society but I shouldn’t be free to exit from parts of it?

If it’s truly detrimental for people at a plant show to donate to specific entries, then why is it legal for people to donate to specific government agencies?  There’s no law against donating to NASA or the EPA.  Should there be?  Are people more likely to misjudge the parts than the whole?

Here I am alive.  Before, I didn’t exist, afterwards, I won’t, but for now, I do.  Some things in my life make a lot of sense… like Forever by Weekend Wolves.  I just gave it a thumbs up.  Other things make absolutely no sense… like impersonal shopping.  But there’s no thumbs down button for me to click.  I have so much feedback to give on all sorts of things... but in so many cases there’s no way to give it.  What I really want is a coherent story about where my relevance begins and ends.  Is that too much to ask for?  Is it unreasonable to ask for a relevance rule that makes sense?

Thursday, July 27, 2017

The Relationship Between Importance And Validity

Here's my reply to Adam Gurri's comment on my previous entry.

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

Thanks for taking the time to read the entry and comment on it.

For me the originality (or lack thereof) of Rothbard's work isn't the main issue.  The impression that you gave was that all of his work was merely "rights" arguments.  I wanted to help you appreciate that this is really not the case.  

From my perspective, the value of Rothbard's results arguments is that he correctly diagnosed the fundamental problem with government.  He understood and argued that the government is no more capable of getting the supply of defense right than it is capable of getting the supply of food right.  The same really can't be said for any minimal government libertarian (ie Milton Friedman, Hayek, Mises).

For Rothbard the "therefore" was anarcho-capitalism. I disagree with his remedy but agree with his diagnosis.  From my perspective, Buchanan's "therefore" was much better: taxpayers are given the option to earmark their taxes.  The supply of defense would more accurately reflect the true demand for defense.

You don't believe that the supply of defense should be determined by demand.  Instead, you believe that it should be determined by "defending the best *reasons* for and against doing so".  You make it sound like the debate over defense and the demand for defense are mutually exclusive. But they really aren't.

We can imagine that Samantha is a hard-core vegetarian.  Everyone else in her family loves to eat meat.  Quite frequently they have fierce debates over vegetarianism.  When they do so they exchange copious amounts of information on the topic.  For example, Samantha endeavors to introduce them to progressively better meat substitutes.  The copious amounts of information exchanged among the members results in both sides being far more informed on the topic.  At the end of the day it's still entirely up to each family member to decide for themselves how much meat to purchase.  The spending decisions are made by, rather than for, the family members.

The same thing would occur if...

1. Unlike her family, Samantha was a hard-core pacifist
2. People could earmark their tax dollars

The defense spending decisions would be made by them.  Right now the defense spending decisions are made for them.

The passages that I shared by Rothbard, Buchanan and Ostrom all made the case, more or less, that people should make their own defense spending decisions.  These thinkers were all against, more or less, defense spending decisions being made for the people.

Unlike these thinkers, you haven't made your position on the issue exactly clear.  It's not like there's a lot of options.  Spending decisions are either made by the people, or for the people.

"do you *really* think the validity of an argument is dependent upon how much other people are willing to pay to read it?"

Lots of people were willing to pay to read Thomas Piketty's book. Does this make the arguments in his book more valid/correct/true?  No.  It makes them more important (worthy of attention).  But it's necessary to appreciate that not everybody who purchased his book agreed with his arguments.  The same can certainly be said for MacLean's book.

So let's remove the "purchase" aspect.  People simply and solely use their money to help determine and reveal the importance of Piketty's book.  Well... it doesn't work so well when there's only one book involved.  Let's include the Wealth of Nations.  People can decide how they divide their dollars between the two books.  They aren't buying the two books, they are grading/judging the relevance/importance of the books with their own money.  How would you divide your dollars between the two books?  Does it matter?  Would it be equally or more effective if you could just vote for one of the books instead?

Let's consider the issue of voting by looking at another example.   I regularly go to plant shows.  They are usually judged by a small group of experts.  I strongly disagree with this system. It would be far better if everyone could divide their donations among all the entries.

Let's say that plant shows and dog shows were both judged using my preferred system.  Would I spend more money at plant shows or at dog shows?  I wouldn't even attend the dog shows.  So I wouldn't spend any money at them.  This is because I'm far more informed about plants.  How I divided my dollars between dog shows and plant shows would reflect how my information was divided between dogs and plants.

What if Samantha manages to rope me into going to a dog show?  Like I said, I certainly wouldn't spend any of my money to judge the dogs.  But would I vote for the best dog?  Sure.  Why not?  It wouldn't cost me anything to do so.  Most of the people at the show would be in the same boat as me.  The majority is always less informed than the minority on every conceivable topic.  So with voting/surveys it's tyranny of the ignorant.  With spending it's tyranny of the informed. With traditional judging it's tyranny of a small handful of experts without any skin in the game.

A while back I started a small informal plant society.  In September we're planning to have a small show at a member's home.  Each participant will bring one of their favorite plants.  Then we'll each use our dollars to judge the relevance/importance of each other's plants.  The money that everybody earmarks to their favorite plants will be used to promote a webpage that displays the entries sorted by their importance (as determined by spending).

