Tuesday, June 20, 2017

Market-Avoiding Activity

Living in the dark ages really sucks.  So it's really wonderful that this paper by Peter Salib (Vox overview-interview) shines a brilliant light on the prison system.  He makes the painfully obvious, but exceedingly overlooked, argument that preventing prisoners from helping society is the same thing as harming society.  Prisoners should be put to their most socially valuable uses.  But since prisons can only provide a very small fraction of all the possible employment opportunities, prisoners can only be put to their most socially valuable uses outside of prison.

1. Prisoners should be put to their most valuable uses
2. Prisons have extremely limited employment opportunities
3. Prisons should be abolished

The trick is appreciating that his prescription doesn't really maximize his premise.  In order for prisoners to truly be put to their most socially valuable uses, they must have the most suitable, appropriate, personalized and customized training, skills and knowledge.  But what are the chances that any given prisoner already has the optimal education?

Schools, like prisons, are not markets.  The point of markets is to optimally (efficiently) allocate resources… including people.   Markets accomplish this task through the use of value signals… prices/wages/revenue/profits.  Participants in markets spend their money in order to help guide people and other resources to their most socially valuable uses.

From Salib's paper...

Both criminal and tort law are designed to regulate bad acts. Specifically, according to economic thinking, they are designed to regulate behavior that would otherwise cause net social losses. We can tell that bad acts cause such losses because such behaviors almost always circumvent perfectly functional markets.   Bad actors—burglars, fraudsters, murderers, and the like—take via pure coercion what they could have otherwise bargained for.  Markets with low transaction costs are, “virtually by definition, the most efficient method of allocating resources,” because they allow parties to freely decline wealth-reducing transactions.  Thus, the economic argument goes, both criminal and tort law seek to efficiently minimize such market-avoiding acts. - Peter N. Salib, Why Prison?: An Economic Critique 

In order to maximize socially beneficial behavior.... we first have to actually know how beneficial any given behavior is to society!  Having to explain this is proof that we're living in the dark ages.

Nearly all the activity that occurs in schools qualifies as market-avoiding.  Students do an incredible amount of work, but virtually none of it is graded/judged by the market.  As a result, students are almost entirely ignorant of the true social benefit of their behavior.

Today I read this article...

But, while households cannot spend their way out of a recession, their government can do that spending for them. It can increase its spending, providing the amount needed for a revival of the economy. And, insofar as the government represents the populace, and is entrusted with its interests - as is supposed to be the case in a democracy - it must increase its expenditure. The welfare of the public requires it. - Nina Shapiro, The Hidden Cost of Privatization 

Let's consult Bastiat...

This means that the terraces of the Champ-de-Mars are ordered first to be built up and then to be torn down. The great Napoleon, it is said, thought he was doing philanthropic work when he had ditches dug and then filled in. He also said: "What difference does the result make? All we need is to see wealth spread among the laboring classes. - Frédéric Bastiat, What Is Seen and What Is Not Seen 

Let's jump back to Shapiro...

Discussions of the advantages of education usually focus on its economic benefits, to both the educated and the nation. These economic benefits, however, were not so significant in Smith’s times, as the jobs available to the “common people” were menial, requiring little skill or understanding, and indeed, it was because they were that their education was paramount. It counteracted the “dulling” of the mind that occurred in the performance of their simple, uninterrupted and repetitive tasks, and was needed not for the advancement of their fortunes, but for the development of their minds. They had to have some minimal understanding of the world, and ability to learn about it, to act intelligently within it, and respect the others in it. A “civil” society required an educated public. -  Nina Shapiro, The Hidden Cost of Privatization

In order for students to act intelligently within the world, the world needs the opportunity to directly and monetarily judge the intelligence of students' activities.  Students should put all their work online and everybody should have the opportunity to use their own money to grade the intelligence/relevance/value of the work.

Here's a glimpse of a far more enlightened world... Classtopia.  On this page you can see their entries sorted by their social relevance.

Our current education system fails everybody.  Well duh.  Schools aren't markets.  Everybody's education is suboptimal so we can guarantee that nobody is being put to their most valuable uses.  We are all victims of the education system.  This is more obvious for some people... such as criminals.  Abolishing prisons would certainly put prisoners to more valuable uses, but it wouldn't come even remotely close to putting them to their most valuable uses.

Rather than abolishing prisons, they should be transformed into school-markets.  "School-markets"?   That really can't be the best term.  Coming up with the best term is a problem.  It's a problem that can be solved by school-markets.  Students would offer solutions and donors would use their money to grade the solutions.

Digging/filling random holes is certainly a solution to some problem.  But who in their right mind would reach into their own pocket to pay for this solution?  Would Nina Shapiro?  Would John Quiggin?

We live in the dark ages because so many people erroneously believe that society's limited resources can be adequately allocated even in the absence of everybody's opportunity to use their own money to grade the relevance/value of an allocation.

I highly value Salib's paper because it helps to illuminate these dark ages.  But it's not like I've spent any money on it.  Maybe it's because I'm a free-rider, or maybe it's because SSRN isn't a market.

Here are the statistics that SSRN provides on Salib's paper...

Abstract views: 9,555
Downloads: 2,821
Rank: 3,114

What if the rank of his paper was determined entirely by the amount of money that was donated to it?  The more money that was donated to it, the higher its rank.  The higher its rank, the more reason people would have to read it.

I wouldn't be spending my money on his paper so that I could read it.  I would be spending my money on his paper to encourage more people to read it.

Should papers be ranked by downloads or donations?  Having to ask this question is more proof that we're living in the dark ages.

If prisons were transformed into school-markets, then prisoners would put all their work online and everybody would have the opportunity to use their donations to rank the work.  Every prison would be a talent contest.  Everyone would be a talent scout.  Given enough eyeballs, all talent is conspicuous.  Talent that had been overlooked/unappreciated by parents and teachers would be spotted and cultivated by donors.

Youtube proves that people's tastes and appetites are endlessly diverse.  Unfortunately, since videos are ranked by views and thumbs up, rather than by donations, Youtube also proves that we're living in the dark ages.

Every prisoner has a multitude of natural/innate talents.  Prison should facilitate the discovery of talents.  Then it's a matter of markets informing prisoners of the social value of their different talents.  Donors would highlight and positively reinforce the most socially beneficial behavior.

Of course, once schools become school-markets, the number of criminals will plummet.  When the Invisible Hand guides students to their personally and socially optimal occupations, crime will almost entirely be a thing of these dark ages.  When every place/space is a market, it will be virtually impossible for any activity to avoid it.

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