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.

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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

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

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.

Friday, July 14, 2017

Why Does Quadratic Voting Excite Miles Kimball?


In yesterday's blog entry I endeavored to encourage Miles Kimball and Robin Hanson to supply a coherent economic story.  Today I learned that Kimball is a fan of quadratic voting (QV).

The first time that I heard of QV was three years ago when memesteading.com asked me about it.  Here was my response...

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Nope, hadn't seen it. Thanks for pointing it out. It's fun to pretend that they got the idea from this blog entry...Crooked Timber Liberals Do Not Advocate Selling Votes.

I just skimmed over the first search result...I'm not sure why 'quadratic'. It seems far more intuitive that the price of votes should be determined by the demand.

And it's a bit off to use quadratic voting or regular vote selling rather than tax choice when it comes to something like a public park.

For me vote selling would be relevant for things like gay marriage. If somebody is completely neutral on the topic...then they would simply sell their vote to the highest bidder.

The 'quadratic vote' people are on the right track though...the answers/outcomes are far more accurate when people are given the opportunity to put their own money where their mouths are (deep input).

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

Since then I've read quite a bit about QV, but I still have the same issues.  Perhaps Kimball can address them.

Why quadratic?  Here's an explanation...

Simple vote trading won’t work, because buying a single vote is too cheap and thus a liquid buyer could accumulate too much political power. - Tyler Cowen, My thoughts on quadratic voting and politics as education

Let's take prostitution for example.  I think it should be legal, Kimball disagrees.  I offer to buy his vote.  Should we assume that he will sell it too cheap?  Why in the world would we assume this?  Why would we assume that he only weakly cares about prostitution being illegal?  The very point and purpose of a vote market would be to figure out the (opportunity) cost of a vote, yet Cowen's argument against the vote market is that a vote will be too cheap.  Ouch, my brain.

What would count as "cheap" anyways?  A penny sure is cheap, but what about a quarter, or a dollar?  We'll say that Kimball decides to sell his vote for a quarter.  From my perspective, I suppose this would be pretty cheap.  Well, unless I was trying to buy a million votes for a quarter each.

If Kimball was willing to sell his vote for a quarter, then this would provide some evidence that he didn't strongly care about prostitution being illegal.  Or, maybe he was super broke and could really use the quarter more than he could use the vote.  In either case, what essentially occurred is that he exchanged some power in the public sector for some power in the private sector.  I did the opposite.  I gave up some influence in the private sector in order to gain some influence in the public sector.  To be clear, it's entirely possible that Kimball will use the quarter that I gave him to buy a vote on an issue that he cares more strongly about.

With all of this in mind, what's the point of the quadratic aspect?  What's the benefit of making it progressively more costly to buy additional votes?

If we eliminate the quadratic aspect, then the next question is, why do votes need to be involved?  Kimball and I essentially made a mutually beneficial trade.  But we really didn't need a vote to be part of the trade.

Here's how it would work without votes.  Participants would have a window of opportunity to spend as much of their money as they wanted on their preferred outcome.  After the window of opportunity closed, the totals would be calculated and revealed.  Whichever side had spent the most money would get their preferred outcome.  Not only would the other side receive a complete refund, but they would also proportionally receive all the money spent by the winning side.  It would be a mutually beneficial trade.  Votes are clearly unnecessary.  This is coasianism.

Let's consider a small, real-life, example of coasianism.  The students in my friend's 4th grade class needed to decide who should be in charge of their Justice Department.  Rather than decide by voting, they decided by spending.  Each student wrote three things on a piece of paper...

1. Their name
2. Their willingness to pay (WTP)
3. Their preferred candidate

After they had all turned in their papers, the teacher wrote the WTPs on the board...




Christopher was the winner, despite the fact that he was only preferred by one student... himself.  Here's a picture of his piggy bank...




Christopher decided that it would be worth it to give up his $4 dollars in order to be in charge of the Justice Department.  Of course he couldn't know beforehand how much money the other students were willing to pay for the other candidates.  For all he knew, he might have lost.  In that case, he would have been compensated.  He won instead which meant that he compensated all the other students.  Christopher essentially made a mutually beneficial trade with nearly 30 other students.

It should be crystal clear that votes really do not need to be part of the trade.  All that matters is that participants have the incentive to use their own money to honestly reveal the true intensity of their preferences.