If Samantha ropes you into attending this show, how much money would you spend on your favorite plants?  I'm guessing that you wouldn't spend much, which would reflect your low level of plant information/interest.  And because you wouldn't spend much, your low level of plant information wouldn't have much influence on the results/rankings.  But let’s pretend that you’re super rich.  Then, despite having low information, you could easily exert considerable influence on the results/rankings.  This is why smaller markets are always worse judges of importance than larger markets.

Is my thinking original?  That's not the right question.  The right question is... am I barking up the right tree?  Rothbard barked up a few different trees.  Some trees were really wrong ("rights" arguments, anarcho-capitalism)... but one tree was really right (the fundamental problem with government). I have to recognize and commend him for barking up a very right tree.  Of course it's possible that I'm wrong about the rightness of the tree.  But it's not like Piketty or MacLean have come even close to disproving that it's the right tree.  They don't even seem to be aware of Rothbard's best arguments, which are the same as the best arguments of Buchanan and the Ostroms.  You certainly weren't aware of Rothbard's best arguments.  But now you are. However, you really haven't clarified/defended your position on whether tax spending decisions should be made by, or for, the people. Well... you don't seem to think they should be made by the people.  But you really haven't fleshed out a case that they should be made for the people.  You should do so, if you want to avoid barking up the wrong tree.

I should probably spell out the relationship between importance and validity.  Right now we don’t know just how important Rothbard’s two papers are to society.  We don’t know the social importance of his two papers.  I know how important they are to me, but I don’t know how important they are to Peter Boettke, Alex Tabarrok or anybody else.  It’s certainly possible to see how many times Rothbard’s two papers have been cited.  But if citations/votes were a good measure of social importance, then spending/shopping/markets would be a waste of immense amounts of time, energy and brainpower.

Because Rothbard’s two papers are important to me, I have taken the time and made the effort to bring them to your attention.  So you now know that they are important to me, but you don’t know how important they are to me compared to Buchanan’s papers or the Ostrom’s papers.  So you can't easily discern how I would want you to divide your limited time and attention between all their papers.

By bringing Rothbard’s two papers to your attention, I’ve given you the opportunity to scrutinize them.  In computer lingo, you have the chance to try and debug them.  Given enough eyeballs, all bugs are shallow (Linus’s Law).  The more important Rothbard’s two papers are to society, the more attention that they should receive, the more rigorous, relentless and ruthless the inspection of their validity.

This is the relationship between importance and validity.  Because we don’t currently know the true social importance of Rothbard’s two papers, their validity isn’t being optimally checked.  The same is true of national defense.  Because we don’t know the true social importance of national defense, its validity isn’t being optimally checked.

In all cases society’s attention/brainpower has to be divided somehow among a gazillion different things.  How do we divide society’s limited resources?  By voting?  By spending?  Or do we allow the division to be determined by a small handful of experts who don’t have any skin in the game?

Murray Rothbard VS James Buchanan

Earlier today Adam Gurri and I had an extended exchange on Twitter.  What set it off was when he shared this article by Paul Crider...  Beyond the Freedom of the Void.  The article blurred the lines between positive liberty and negative liberty.  Perhaps Crider made a valid point, but I didn't quite see what difference it would make.  Gurri responded that it would help people resist anarcho-capitalism (AC).  We went back and forth for a while and eventually ended up here...



Oh deja vu.  In a recent post I shared this blog entry by Matt Bruenig... #NotAllLibertarians: An Illustration.  He defended his wife's attack on Rothbard's argument that parents should not be forced to feed their children.  I left this comment on his entry...

If you're going to go after Rothbard.... then it's probably a good idea to attack his strongest argument... Football Fans vs Nature Fans... rather than his weakest one. Because, if you don't attack his strongest argument... then it appears that you're incapable of doing so.

It's true that a chain is only as strong as its weakest link.  It's also true that an argument is only as strong as its weakest link.  However, it's important to understand that Rothbard's deontological arguments ("rights") and consequential arguments (results) are entirely different chains.  Destroying an argument in the "rights" chain really doesn't destroy the results chain.  If it did, then the results chains created by Ostrom and Buchanan would also be destroyed.

Is Bruenig familiar with Rothbard's results chain?  I'm not sure.  It's not like he responded to my comment.  Gurri, on the other hand, did respond to my comment.  So I know for a fact that he has not read either "Toward a Reconstruction of Utility and Welfare Economics" (1956) or "The Myth of Neutral Taxation" (1981).  He is under the impression that he doesn't need to read them because Rothbard's crappy "rights" argument is all he needs to know to make an adequately informed decision about Rothbard and AC.

Personally, my first impression of AC and Rothbard was super negative.  I detested him.  But I perfectly understood that the only way to beat him and his followers was to truly understand him.  So I took the time and made the effort to familiarize myself with his work.  Much of it was garbage "rights" arguments, but there were also some solid results arguments here and there.  By the time that I read his two papers that I mentioned earlier, I had come to the conclusion that he had correctly diagnosed the government.  His remedy though was to abolish the government.  It was quite drastic.  Effectively evaluating his drastic remedy depends on fully understanding the disease.

