Chris Edwards' Rothberror

Thanks to Arnold Kling, I learned of this excellent critique of government written by Chris Edwards.  Edwards' critique comprehensively covers the various causes of government failure.  Unfortunately, he concludes that the "only way" to fix the government is to greatly reduce its size and scope.  The only way?  The only way?  The only way?

Evidently Edwards hasn't read my blog.  That's disappointing... but understandable.  But it's less understandable that he missed this article by David Boaz... We should get to decide how the government spends our taxes.  Boaz and Edwards both work at Cato.  The topic never came up in a meeting?  Or over lunch?  Maybe Boaz never sent the memo... and if he did... Edwards missed it?

This entry will be my attempt to try and ensure that Edwards receives, and understands, the memo.  I'm hoping that in the future, at a bare minimum, he'll mention tax choice (pragmatarianism) in a footnote.

While reading his critique I copied a few key passages and pasted them into my database.  And now I'll go through my database and copy and paste some, or all, of his passages into this entry.  Starting with...

The driving force behind market economies is that voluntary exchanges are mutually beneficial. Millions of buyers and sellers pursuing their own interests engage in billions of exchanges, each creating value on both sides.  These transactions generate market prices, which help guide people and businesses toward the best use of their efforts and resources. The price system allows for the synchronization of vast amounts of production and consumption across the nation and around the globe.

This is good... but it's not great.  The vast majority of allocations that take place in the private sector really do not involve price tags.  Right now I'm allocating my limited time to writing this entry.  Is there a price tag involved?  Nope.  When I e-mail this entry to Edwards... will his decision whether to spend his time reading it be based on a price tag?  Nope.  If he does decide to read this entry... will his decision whether to spend his time replying to it be based on a price tag?  Nope.

What helps guide limited resources to their best uses is individual valuation of the opportunity costs.  For example... my second favorite liberal, John Quiggin, recently published this blog entry... Economics in Two Lessons: Income distribution.  I'd really like to write a reply to Quiggin's entry (X) but instead of doing so... here I am writing a reply to Edwards' critique (Y).

Based on my unique preferences/circumstances...

X < Y

X is the opportunity cost of Y.  I'm sacrificing X for Y.

The valuation of the alternative uses of our own limited resources is what ensures the efficient allocation of resources.

The driving force is the desire to choose the most valuable use of our limited resources.  The driving force is the desire to get the most bang for our buck.

And I'm pretty sure that Edwards grasps this.  Pretty sure.

Focusing on prices is advantageous because it's a concise and easy way to explain government failure.  The government fails because it doesn't have prices.  Voila!  Simple.  The problem is that the non-profit sector doesn't have prices either.  Like I said, the vast majority of allocations in the private sector don't involve prices.  So the disadvantage of relying on prices is that it distracts people from the real reason why the government fails.

With pragmatarianism... clearly there wouldn't be any prices in the public sector... but there would be taxpayer choice.  Earlier I used the term "individual valuation" but I think that "earner valuation" is a better term.  The term "earner valuation" implies ownership... which is a very important distinction.  It's one thing to valuate the uses of resources which you've earned... and another thing entirely to valuate the uses of resources which you haven't earned.

With libertarianism... even if the scope of government was reduced to defense, courts and police... these three extremely important and potentially dangerous public goods would not be subjected to earner valuation.  So the chances would be extremely good that we would continue to suffer from unnecessary wars, miscarried justice and police brutality.

The government does not work like this.  Rather than voluntary exchange, it generally relies on coercion to pursue its ends. One consequence is that we cannot be sure that government actions generate net value. Because the government’s activities are not based on mutually beneficial coordination, there is no sure source of information indicating whether or not they are useful. This is a fundamental weakness of government.

Libertarianism wouldn't solve this problem.  It would reduce the size and scope of the problem... at least temporarily... but like I mentioned... there would continue to be highly detrimental consequences of preventing earners from valuating defense, courts and police.

And, just how great can earner valuation truly be if it wouldn't improve defense, courts and police?  And, just how bad can non-earner valuation truly be if it can be trusted with defense, courts and police?