Quick summary about QV.  Is the quadratic needed?  Nope.  Is the voting needed?  Nope.  All that's needed is the participants deciding how much of their own money they are willing to pay for the things they want.

QV is a hybrid made from democracy and markets.  It's definitely far superior to pure democracy, but its democratic traits make it far inferior to pure markets.

A coasian market should be used to determine whether prostitution should be legal or illegal for a year.  If the coasian market determines that it's more beneficial for prostitution to be illegal for a year, then a buchanian market should be used to determine how much money should be allocated to enforcing the law against prostitution.  The buchanian market would simply involve each and every taxpayer having the option to decide how many of their own tax dollars to allocate to the enforcement of the law.

That's public finance in a very simple and straightforward nutshell.

After I tweeted yesterday's blog entry to Kimball, he replied with the following...


He gave people the opportunity to rank over 100 things according to their desirability.  Here was my reply...


He didn't reply to this tweet, but he did reply to another one...

Xero: It would be revolutionary if cheap-talk surveys were remotely effective at measuring well-being. http://pragmatarianism.blogspot.com/2017/03/my-well-being-depends-on-artichokes.html @mileskimball
Kimball: In our approach, it isn't cheap talk. Local incentive compatibility: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3760035/
Xero: If not cheap-talk then the options can and should be sorted by the amount of money that was actually spent on them. http://classtopia.blogspot.com/p/blog-page_22.html
Kimball: You need a budget constraint, but it doesn't have to be money. Quadratic budget constraint with voting power has good properties.
Kimball: See paper here https://link.springer.com/article/10.1007/s11127-017-0414-3
and video of my talk:
https://bfi.uchicago.edu/video/quadratic-voting-application-normalized-gradient-addition-mechanism

I wasn't willing to spend $40 dollars to read the paper, but I was willing to spend an hour watching the video.  I might be mistaken but it seems like he used QV to order the list of over 100 items.  However, real money wasn't used, tokens were used instead.

Let's consider a real-life example of a different way to order a list.  Earlier this year the Libertarian Party wanted to choose a theme for their convention.  Here a list of the potential themes...

All of Your Freedoms, All of the Time
Am I Being Detained!
Be Me, Be Free
Building Bridges, Not Walls
Empowering the Individual
Free Lives Matter
Future of Freedom
I’m That Libertarian!
Jazzed About Liberty
Liberty Here and Now
Life, Liberty and the Pursuit of Happiness
Make Taxation Theft Again
Pro Choice on Everything
Rise of the Libertarians
Taxation is Theft
The Power of Principle

Rather than choose their convention theme by using a cheap-talk survey, the Libertarian Party decided to use a skin-in-game survey...

$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

The "sacred" was ordered by sacrifice.  We can clearly see the disparity in sanctity.

It's reasonable to guess that the free-rider problem affected the results.  But if this problem had been solved, would "Taxation is Theft" have moved to the top of the list?  I suppose it's logical that skin-in-game surveys will be biased against free-riders.

Why didn't Kimball use a skin-in-game survey to rank the items on his list?  As far as I know, he's never even publicly considered a skin-in-game survey.  Neither has any other economist.  But Kimball and quite a few others have certainly considered QV.

Maybe QV solves problems that I'm overlooking.  But the fact that economists haven't even publicly acknowledged skin-in-game surveys, makes it seem highly probable that they are the ones overlooking the obvious.

Thursday, July 13, 2017

Correctly Determining Importance: Miles Kimball vs Robin Hanson

Imagine a two lane road with a mountain on one side and a cliff on the other. There are two cars on the road that are driving towards each other.  In the right lane robot Rob is driving Miles Kimball while in the left lane robot Rachel is driving Robin Hanson. Both economists are asleep. Just before the two cars are about to pass each other, a boulder suddenly lands in Kimball's lane. For the sake of the scenario, we'll pretend that he'll be killed if Rob tries to stop the car before it hits the boulder.  Kimball will also be killed if the car does hit the boulder.  Both economists will be killed if Rob swerves to avoid the boulder.  Kimball will only survive if Rachel swerves Hanson's car into the boulder, or off the cliff. In any case, at least one of the economists is going to die.  It stands to reason that the least important economist should die.