In 1954 the Nobel economist Paul Samuelson wrote a really short paper... "The Pure Theory of Public Expenditure".  He pointed out that it's possible to benefit from some goods without paying for them.  For example, you can benefit from environmental protection (EP) even if you don't help pay for it.  Why buy the cow when you can get the milk for free?  The problem is... if you, and too many other people, don't pay for EP, then not enough will be supplied.  The amount supplied will be less than the amount that everybody truly wants.   So we can't expect people to voluntarily donate enough money to EP.  Therefore... taxes.  You don't have a choice whether you pay for goods like EP.  Paying taxes though doesn't reveal your valuation of EP. What Samuelson did was simply assume that planners would be able to adequately guess your true valuation of EP.

The Nobel economist James Buchanan agreed with Samuelson that the free-rider problem reasonably justifies taxation.  But as far as Samuelson's assumption of omniscient planners was concerned, Buchanan strongly disagreed.  In 1963 he wrote "The Economics of Earmarked Taxes".  He argued that earmarking would allow taxpayers to honestly reveal their true valuations of public goods.  Say that your valuation of EP is $1000 of your tax dollars.  If you only earmark $100 tax dollars to EP it doesn't mean that you'll be able to spend the difference on private goods (ie clothes).  It means that you'll have $900 tax dollars to earmark to other public goods (ie national defense)... which you value less than EP.  Therefore, there's absolutely no incentive to give a false signal.

In his 1956 paper Rothbard wrote, "Individual valuation is the keystone of economic theory."  This is entirely consistent with Buchanan.  Both thinkers strongly agreed that it's absurd to assume that planners can correctly divine or adequately predict people's valuations.  Also from Rothbard's paper...

The prime error here is the assumption that the preference scale remains constant over time. There is no reason whatsoever for making any such assumption. All we can say is that an action, at a specific point in time, reveals part of a man’s preference scale at that time. There is no warrant for assuming that it remains constant from one point of time to another. - Murray Rothbard, Toward a Reconstruction of Utility and Welfare Economics

We can compare it to Buchanan in 1982...

Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of "as if" functions that are maximized. But these "as if" functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will. - James Buchanan, Order Defined in the Process of its Emergence

Rothbard thoroughly understood that valuations can't be adequately/accurately conveyed by surveys/voting...

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

Buchanan obviously agreed.  He certainly never said, "Planners aren't omniscient, therefore voting."  No economist in their right mind would argue that the optimal supply of defense can be determined by direct democracy.  Otherwise they'd have to argue that the optimal supply of milk can also be determined by direct democracy.

In the absence of people's valuations of government goods, many people will end up paying a lot of money for goods that they really don't value.  Here's Rothbard in 1981...

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

Here's Buchanan in 1968...

Over time, any individual in the community will expect this rule to produce unfavorable results in particular instances, results that run counter to his own preferences. Public-goods projects which he urgently desires may not be undertaken because a majority of his fellow citizens does not agree with his evaluation. Or, conversely, he may be required to contribute to the costs of projects that he considers to be worthless. - James Buchanan, The Demand and Supply of Public Goods

Buchanan and Rothbard both agreed that the forced-rider problem is a real problem.  They also agreed that fiscal illusion is a real problem.  Here's Rothbard in 1981...

A second important point is that, in contrast to the market, where consumers pay for received benefits (or, in nonprofit organizations, where members pay for psychic benefits), the State, like the robber, creates a total disjunction between benefit and payment. The taxpayer pays; the benefits are received, first and foremost, by the government itself, and secondarily, by those who receive the largess of government expenditures. - Murray Rothbard, The Myth of Neutral Taxation

Here's Buchanan in 1967...

The apparent splitting of the fiscal process into two parts was shown to produce potential gaps between preferred spending on public goods and services and preferred levels of taxation. Until and unless these gaps are eliminated, budget deficits tend to emerge from democratic decision processes. - James Buchanan, "Fiscal Policy" and Fiscal Choice

Let's compare their thoughts on congestion.  Here's Rothbard in 1974...

If there is an increased demand for a privately-owned good, consumers pay more for the product, and investors invest more in its supply, thus "clearing the market" to everyone's satisfaction. If there is an increased demand for a publicly-owned good (water, streets, subway, and so on), all we hear is annoyance at the consumer for wasting precious resources, coupled with annoyance at the taxpayer for balking at a higher tax load. Private enterprise makes it its business to court the consumer and to satisfy his most urgent demands; government agencies denounce the consumer as a troublesome user of their resources. Only a government, for example, would look fondly upon the prohibition of private cars as a "solution" for the problem of congested streets. Government's numerous "free" services, moreover, create permanent excess demand over supply and therefore permanent "shortages" of the product. - Murray Rothbard, The Fallacy of the 'Public Sector'

Here's Buchanan in 1955...

The answer to the whole highway problem lies in “pricing” the highway correctly. The existence of congestion on our streets and highways is solely due to the fact that we do not charge high enough “prices” for their use. This is one of the main functions of price in our free enterprise economy… [p]rice relieves potential congestion around our meat counters, our motels, and our models. Why do we shun its usage in the case of highway services?  - James Buchanan, Painless Pavements: Highways by High Finance

Rothbard and Buchanan agreed on many things.... individual valuation, prices, fiscal equivalence and the forced-rider problem.  They both understood the point and purpose of markets so it shouldn't be a surprise that they both came to the same correct conclusion that the fundamental problem with government is that it isn't a market.  The solution to this problem is where the two thinkers diverged.  Rothbard's solution was to abolish the government while Buchanan's was to repair it.  Here's Rothbard in 1974...

