Sunday, October 22, 2017

Addressing Concerns

Over on Medium, Scott Vonasek shared some concerns about pragmatarianismHere's my reply...

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The term “political market” is an oxymoron. I prefer “public sector market”. You’re right about local knowledge… but it’s equally relevant to markets in both the private and public sectors. You’re going to know where potholes are and where it’s not safe to walk at night. Politicians can only have access to a vanishingly small fraction of all the local knowledge concerning public goods.

Regarding specificity… I don’t know what necessarily prevents the same level of specificity in both sector markets. In the private sector market you can spend your money on a specific brand of cereal. But in the public sector market you could theoretically spend your taxes on a specific type of education… for example… public finance economics. I don’t see why you couldn’t give your taxes to a specific professor of economics.

Regarding free-riding… a few days ago I addressed it in a reply to Koen Smets. Your example of people funding pet projects in the non-profit sector while neglecting important and effective things like vaccinations is only an example of free-riding if people truly want more vaccinations. But how can we be certain that people truly want more vaccinations? We obviously can’t ask them. If they know their answer will determine their personal payment then they’ll have a clear incentive to pretend to value vaccinations less than they truly do. And if they know that their answer will not determine their personal payment then they’ll have an incentive to pretend to value vaccinations more than they truly do.

It’s certainly the case though that we would expect to see free-rider problems in the non-profit sector. If people voluntarily contributed their true valuations to public goods then taxation wouldn’t need to be compulsory. Since people are paying taxes anyways, if they could choose where they go, they wouldn’t have an incentive to contribute less than their valuations to vaccinations.

To be clear, it’s entirely possible that everybody incorrectly values vaccinations. Nobody is omniscient. Nobody has a crystal ball. But let’s say that there are a few people who do correctly value vaccinations. Evidently they have better information than everybody else. In a public sector market these better informed people would have the maximum incentive to share their better information with everybody else. This is because anybody they shared this better information with would have the freedom to allocate their own tax dollars accordingly.

The problem with the current system can be illustrated like so. A door to door salesman generally isn’t going to bother giving his sales pitch to little Timmy if he answers the door. Instead the salesman is going to ask to speak to whoever controls the household budget. Right now politicians control the country’s budget. This means that all the better informed citizens have an incentive to share their better information with politicians. But this is an incredibly stupid system. It would be infinitely more intelligent if better informed citizens had an incentive to share their better information with each and every taxpayer. This would allow far more brains to evaluate and process far more information in far less time. As a result, better information would be far more quickly disseminated.

Regarding wild swings… first of all there wouldn’t be a set time for people to allocate their taxes. If Godzilla attacks in June we wouldn’t want taxpayers to have to wait until April to respond to the threat. When there is an earthquake or other natural disaster in some part of the world it’s very beneficial that donors have the freedom to immediately respond.

A market in the public sector should respond faster and better than politicians to significant changes. If not, then we should replace the Invisible Hand in the private sector with the Visible Hand.

Life changes fast so we should expect organizations to quickly and correctly adjust and adapt. Those that fail to do so should be allowed to go extinct. We want organizations to quickly evolve. We want organizations to be better and faster at meeting the ever-changing needs of society. This is why it’s essential for all organizations to be directly subject to market forces. This is why it’s just as necessary to have a market in the public sector as it is to have a market in the private sector.

Besides people being free to spend their taxes whenever they want… they should also be free to shop in any country’s public sector. No country is going to have a monopoly on the best public goods. Just like no country is going to have a monopoly on the best private goods. All countries are going to be better at supplying certain public goods… just like they are better at supplying certain private goods.

American taxpayers should be free to give their taxes to Brazil’s EPA and/or Israel’s DoD and/or China’s NASA and/or Zimbabwe’s IRS. Then everyone will clearly see, and be able to support, the world’s best suppliers of public goods. With a global market for public goods the best suppliers are going to receive a lot more money. The NASAs of the world are going to be competing over a much larger pool of money. Whichever NASA is best will be able to spend a bigger portion of this much larger pool of money. So we should expect to make much faster progress with space exploration, cancer research and every other public good. Nobody is going to care which country finds the cure to cancer first. Everybody just wants it found sooner rather than later. This depends on everyone having the freedom to give their taxes to whichever organization in the world is conducting the best cancer research. In all cases we want to empower the most effective organizations to compete the best brains away from less effective organizations.

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