The creators of Rachel and Rob had realized that such situations were possible.  They decided that the total importance of passengers in a vehicle should be calculated as soon as the passengers entered the vehicle.  This would allow for more time to process more information in order to more correctly calculate importance.  So each and every vehicle on the road has a rank.  It isn't just used in life or death situations, it's also used to determine right of way.  Lower ranked vehicles automatically get out of the way of higher ranked vehicles.  As a result, more highly ranked vehicles more quickly reach their destinations.

The rank of Kimball's vehicle is 245.  The rank of Hanson's vehicle is 275.  Based on their relative ranking, Kimball should die and Hanson should not.  But the decision isn't automatically made.  There's still some time before a decision has to be made.  It's not much time, but the robots take advantage of it to acquire and process even more information.

Rob and Rachel are surprised to discover that they are both carrying an economist.  They decide to read everything that the two economists have written that is available online.  It's a lot of information but the two robots process all of it in a fraction of a second.  Given that they are ranking the economists, the two robots are especially interested in the parts where the economists themselves have discussed ranking.

Here's the most relevant thing that Hanson has written about ranking...

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Consider four possible acts:

Eating Twinkies
Watching Gilligan’s Island
Fighting cancer
Working for racial justice

Now consider pairwise comparisons of value between these acts. You might say which you prefer, or which matters more, or is more important or admirable.

It seems to me that we don’t mind ranking #1 vs #2. We might think the exercise silly, but we’d still be comfortable expressing an opinion. It also seems to me that we don’t mind puffing up our chest and intoning very seriously that either of #3,4 are more noble and admirable than either of #1,2, and looking sadly down on those who might say otherwise. But if asked to rank #3 vs #4, we are much less comfortable. In this case we could be seen as saying something against an act many find important and admirable. That isn’t the sort of thing we like to be quoted on. We don’t like to speak against the sacred.

Because of this, we end up sharing less info about relative rankings among the acts we most admire. Which, alas, are the acts most valuable to rank. We learn what others think of the relative ranking of silly tv shows and minor foods, but not about our most important choices. Silly humans.

I’m fond of this classic question pair: “What is the most important research question in your discipline?” followed by “Why aren’t you working on it?” - Robin Hanson, Ranking The Sacred

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Rob and Rachel really appreciate Hanson's perspective on the importance of ranking the sacred.  After all, the two robots are ranking the lives of the two economists.  So Rachel increases Hanson's rank from 275 to 277.  

The two robots don't find any blog entries that Kimball has written specifically about ranking.  But they do find a couple relevant Twitter exchanges.  Here's the first...

Xero: #Sense8 can be freely copied, but it cost $9 million/episode to create. So scarcity really does not go out window. https://t.co/yDUXWSJQu0 
Kimball: I agree
Xero: You agree that #Netflix subscribers should have the opportunity to divide their limited subscription dollars among the unlimited content?
Kimball: It would be great for them to have more of a way for them to signal *which* content was most valuable to them.
Xero: Do you also agree that @CatoInstitute donors should have the opportunity to divide their donated dollars among the content?
Kimball: I assume they do already have effective ways of communicating which things they are more eager to support.
Xero: Donors decide how to divide their dollars between @ASI and @mises. Is there a better way to signal the relevance of these two organizations?

The robots think it's incredible that Kimball seemed to really support the idea of Netflix subscribers using their subscription dollars to rank the content.  But they wonder whether he truly does support the idea... given that he doesn't think that Cato donors should use their donated dollars to rank the content.  


Kimball: New post: "Does the Journal System Distort Scientific Research?" @noahpinion https://blog.supplysideliberal.com/post/2017/7/11/does-the-journal-system-distort-scientific-research 
Xero: Academic work isn't judged by markets, except for their books (ie MacLean). It would be great if you could solve this puzzle in future post.
Kimball: Markets are not perfect either. It is good to have multiple different judgments.
Xero: The optimal division of resources depends on the correct ranking of products. Voting more correctly ranks papers than spending could? Proof?

Rob and Rachel didn't vote or spend to rank Kimball and Hanson.  Instead, the robots initially calculated the rank of the economists by considering and properly weighing different factors (age, health, income, number of children, etc).  Now the robots are adjusting the ranking by seeing and comparing what the economists themselves have written about ranking.