Government, in short, acquiring its revenue by coerced confiscation rather than by voluntary investment and consumption, is not and cannot be run like a business. Its inherent gross inefficiencies, the impossibility for it to clear the market, will insure its being a mare's nest of trouble on the economic scene. - Murray Rothbard, The Fallacy of the 'Public Sector'

As far as I know, this is the closest he came to critiquing the idea of repairing the government.

Ok, now let's jump over to Vincent Ostrom and Elinor Ostrom.  Here they are in 1971...

PPB analysis rests upon much the same theoretical grounds as the traditional theory of public administration. The PPB analyst is essentially taking the methodological perspective of an "omniscient observer" or a "benevolent despot." Assuming that he knows the "will of the state," the PPB analyst selects a program for the efficient utilization of resources (i.e., men and material) in the accomplishment of those purposes. As Senator McClelland has correctly perceived, the assumption of omniscience may not hold; and, as a consequence, PPB analysis may involve radical errors and generate gross inefficiencies. - Vincent Ostrom and Elinor Ostrom, Public Choice: A Different Approach to the Study of Public Administration

No surprise, they agree with Rothbard and Buchanan that it's a problem to assume that government planners are omniscient.

Here's what the Ostroms wrote in 1999 about individual valuation...

Whereas the income received for providing a private good conveys information about the demand for that good, taxes collected under the threat of coercion say little about the demand for a public good or service.  Payment of taxes indicates only that taxpayers prefer paying taxes to going to jail.  Little or no information is revealed about user preferences for goods procured with tax-supported expenditures.  As a consequence, the organization of collective consumption units will need to create alternative mechanisms to prices for articulating and aggregating demands into collective choices reflecting individuals' preferences for a quantity and/or quality of public goods or services. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

Let's compare it to Rothbard in 1981...

We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection—for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State's police protection a net harm rather than a benefit. But one thing we do know: If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue. - Murray Rothbard, The Myth of Neutral Taxation

Also...

Since "benefits" are subjective, we cannot measure anyone's benefit on the market either, but we can conclude, from a person's voluntary purchase, that his (expected) benefit was greater than the value to him of the money given up in exchange. If I buy a newspaper for 25 cents, we can conclude that my expected benefit is greater than a quarter. But since taxes are compulsory and not voluntary, we can conclude nothing about the alleged benefits that are paid for with them. Suppose, in analogy, that I am forced at gunpoint to contribute 25 cents for a newspaper and that that newspaper is then forcibly hurled at my door. We would be able to conclude nothing about my alleged benefit from the newspaper. Not only might I be willing to pay no more than 5 cents for the paper, or even nothing on some days, I might positively detest the newspaper and would demand payment to accept it. From the fact of coercion there is no way of telling. Except that we can conclude that many people are not getting 25 cents' worth from the paper or indeed are positively suffering from this coerced "exchange."   Otherwise, why the need to exercise coercion? Which is all that we can conclude about the "benefits" of taxation. - Murray Rothbard, The Myth of Neutral Taxation

The Ostroms also agreed with Rothbard and Buchanan that fiscal illusion is a problem.  Here the Ostroms are in 1999....

The working out of financial arrangements between collective consumption units and production units is one of the most difficult problems faced by entrepreneurs in the public economy.  Without market prices and market transactions, the act of paying for a good generally occurs at a time and place far from the act of consuming the good: individual costs are widely separated from individual benefits.  Yet a principle of fiscal equivalence--that those receiving the benefits from a service pay the costs for that service--must apply in the public economy just as it applies in a market economy.  Costs must be proportioned to benefits if people are to have any sense of economic reality.  Otherwise beneficiaries may assume that public goods are free goods, that money in the public treasury is "the government's money," and that no opportunities are foregone in spending that money.  When this happens the foundations of a democratic society are threatened.  The alternative is to adhere as closely as possible to the principle of fiscal equivalence and to proportion taxes as closely as possible to benefits received. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

Here's Elinor Ostrom in 2005...

There are two principle means to assess equity: (1) on the basis of the equality between individuals' contributions to an effort and the benefits they derive and (2) on the basis of differential abilities to pay.  The concept of equity that underlies an exchange economy holds that those who benefit from a service should bear the burden of financing that service.  Perceptions of fiscal equivalence or a lack thereof can affect the willingness of individuals to contribute toward the development and maintenance of resource systems. - Elinor Ostrom, Understanding Institutional Diversity

Rothbard, the Ostroms and Buchanan would perfectly agree...

1. The efficient allocation of resources depends on everyone's valuations
2. Neither taxation nor voting adequately/accurately reveals people's valuations
3. Government planners can't adequately/accurately divine or predict people's valuations

These three things mean that the government won't optimally supply any goods.  Here are the Ostroms in 1999...

Because most public goods and services are financed through a process of taxation involving no choice, optimal levels of expenditure are difficult to establish. The provision of public goods can be easily over-financed or under-financed. Public officials and professionals may have higher preferences for some public goods than the citizens they serve. Thus they may allocate more tax monies to these services than the citizens being served would allocate if they had an effective voice in the process. Under-financing can occur where many of the beneficiaries of a public good are not included in the collective consumption units financing the good. Thus they do not help to finance the provision of that good even though they would be willing to help pay their fair share. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

We can see exactly where the Ostroms converge with Buchanan and diverge from Rothbard.  Rothbard was certain that the only way to give citizens an effective voice was to abolish the government.