In making its spending and regulatory decisions, the government is flying blind. Regulations are top-down requirements for action or restraint, not efforts at finding voluntary agreement. Federal spending relies on compulsory taxation, not customer revenue. Without voluntary agreement behind its actions, the government faces a large information void. There is no system of supply and demand, prices, and profits to inform policymakers if their activities are generating net benefits to society. Policymakers may believe that their interventions make sense, but that is usually wishful thinking based on guesswork.

This is largely correct... but the argument really loses its punch when libertarians turn around and argue that this information void that government faces really isn't a problem when it comes to defense, courts and police.

In markets, individuals and businesses often make bad decisions. But if they continue down the wrong path, their resources get depleted.  A business making misguided investments will be punished by financial losses and may face bankruptcy or a takeover. About 10 percent of all U.S. companies go out of business each year, which is a remarkably high exit rate.  But losses and business failures prompt the beneficial reallocation of resources to more promising activities.

Excellent passage!  Producers make guesses wherever they are.  The fundamental difference is who gets to determine the accuracy of guesses.  In the private sector it's up to consumers to determine the accuracy of guesses.  In the public sector it's not up to consumers to determine the accuracy of guesses.

Does it matter whether or not consumers determine the accuracy of guesses?  I'm pretty sure that it does matter... and I'm pretty sure that defense, courts and police are not exceptions to this rule.

In sum, federal subsidies and regulations induce individuals and businesses to change their behaviors. Those changes undermine overall prosperity because resources are diverted from their best uses.

Yup!  And again, "best" use is a function of earner valuation.  So protecting defense, courts and police from earner valuation ensures that resources will be diverted from their best uses.

Garbage In, Garbage Out (GIGO) is just as applicable to economics as it is to computers.

In defense of federal policymakers, they have a difficult task. There are no clear cut metrics they can use to judge the success or failure of programs. The benefits are usually visible, but the costs are often unseen. In the marketplace, when consumers dislike products, sales and profits fall, which gives companies a strong signal to change course. There is no such built-in feedback for government programs.

Another excellent passage.  And again, reducing the scope of government to defense, courts and police really doesn't provide policymakers with a clear cut metric.  Which again begs the question of just how important a clear cut metric truly is.

Government intervention is not just an invisible job killer, it is an invisible knowledge killer. Market processes generate information about consumer needs, costs, production methods, and technologies, but intervention undermines those processes. When regulations block entrepreneurs from entering markets, we never learn what innovations they might have created. When taxes prevent companies from buying new machines, technological advance is slowed because new machines often incorporate new designs. When farmers receive subsidies, we lose improvements they might have discovered if they had faced the full rigor of the market. Hayek noted, “Freedom is important in order that all the different individuals can make full use of the particular circumstances of which only they know. We therefore never know what beneficial actions we prevent if we restrict their freedom to serve their fellows in whatever manner they wish.”

And another excellent passage.  But again, can facing the full rigor of the market truly be that great if libertarians want to prevent defense, courts and police from facing the full rigor of the market?  Defense contractors would still be subsidized... so why should we be concerned about farm subsidies?

Allowing taxpayers to choose where their taxes go would create a market in the public sector.  This market would clarify the demand for public goods.  Clarifying the demand for public goods would allow is to clearly see the breadth and depth of demand for public goods...

Seeing the demand breadth/depth for farm subsidies isn't nearly as important as seeing the demand breadth/depth for war...

In our economy today, markets guide billions of decisions based on fast-changing in formation across the globe. Prices, profits, and other market signals inform people about the adjustments they should make. Entrepreneurs try new strategies in millions of trial-and-error processes. Individuals and businesses sometimes fail, but they have strong incentives to get back on track. Markets are a process of ongoing change and discovery.

I agree that market signals are important... which is why I'm a pragmatarian rather than a libertarian.  Market signals are just as important for public goods as they are for private goods.   I'm a pragmatarian rather than an anarcho-capitalist because I believe that, when it comes to public goods, the free-rider problem distorts the accuracy of market signals.  But this distortion is easy enough to correct with taxation.  Once people are required to contribute to public goods then they have every incentive to accurately signal their preferences for public goods...

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his “true” preferences for public goods. — James Buchanan, The Economics of Earmarked Taxes

Buchanan published that paper in 1963.  Unfortunately, nearly everybody missed the memo.