It's not necessarily clear to the robots exactly how the economists would want to be ranked.  Hanson clearly believes that it's important to rank even sacred things, but he doesn't mention whether they should be ranked by committees, democracies or markets.  It's not clear how Kimball feels about ranking the sacred, but he believes that markets are only sometimes good for ranking things.  Perhaps he believes they are good for ranking Netflix content and books, but not so good for ranking Cato content or other scholarly content.  But what's his rule?  Does he even have one?  

Let's tweak the scenario by replacing one of the economists with myself.  Both the robots read this blog entry.  Here's what I want them to know.

More heads are better than less heads.  In the multitude of counselors there is safety.  Given enough eyeballs, all bugs and Easter eggs are shallow.  

The robots can notify all the robots in the world that an important decision needs to be made.  They certainly could vote on their preferred outcome...

A. I don't wake up
B. The economist doesn't wake up

The problem with voting can be seen when we compare it to spending.  

Here's how spending would work.  Each participant would spend as much money as they wanted on their preferred outcome. After the window of participation had closed, the side that was willing to spend the most money would get their preferred outcome. The other side would get a refund. Plus, they'd receive all the money that the winning side had spent. It would be proportionally divided. With this coasian trade, the winners would compensate the losers. 

With spending, each and every participant decides how much money they are willing to spend on their preferred outcome.  They can spend as little as a penny, or they can spend all their money.  Willingness to pay certainly depends on the participant's ability to pay, but it also depends on their information.  The better a participant's information, the greater their willingness to pay, and the greater their influence on the outcome.

With voting, all the participants have equal influence, despite the fact that they have unequal information.  It's extremely detrimental for unequally informed individuals to have equal influence.

It should be clear that the importance of deciding between the economist and myself can only be determined by spending.  The spending wouldn't be coasian though.  It would just be regular spending.  Rob and Rachel would spend their money to rank the decision that needed to be made.  The more money they spent on it, the greater its rank/importance, and the greater the number of robots that would be competed away from other endeavors.  These other robots could also spend their money to rank the decision... which would in turn recruit more robots.  

With this two market system, spending would determine the optimal number of heads to make the decision, and they would make it by spending their own money.

Right now most vehicles aren't driven by robots.  So it's a perfect time for Kimball and Hanson to clarify their positions on correctly determining importance.  

Wednesday, July 5, 2017

Caplan Overrates Democracy

If China had been a democracy in 1945, then I believe that Mao Zedong would have been elected.  Bryan Caplan believes otherwise.  Therefore, we are going to bet.  Eh?

The one time that I'm super confident that Caplan is really wrong... it's something that we can't bet on.  Is it a coincidence?  It sure seems pretty "convenient".  Too convenient.

"Shucks, we don't have a time machine, guess we'll never know who is right!"

Is not having a time machine a good excuse?  In this case I suppose it is.  But I really want to eliminate it as an excuse.  I don't want it to be so convenient for anyone to easily avoid betting on their belief in democracy.

My options are....

1. Invent a time machine
2. Find a different case

Yeah, I'm going to choose the second option.  Coming up with an equivalent case depends on first considering what happened in China.

China was not a democracy when millions and millions of people starved to death (the Great Leap Forward).  Then again, it wasn't a mixed economy either.  It was a command economy.  In 1978 China gradually became a mixed economy.  Since then, millions of people have not starved to death.

If the absence of democracy is truly the real reason that millions starved to death, then how come millions are no longer starving to death in China?  How come obesity is now a major concern in China?

My belief is that countries prosper despite, rather than because of, democracy.  The real cause of prosperity is people's freedom to trade with each other.  Unfortunately, as democracy proves, most people believe otherwise.  Here's what Adam Smith wrote in 1776...

The ancient policy of Europe, instead of discountenancing this popular odium against a trade so beneficial to the public, seems, on the contrary, to have authorized and encouraged it. - Adam Smith, Wealth of Nations

Here's what Paul Samuelson wrote in 1989...

the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.

Caplan shared Samuelson's quote but there's no evidence that he shared Smith's quote.  However, there's no doubt that Caplan is well aware of anti-market bias.