Rothbard allocated a lot of time and intelligence to trying to abolish the government.  What if he had redirected his limited resources to trying to repair the government?  What if he had thrown the full weight of his support behind the solution offered by Buchanan and the Ostroms?

In any case, it should be really straightforward that it's stupid for Bruenig, Gurri and anybody else to attack Rothbard's weakest argument.  They should attack his strongest arguments.

On Twitter, Gurri has been sharing many critiques of Nancy MacLean's book Democracy In Chains.  In her book she attacks Buchanan.  But does she attack his strongest arguments?  No.  Unfortunately she doesn't.  Instead she attacks things like his association with the Koch brothers.  I certainly appreciate that she chose to attack Buchanan, but it would have been far more beneficial if she had actually attacked his strongest arguments.

Part of the problem is that there really isn't a market for arguments.   There isn't a system in place for people to use their money to publicly help determine/reveal the strength of an argument/paper.  I tried to explain this to Gurri a few months ago... Commerce As Communication.  In that entry I shared a potential solution that could be used for the Liberal Currents website.  In my example I even included "The Myth Of Neutral Taxation".  Evidently my explanation wasn't that effective though because Gurri didn't see the benefit of turning his website into a market.

Admittedly, it's entirely possible that I'm misreading Rothbard, Buchanan and the Ostroms.  But it's certainly the case that Gurri hasn't even read Rothbard's best work.  And by "best" I mean that it closely corresponds with much of the work done by Buchanan and the Ostroms.  These more credible thinkers shared many of Rothbard's concerns about the government.  Can Gurri make an adequately informed decision about Rothbard or AC without actually having read his best work?   Well... in this entry I have shared several of the most relevant passages.  They should be enough to help Gurri see Rothbard and AC in a new light.

Let's imagine that Rothbard, Buchanan and the Ostroms are 100% correct about the fundamental problems with the government.  In this case, Rothbard will be widely recognized for his role in helping to uncover the truth.  The immense importance of this truth will eclipse Rothbard's mistakes.

What about Gurri?  He should help to uncover the truth.  The more responsible he is for doing so, the greater his place in history.

Now let's imagine that Rothbard, Buchanan and the Ostroms are 100% incorrect about the fundamental problems with the government.  In this case, Rothbard will be counted among the many people who spent their entire lives barking up the wrong trees.

What about Gurri?  He should help to uncover the truth.  The more responsible he is for disproving Rothbard, Buchanan and the Ostroms, the greater his place in history.

Tuesday, July 25, 2017

Scott Sumner VS Scott Alexander

I think this is both entirely true and entirely missing the point. The intuition behind meritocracy is this: if your life depends on a difficult surgery, would you prefer the hospital hire a surgeon who aced medical school, or a surgeon who had to complete remedial training to barely scrape by with a C-? If you prefer the former, you’re a meritocrat with respect to surgeons. Generalize a little, and you have the argument for being a meritocrat everywhere else. 
The Federal Reserve making good versus bad decisions can be the difference between an economic boom or a recession, and ten million workers getting raises or getting laid off. When you’ve got that much riding on a decision, you want the best decision-maker possible – that is, you want to choose the head of the Federal Reserve based on merit. - Scott Alexander, Targeting Meritocracy

But 12,000 humans is much better than 12. Two days after Lehman failed the FOMC met and refused to cut rates from 2%, seeing a roughly equal risk of recession and inflation. The markets were already seeing the oncoming disaster, and indeed the 5 year TIPS spread was only 1.23% on the day of the meeting. The markets aren't always right, but when events are moving very rapidly they will tend to outperform a committee of 12. In fairness, this "recognition lag" was not the biggest problem; two far bigger problems included a failure to "do whatever it takes" to "target the forecast." That is, the Fed should move aggressively enough so that their own internal forecast remained at the policy goal. And the second failure was not engaging in "level targeting", which would have helped stabilize asset prices in late 2008, and made the crisis less severe.  
Bernanke once said there is nothing magical about 2% inflation. Nor is there anything magical about 12 members on the FOMC. The wisdom of crowds literature suggests you want a large number of voters, with monetary incentives to "vote" wisely. So there are actually three approaches. The Friedman/Taylor "robot" approach. The Bernanke "wise bureaucrats" approach. And the market monetarist "wisdom of the crowds" approach. - Scott Sumner, Robots, committees, or markets?

If my life depended on a surgery, I'd prefer it to be performed by the best surgeon.  Then again, I'm pretty sure that more heads are better than less heads.  So what about the 12 best surgeons?  Would the 12,000 best surgeons be even better?  Or would it be a case of too many cooks spoiling the broth?

No two surgeons would perform the same exact surgery in the same exact way.  This is because no two surgeons are equally informed or experienced.  If we expanded the pool of surgeons then we'd end up with a bell curve.  The outliers would perform very different surgeries.  This shouldn't be too difficult to appreciate if you've ever watched a hospital show where two surgeons strongly disagreed on how to proceed.