In the marketplace, consumers have a strong incentive to examine products and make sure that they get a good deal. By contrast, people know that their individual votes in elections will have almost no effect on outcomes, and so they have little reason to research candidates and policies in detail. As a result, people tend to know more about, say, their favorite television shows than about the workings of the federal government.  It is logical for most people to be “rationally ignorant” about public policy, meaning that it does not pay for them to investigate the issues.  Opinion polls of Americans over the decades have found “appalling levels of ignorance” about federal policy, notes Schuck.

Do we truly benefit from the strong incentive that consumers have to try and get good deals?  If so, then wouldn't we want consumers examining defense and ensuring that they are getting a good deal?  Wouldn't we want them to be free to spend their taxes elsewhere if they decided that they weren't getting a good deal? 

Libertarianism would reduce the problem of rational ignorance... but it wouldn't eliminate it.  I think that we should eliminate, rather than reduce, rational ignorance... which is why I'm a pragmatarian.

Even in the crucial role of providing national defense, the pursuit of parochial advantage “has become a full-time preoccupation that permeates Congress’s activities and members’ decision making processes.”  That is the view of Winslow Wheeler in his book, The Wastrels of Defense. As a long-time congressional aide, Wheeler found that members responsible for national defense put most of their efforts into grabbing benefits for their states, rather than overseeing the Pentagon and ensuring the effectiveness of our armed forces. He argued that Congress has “degenerated into a gaggle of wastrels competing for selfish advantage.”

Reducing the scope of government to defense, courts and police wouldn't change this.

Also, because many voters remain ignorant about the details of policy, legislators have leeway to pursue their own private and ideological goals. The problem is that these other goals often produce failed policies as well. There is no built-in check—no invisible hand—to guide members to make value-added decisions, so their personal beliefs about policy may be untethered from reality.

The invisible hand still wouldn't be in the public sector if the government was limited to defense, courts and police.  We'd continue to suffer from the inevitable consequences of the visible hand supplying defense, courts and police.  Suffering from the visible hand is entirely unnecessary.  Replacing it with the invisible hand would be as easy as allowing taxpayers to choose where their taxes go.  Then the supply of all public goods would be tightly tethered to reality.  No longer would massive amounts of society's limited resources be allocated to tilting at windmills.

Congress proceeds with many failed policies because it does not confront direct cost benefit tradeoffs. In the marketplace, people compare a product’s cost to the expected benefits before they spend their money. Politicians do not face such a tradeoff. They are spending other people’s money, which nobody spends as carefully as his own.

This is certainly true.  It would also be true even if the government was downsized.  But it certainly wouldn't be true if taxpayers could choose where their taxes go.

Many federal programs deliver benefits to narrow groups but spread the costs widely across the population. Small groups of individuals and businesses are easier to organize than larger groups, and they have more focused goals, so they can be very effective in lobbying Congress for benefits.  The costs of narrow benefits—such as subsidies and regulatory advantages—are often diffused across tens of millions of taxpayers or consumers, often without the victims knowing that their pockets are being picked.

Concentrated benefits and dispersed costs would still be a problem with libertarianism.  But legal plunder really wouldn't be a problem with pragmatarianism.  The only possible way that your taxes could be spent on defense would be if you reached into your own pocket and spent your own taxes on defense.  Nobody else would be able to reach into your pocket in order to spend your taxes on defense.

If you're a pacifist then, with libertarianism, people would still be able to reach into your pocket and spend your money on defense.  This forced-rider problem would guarantee that the wrong amount of money would be spent on defense.  And I really don't want the wrong amount of money to be spent on defense... which is why I'm a pragmatarian rather than a libertarian.

Ideally, federal legislators would carefully evaluate programs by comparing the costs to the benefits, and they would do so in a manner transparent to the public. However, legislators have developed numerous techniques to hide the costs of federal spending. As a result, people perceive the “price” of government to be lower than it really is, and they demand too much of it. Economists call this bias “fiscal illusion.”

Fiscal illusion would still exist with libertarianism.  And as long as fiscal illusion exists... any fat that's trimmed from the government would quickly be replaced.  The only permanent solution would be to eliminate fiscal illusion entirely.  This could be accomplished by allowing taxpayers to choose where their taxes go.  Pragmatarianism would guarantee fiscal equivalence.