Why has anti-market bias persisted for so long?  It's persisted for the same reason that pro-democracy bias has persisted.  It's challenging to create betting situations that will demonstrate which ideological beliefs are bullshit without also risking everybody's well-being.

"Hey Caplan, I'll bet you that America doesn't need to be a democracy.  Oooops.  I was wrong.  My belief was bullshit.  Here's $100 dollars.  Can I have that dog bone after you're done gnawing on it?"

So there's no hope?  We'll just have to wait for large-scale natural experiments to bet on?  Eventually we'll have so many natural experiments under our belt that the true cause of our prosperity will be painfully clear?

Actually there is hope.  We can use websites to safely test our beliefs.

Every economic system is about determining the order (relative importance) of things.  In the case of Caplan's blog... EconLog... the goal would be to correctly determine the order of blog entries.  Right now the entries are sorted chronologically.  Another page on the site could be created to display the entries sorted by their importance.

Here are some different systems for ordering the entries...

1. Dictatorship: the order of the entries would be determined by one person.
2. Direct democracy: the order of the entries would be determined by voters.
3. Republic: the order of the entries would be determined by an elected representative.
4. Market: the order of the entries would be determined by donations.

No two systems would order the entries in exactly the same way.  Therefore, no two systems would create the same amount of value.  Which system would create the most value?

Here's an example of a 4th grade blog that uses the market system... Classtopia.  On their homepage you can see the blog entries sorted chronologically.

In theory, EconLog could have a page for each system.  Then we could simultaneously compare the different systems.

I'm not exactly sure how we could bet on the outcome.  But we'd certainly have the opportunity to bet on our preferred system.  I'd be happy to spend some money to help Econlog establish the market system.  I'd love to see how many other people would be in the same boat as me.  Would Caplan be in the same boat?  Or would he be in a different boat?

We'd essentially have a market for systems.  So we'd actually see and know the demand for markets, republics, direct democracies, dictatorships and any other systems.  It would be a meta-market.  The market would determine the relative importance of systems.

Today I "voted" for this blog entry...

People feel little obligation to propose workable systems or practical alternatives to current practices because they can’t imagine what it would be like to get to decide those things. But the radical left actually can win, and it can win using the existing democratic systems we have now — if we commit to being an adult movement that’s dedicated to convincing others to join our cause in order to build a pragmatic and workable socialist system. - Freddie deBoer, What replaces rights and discourse?

It's wonderful that deBoer is challenging socialists to develop alternative systems.  But even if they perceive that the systems they develop are pragmatic and workable, it doesn't mean that they truly are.  The Great Leap Forward is proof that people can really misjudge the effectiveness of systems.

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Voters, activists, and political leaders of the present day are in the position of medieval doctors. They hold simple, prescientific theories about the workings of society and the causes of social problems, from which they derive a variety of remedies-almost all of which prove either ineffectual or harmful. Society is a complex mechanism whose repair, if possible at all, would require a precise and detailed understanding of a kind that no one today possesses. Unsatisfying as it may seem, the wisest course for political agents is often simply to stop trying to solve society’s problems. — Michael Huemer, In Praise of Passivity

And since then, one of the central principles behind my philosophy has been “Don’t destroy all existing systems and hope a planet-sized ghost makes everything work out”. Systems are hard. Institutions are hard. If your goal is to replace the current systems with better ones, then destroying the current system is 1% of the work, and building the better ones is 99% of it. Throughout history, dozens of movements have doomed entire civilizations by focusing on the “destroying the current system” step and expecting the “build a better one” step to happen on its own. That never works. The best parts of conservativism are the ones that guard this insight and shout it at a world too prone to taking shortcuts. - Scott Alexander, SSC Endorses Clinton, Johnson, or Stein

Further progress requires recognising that America’s economy is an enormously complicated mechanism. As appealing as some more radical reforms can sound in the abstract — breaking up all the biggest banks or erecting prohibitively steep tariffs on imports — the economy is not an abstraction. It cannot simply be redesigned wholesale and put back together again without real consequences for real people. - Barak Obama, The way ahead

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We need to test so many different systems in order to discover truly better systems.  But immediately doing so on a large-scale is clearly problematic.  Therefore, we must first test different systems on a smaller scale.  Websites provide us the perfect opportunity to do so.  Does Caplan see the benefit of doing so?  Is he willing to put his money where his preferred system is?