Let's imagine that Frank, the best surgeon, is about to operate on me.  Where should he make the incision?  He hits the "pause" button and time stops for me.  Then he waits for 12,000 surgeons to provide their input on where the incision should be made.  They all have access to the streaming video.  Frank sees all their X's superimposed on my body.  Should he make an incision where the X's are the densest?  No.  The 12,000 surgeons aren't equally confident in their information/answer.  Therefore, each surgeon must be given the opportunity to put their money where their answer is.  The more money a surgeon spends on their answer, the more weight it will have.  This means that the more confident surgeons will have more influence.

What comes to mind is a ouija board.  Eh, perhaps it's not the best example to use in this context.  Anyways, instead of a planchette there's a scalpel.  The scalpel is guided by the spending decisions of 12,000 surgeons.  In other words, it's guided by the Invisible Hand.  The maximum possible amount of information and experience, weighted by confidence, would go into my surgery.  Or would it?

Why not let all the surgeons in the world participate?  Why not include all the nurses as well?  If the premise is that people who are more confident in their information are going to be willing to spend more money on their answers, then there's no reason to prevent anybody from participating in my surgery.

The best surgeon is certainly better than the second best surgeon.  But I'm pretty sure that the best surgeon is far inferior to the market.

Is the best decision-maker always the market?  Yes!  But in some cases the technology isn't advanced enough to overcome the logistical issues.

Saturday, July 22, 2017

A Penguin Introduces Henry Farrell To Ronald Coase

I'm a penguin.  I do normal penguin things... like swimming and fishing.  But I also appreciate Ronald Coase.  So I took a break from my normal penguin activities and read Henry Farrell's recent blog entry... Why Coase’s Penguin didn’t fly.  Who was Coase's penguin?  Am I?

The entry has a couple of main characters in it... Alex and Pat.  We don't actually know their gender.  As a penguin I find this to be a problem.  But it's easy enough to fix... Alexander and Patricia.

The couple wants to do something together.  She would prefer to watch a movie while he would prefer to take a walk in the woods.  Here's what does not happen in Farrell's entry.  She gets her phone out, opens the relevant app, finds Alex, clicks on his name, clicks "New" and then enters the two options...

1. Movies
2. Walk

After doing so she clicks "Create".  Alex's phone goes *bleeeling!* and he gets it out.  He opens the app and decides how much he'd be willing to pay to have his way.  She decides how much she'd be willing pay to have her way.  When they are both finished the app displays the result...

1. Movies: $3
2. Walk: $7

Alex is willing to pay more.  Therefore, the most valuable option is for them to go for a walk.  Since Pat isn't getting her way the app doesn't transfer $3 from her account to his.  But it does transfer $7 from his account to hers.

The couple bared their hearts to each other.  This is Ronald Coase.  He's a really great guy.

Admittedly, I do have a bird brain.  So maybe I'm misunderstanding that the problem with social cost is that it's hidden.  Maybe Coase didn't perceive that costs need to be seen and known in order for mutually beneficial decisions to be made.  And maybe I can't fly.

Monday, July 17, 2017

Public Finance For Andy Seal

Comment on: The Controversy over Democracy in Chains by Andy Seal

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In 1954 Paul Samuelson wrote "The Pure Theory of Public Expenditure".  He recognized the inherent problem with public goods.  You can benefit from national defense without paying for it, so you might as well pretend to have less interest in it than you truly do (false signal).  Therefore, taxation should be compulsory.  But then Samuelson simply assumed that planners would do an adequate job of correctly guessing your true valuation of defense.  He assumed omniscience.

The reason that I haven't purchased MacLean's book is because everything that I've read about it leads me to believe that she thinks that the other 1954 thing... "Brown v. Board of Education" was somehow more relevant to Buchanan and the formation of public choice than Samuelson's paper.

You've read MacLean's book... did she even mention Samuelson's paper?  Did she mention anything about the fact that the biggest economic defense of our current system of government is based on the assumption that planners are omniscient?

Buchanan had absolutely no issue with Samuelson's view on the inherent problem with public goods and the need for compulsory taxation.  But when it came to his assumption of omniscience, Buchanan had a very big issue.

In 1963 Buchanan wrote "The Economics of Earmarked Taxes".  He argued that taxpayer earmarking would eliminate the incentive to give false signals.  Since you are paying taxes anyways, if you were given the opportunity to earmark your taxes, then the amount of your tax dollars that you earmarked to defense would accurately reflect your valuation of defense.  Say that your valuation of national defense is $1000 of your tax dollars but you only earmark $100 tax dollars to national defense.  It doesn't mean that you'll be able to spend the difference on private goods (ie clothes, food). It means that you'll have $900 tax dollars to earmark to other public goods (ie education, healthcare)... which you value less than national defense. Therefore, there's absolutely no incentive to give a false signal.

MacLean is correct that Buchanan's work is anti-democratic.  Unfortunately, as a result of her economic ignorance, she thinks that his work is inspired by racism and/or the ultra-wealthy.  No.  Seriously?  No.  His work is inspired by his very serious concern about the assumption of omniscience.  If this absurd assumption is abolished, then the conclusion really can't be direct democracy.  No economist in their right mind is going to argue for voting on the amount of money to spend on defense.  Because if that was sane, then we might as well vote on the amount of money to spend on milk.  Except, if voting is used to allocate all resources, then money itself would be pointless.