The use of fiscal illusion is a contributing factor to government failure. By partly hiding the burden of government, policymakers are emboldened to pursue ill-advised programs that have higher costs than benefits. Citizens and voters are left in the dark, not recognizing that the costs of all the benefits pouring forth from Washington are higher than they seem.

With libertarianism... citizens and voters would still be left in the dark.  They wouldn't be able to recognize the true costs of defense, courts and police.  And if the public fails to understand the true costs of these public goods... then it's a given that they will want the government to supply more public goods.

With pragmatarianism, on the other hand, taxpayers would fully recognize and bear the costs of everything that the government does.  And when it comes to something like war... we really want taxpayers to fully bear the costs.

The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. - Adam Smith, Wealth of Nations

This is the most important memo.  Most citizens have not gotten this memo.  And they won't get this memo until libertarians fully accept and recognize the fact that fiscal illusion causes the most harm when it's applied to defense/offense.

The best libertarians stand shoulder to shoulder with Adam Smith.  But in order to truly make progress... you have to stand on his shoulders.  That's what being a pragmatarian is all about.

Poorly performing agencies do not go bankrupt, so there is no built-in mechanism to end low-value activities. There is no automatic corrective to programs that have rising costs and falling quality. In the private sector, businesses abandon activities that no longer make sense, but “the moment government undertakes anything, it becomes entrenched and permanent,” noted management expert Peter Drucker.  In government, resources remain stuck in obsolete activities, rather than being reallocated to better uses. Drucker said that “the strongest argument for private enterprise” over government is not the role of profits, but the role of losses.  Losses send a powerful signal to businesses that they need to make changes. Failing government programs do not send such a signal.

There wouldn't be any profits if we created a market in the public sector... but there would certainly be losses.  The least beneficial government organizations (GOs) would lose revenue.  They would either improve their performance or go bankrupt.

See... the fundamental question is... what should the government do?  There are two ways to answer this question...

1. The market
2. The not-market

If we created a market in the public sector... then the invisible hand would determine the size and scope of government.  This answer would reflect the maximum amount of dispersed information.  It would reflect the diverse preferences and circumstances of millions and millions of individuals.

If we didn't create a market in the public sector... then the visible hand would determine the size and scope of government.  This answer would not reflect the maximum amount of dispersed information.  It would not  reflect the diverse preferences and circumstances of millions and millions of individuals.

Which answer would be the most valuable?  The answer provided by the not-market (libertarianism)?  Or the answer provided by the market (pragmatarianism)?

Congress does not have the time or expertise to allocate resources efficiently in all these areas. Members are spread too thin, which is evident from the fact that they routinely miss all or parts of congressional hearings.  Congress grabs for itself vast powers over nonfederal activities, but then members do not have the time to properly monitor how their interventions are actually working.

Eh...no.  It might be argued that the pyramids were efficiently constructed.  This argument would imply that costs were somehow minimized.  But it can't be argued that the pyramids represent an efficient allocation of Egypt's limited resources.  This is because allocative efficiency depends entirely on the preferences/priorities of the people whose resources were allocated.  If Egyptian taxpayers had been free to directly allocate their taxes... and they allocated their taxes to building the pyramids... then, and only then, could we say that the pyramids represent an efficient allocation of society's limited resources.

In the absence of a market in the public sector... limiting the scope of government might allow congress to help ensure that the DoD is more effective/efficient... but the allocative efficiency of a war depends entirely on how well it matches the true preferences of every individual in society.  And the true preferences of every individual can only be known by their spending decisions.

With a libertarian government... congress might help ensure that we saved a trillion dollars on a war against Canada.  But if taxpayers wouldn't have spent their taxes on this war in the first place... then it's a monumental case of missing-the-point to argue that we saved $1 trillion dollars on a $10 trillion dollar war that there was virtually no demand for.

My guess is that Edwards is trying to come up with some explanation as to how congress would improve its decisions if it had less on its plate.  But no amount of reduction in congressional responsibilities or duties would make congress omniscient.  Someone would have to have a very tenuous grasp of reality to assume omniscience on the part of planners...

