Saturday, February 18, 2017

Questions For David Friedman

Fictional Economics: A Request for Aid by David Friedman


XeroWe, The People by Jack C. Haldeman II is a short sci-fi story about people choosing where their taxes go. It was written in the 80s. The economic idea that it demonstrates and gets right is the value of actually knowing the demand for public goods. Or... the value of knowing how many other people are in the same boat as you.

Coincidentally, the other day I wondered what would have happened if Adam Smith had collaborated on a book with the best fiction writer of his time. My conclusion after copious amounts of research (5 mins) was that Daniel Defoe was born too early and Edgar Allan Poe was born too late.

I was thinking about it because just recently a list of books for kids was ordered by the Invisible Hand. As far as I know it's the first and only list in the world that's ordered by the Invisible Hand. Which boggles my mind given that Smith published his book when America was founded. I guessed that writing well and understanding economics are mutual exclusive. And by "writing well" I mean that it doesn't take over 200 years for your concept to be obviously applied. Brains that are well-suited for understanding can't also be well-suited for articulating... and vice versa.

Friedman: Xerographica:

Some years back, the American Economic Review published a clever article by a very smart economist. It was reinventing an idea that appeared in Ricardo's Principles,--in a less plausible and much less important context than Ricardo's version. I sent the Journal a brief note pointing out the fact.

Xero: David Friedman, that gold/scarcity government revenue concept is blowing my mind. Imagine you went on Reddit and created a subreddit for Ricardo's "Principles of Political Economy". Members of that sub could submit passages from that book and vote them up or down. Then the most popular passages would be at the top. The passages in the book would be ordered by the Democratic Hand. As opposed to? As opposed to the passages in the book being ordered by the Invisible Hand. Out of sight, out of mind... no more?

Here's something else that's blowing my mind. Let's say that the DebatePolitics Forum started charging members $1 dollar/month. But... members could elect one person to decide how to divvy up all the fees among the different threads/topics. Pretty much like how our government works. Except, unhappy members could so easily foot vote for other websites. If there was a mass exodus, what would this say about the social contract?

It's bizarre that economists generally don't use community websites to test economic systems. I've failed to convince a dozen forums to implement our government's system.

One last thing... according to most economists... the free-rider problem is a bad thing while consumers surplus is a good thing. I derive value from reading your blog but I've never made a donation. My valuation is greater than my payment. My payment is suboptimal so your incentives are suboptimal so the supply of your blog entries will be suboptimal. But if it would be optimal for my payment to equal my valuation, then how could consumer surplus be a good thing? So it should really be called the consumer surplus problem... and it's a continuum that ranges from the payment being (valuation - $.01) to $.00 cents.

One last last thing. Ever heard of spending money being referred to as nonverbal communication? For some reason this dawned on me for the first time last week. Why didn't it dawn on me before? Spending money is communication... and it's definitely not verbal communication... which leaves nonverbal communication. Who typically studies nonverbal communication? Sociologists? Except, they "can't" study spending money because that's the domain of economists.

With economics spending money is about maximizing benefit. But with communication the issue is accuracy. How accurately are my words conveying my info? Consumer surplus might immediately maximize your benefit, but what you're communicating isn't accurate. If you deceive (misinform) producers then you're going to derive less benefit from their behavior.

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