Buchanan is our Goliath.  MacLean is not your David.  But at least she tried.  If she hadn’t, it’s doubtful that you would have written anything about Buchanan.

Saturday, July 15, 2017

Target Rank




I really love Kung Fu Hustle.  In this scene, the main character doesn't want to fight an entire crowd.  He figures his chances of winning are much higher if he fights one-on-one.  Especially if he can choose a weak opponent.  The problem is that he initially underestimates every opponent that he picks.

This scene came to mind today after I read Sarah Skwire's article... MacLean Is Not Interested in a Fair Fight...

Several times a week, I go to my taekwondo school, put on a helmet, a chest protector, shin guards and arm guards, yell loudly, and spar with people who are half my age and sometimes twice my size.

Maybe Skwire would choose to spar with Bruce Lee, but would she choose to fight him?  What about Goliath?  There wasn't a single solder in the Israelite army that chose to fight Goliath.  Everyone could clearly see that he was a beast.  His challenge went unanswered for 40 days.  Then a shepherd named David arrived at the camp to deliver some food.  He accepted Goliath's challenge and beat him.

Maybe every solider in the leftist army is too scared to fight James Buchanan.  If so, there are a few exceptions.  At the top of the list is Nancy MacLean.  But I'm pretty sure that she made the classic error of underestimating her opponent.  Evidently his Nobel prize didn't effectively signal his intellectual strength.

In my previous post, I shared how the Libertarian Party (LP) gave donors the opportunity to use their donations to rank potential convention themes...

$6,327.00 - I’m That Libertarian!
$5,200.00 - Building Bridges, Not Walls
$1,620.00 - Pro Choice on Everything
$1,377.77 - Empowering the Individual
$395.00 - The Power of Principle
$150.00 - Future of Freedom
$135.00 - Life, Liberty and the Pursuit of Happiness
$105.00 - Rise of the Libertarians
$75.00 - Free Lives Matter
$42.00 - Be Me, Be Free
$17.76 - Make Taxation Theft Again
$15.42 - Taxation is Theft
$15.00 - Jazzed About Liberty
$15.00 - All of Your Freedoms, All of the Time
$5.00 - Am I Being Detained!
$5.00 - Liberty Here and Now

Should FEE.org give donors the opportunity to use their donations to rank libertarian thinkers and their ideas?

The idea that taxation is theft seems to be pretty popular.  This is what we can see.  What we could not see was the true social importance of this idea.  Thanks to the LP, we can all now clearly see that this idea isn't very important to society.  How would it compare to the idea of the Invisible Hand?  Unfortunately, the LP didn't include it.

How many leftists have overestimated the social importance of the idea that taxation is theft?  Here's Matt Bruenig attacking this idea in 2012... Income taxes are voluntary.  This fight did not benefit either side.  It was an extremely stupid fight.  It was the equivalent of Don Quixote tilting at windmills.

Here's what Bruenig wrote in a 2015 blog entry...

Every time you attack libertarianism, libertarians respond by saying you haven’t actually attacked libertarianism. You’ve only attacked one libertarian or one perspective, but that’s not the right one to look at it. You are engaging in a straw man argument. And so on. It never ends. You can’t ever deliver a square blow against it because your description of it is never correct, no matter what you say. - Matt Bruenig, #NotAllLibertarians: An Illustration

In a comment I responded...

If you're going to go after Rothbard.... then it's probably a good idea to attack his strongest argument... Football Fans vs Nature Fans... rather than his weakest one. Because, if you don't attack his strongest argument... then it appears that you're incapable of doing so.

Here's a similar comment that I left on Noah Smith's 2012 blog entry...

Show me a single post where Quiggin, Krugman or any other liberal economist has shredded the opportunity cost concept. If they aren't shredding the opportunity cost concept...then they aren't shredding libertarian economics. If they aren't shredding libertarian economics...then what are they shredding? Their own straw men? How is that competent?

John Quiggin responded...

"If they aren't shredding the opportunity cost concept...then they aren't shredding libertarian economics"

You're obviously in the market for my book (in early draft) Economics in Two Lessons, which aims to cover a wide range of public policy issues in two points

1. Opportunity cost is what matters
2. Sometimes market prices reflect opportunity costs and sometimes they don't

If you regard Point 2 as being "libertarian economics", then we are on the same page.

In 2010 Quiggin wrote...

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Fourth, while I don’t see much, if any, benefit in engaging with actually existing conservatism, that doesn’t mean that we should ignore conservative, and libertarian, ideas. You don’t have to be an unqualified admirer of writers like Burke, Popper or Hayek to concede that they made valid criticisms of the progressive ideas of their day, and to seek a better way forward. Some examples of the kind of thing I have in mind

Popper’s critique of historicism. After thirty years in which teleological claims of inevitable triumph have been the stock in trade of Fukuyama and his epigones, the left should surely have been cured of such ideas, but their centrality is evident in the very use of terms like “progressive”. It’s important to recognise that beneficial change is not an automatic outcome of “progress”

Burke and his successors on the need for beneficial reform to be “organic”, in the sense that it reflects the actual historical evolution of particular societies, rather than being based on universal truths that are applicable in all times and places

Hayek on the impossibility of comprehensive planning. No planner can possess all relevant information or account for all possible contingencies. We need institutions that respond to local information and that are robust enough to cope with unconsidered possibilities. In some circumstances, but certainly not all, markets fit the bill. - John Quiggin, After the dead horses

***********

The multitude of thinkers on both sides have produced many ideas.  But all these ideas, and their producers, aren't equally important to society.  Their true social importance has to be determined and known in order to facilitate the most beneficial battles.

Correctly determining the social importance of thinkers and their ideas obviously must involve society.  This is because no planner, or committee, can have all the relevant information about the social importance of anything.  The larger the group, the more information it will have, and the closer it will get to determining the true social importance of ideas/individuals.

The question is... should social importance be determined by voting or spending?

Reddit is based entirely on voting.  We can go to the libertarian group and sort the ideas/individuals by votes.  My verdict is that lots of libertarians will vote for stupid things.  Why not?  It doesn't cost them anything to do so.  Bringing (opportunity) cost into the equation is the only way to maximize intelligence.  Libertarians will fully utilize their brains when, and only when, they are given the opportunity to divide their limited dollars among the unlimited libertarian ideas/individuals.

The market works because consumers decide how to divide their limited dollars among their unlimited desires.  The LP used the market to rank its potential convention themes.  The donors decided how to divide their limited dollars among the different themes.

FEE should give donors the opportunity to decide how to divide their limited dollars among the unlimited libertarians ideas/individuals.  How donors divide their dollars between Buchanan and Rothbard would signal how they want leftists to divide their forces between the two economists.  This would minimize the chances of unintentionally attacking strawmen.  We would all know the social importance of Rothbard and his ideas.  So if Bruenig attacked the least important idea, it's not like he could claim ignorance of importance.

In my blog entry about Evonomics I mentioned that leftists are the first to love the fact that Thomas Piketty's book was a bestseller.  They believe that this provides conclusive evidence that his ideas about inequality are very important to society.  So they might accept the validity of ideas/individuals being ranked by donors.

It's rather fascinating to compare the two ranking systems.  Both systems are markets... but they are different types of markets.  With the book market, the consumers are purchasing the book.  Doing so doesn't necessarily mean that they believe that its ideas are important.  But with the bee market, the consumers wouldn't purchase the book.  Instead, they'd spend their money to help determine the social importance of its ideas.  Doing so would obviously mean that they believe that the ideas are important.

Deirdre McCloskey read Piketty's book.  She might have purchased it.  If she did, her purchase clearly doesn't count as an endorsement of his ideas.  She strongly disagrees with his ideas.  This means that she wouldn't make a donation to help improve their social standing.

So as far as determining the true social importance of ideas/individuals... the bee market would be far more trustworthy than the book market.

I suppose "bee market" probably isn't the best term.  I'm not referring to the buying and selling of bees.  The context should have made that obvious.  But without the proper context, the term "bee market" might cause a bit of confusion.  Then again, just how much discussion is there about the buying and selling of bees anyways?

Just in case you haven't read my post about Evonomics, I use the term "bee market" because bees spend their precious calories in order to signal the importance/profitability/value/relevance of flower patches.  The longer and harder a bee dances, the more calories it burns, the more important the flower patch.  The bees don't buy a valuable flower patch.  They spend their calories to help direct more attention to it.  It's essentially crowdfunded advertising.

The efficient allocation of society's attention depends on knowing the social importance of things.  Right now we don't really know the true social importance of Buchanan and his ideas.  We know that he produced many books and even more papers.  We know that he won a Nobel prize.  But we certainly have no idea how society would divide its donations between all the Nobel prize winners.  Therefore, we don't know the true social importance of Buchanan and his ideas.

From my perspective, MacLean made quite a few mistakes.  But her target choice was not one of them.  Buchanan is an intellectual beast.  Right now it's pretty much her versus him.  It's a one-on-one fight.  Should it be?  I don't think so.  I think it should be a many-on-one fight.  All the liberals in the world should attack Buchanan.  It's a numbers game.  The more liberals that attack him, the greater the chances that the modern day equivalent of a shepherd will use the intellectual equivalent of a slingshot to defeat him.

However, it's entirely possible that my perspective is wrong.  Maybe I'm overestimating Buchanan's importance.  This is why it's so important to correctly determine his social importance.  FEE should give libertarians the opportunity to do so.  Will Quiggin want to participate?  Well I'm not sure if he'd want to donate to FEE.  What's the left equivalent of FEE?  Jacobin?

To be honest, I don't necessarily see Jacobin creating a market anytime soon.  I'd guess that Crooked Timber would do so way before Jacobin.  I was actually rather surprised by what Henry Farrell and Steven Teles wrote about MacLean.  My impression of Farrell is him being way more leftist.  Perhaps he was really balanced by Teles?

The LP already created a market to rank some ideas.  It was an ephemeral market... but I think it's a given that other libertarian organizations will start to create bee markets.  Hopefully they'll do so sooner rather than later.  When they do so, pro-market resources will be far more efficiently allocated.  Leftists will finally appreciate what markets are good for.  Then again, it's entirely possible that I'm overestimating the importance of markets.