I shall present a pseudo-demand analysis that would provide an omniscient planner with one method of solving the optimality equations of the original model. - Paul Samuelson, Pure Theory of Public Expenditure and Taxation

Reducing the size/scope of government really wouldn't improve the efficiency of congress's allocations.

While legislators are overwhelmed by the size and scope of the government, the bureaucracy has also become unmanageable. Paul Light thinks that one reason for the increase in failures is the “ever-thickening hierarchy” of departments.  He says that “communication continues to be a major source of failure, in part because information has to flow up through multiple layers to reach the top of an agency.”  President Obama’s frequent appointment of “czars” partly reflects the recognition that the traditional bureaucracy is not working.

Information flow is necessary to the proper function of any organization.  But a properly functioning bureaucracy is only beneficial when the organization is supplying something that's truly demanded.  And it's only when dissatisfied consumers have the option of easy exit that bureaucracies have any incentive to improve.  Reducing the scope of government to defense, courts and police really wouldn't provide taxpayers with easy exit.

In sum, political and bureaucratic incentives and the huge size of the federal government are causing endemic failure. The causes of federal failure are deeply structural, and they will not be solved by appointing more competent officials or putting a different party in charge. Americans are deeply unhappy with the way that Washington works, and everyone agrees that we need better governance. The only way to achieve it is to greatly cut the federal government’s size and scope.

The only way?

The problem with libertarianism should be painfully clear.  It severely undermines its strongest economic arguments by applying them inconsistently.  The result is an incoherent case for freedom.

Rational ignorance is a problem?  Yes... except when it comes to defense, courts and police.

An information void is a problem ? Yes... except when it comes to defense, courts and police.

The lack of incentives is a problem?  Yes... except when it comes to defense, courts and police.

The lack of losses is a problem?  Yes... except when it comes to defense, courts and police.

Spending other people's money is a problem?  Yes... except when it comes to defense, courts and police.

The lack of a clear cut metric is a problem?  Yes... except when it comes to defense, courts and police.

Legal plunder is a problem?  Yes... except when it comes to defense, courts and police.

Fiscal illusion is a problem?  Yes... except when it comes to defense, courts and police.

The absence of consumer choice is a problem?  Yes... except when it comes to defense, courts and police.

The visible hand is a problem?  Yes... except when it comes to defense, courts and police.

From my perspective... all these real and significant problems are equally applicable to defense, courts and police.  Add the free-rider problem to the list of real and significant problems and you'll have most of the reasons why I'm a pragmatarian.

For sure I'd love it Edwards converted to pragmatarianism.  But at a bare minimum I hope that, in the future, he'll acknowledge that libertarianism really isn't the "only way" to try and improve government.  Decades ago Buchanan pointed out that there's another way.  And it's wonderful that Boaz has more than recognized the existence of this alternative.  It would be great if more libertarians followed his lead... but even just acknowledging the existence of tax choice would be a significant improvement.


See also: John Quiggin And David Boaz Fusion Food For Thought 

Liberals Hate Mexicans More Than Donald Trump Does

Imagine that you're the Joker.  Obviously you want to kill Batman.  So what do you do?  One deviously simple plan would be to commandeer the bat signal.  Then, when Batman responds to it, you kill him.

What if Batman was an entrepreneur?  Then you would use the signal that displays the highest profit...

What if Batman was a worker?  Then you'd use the signal which displayed the highest wage.

What if Batman was a poor worker?  Then you'd use the signal which displayed the highest minimum wage.

What if Batman was a poor worker in Mexico?  Then you'd use the signal which displayed the highest minimum wage... and, rather than having to kill him yourself, you'd use the border to kill him for you.

Liberals want to increase the minimum wage (which will attract more Mexicans)...

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. - Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

... but they also want to make it more difficult to cross the border (which will kill more Mexicans)...

In the United States, for example, the AFL-CIO has traditionally taken a very tough stance in favour of restrictive immigration laws and border control measures aimed at stemming illegal immigration into the country from Mexico. — Michael J Hiscox, Global Political Economy

We all know that Donald Trump is also a fan of making it more deadly to cross the border.  But, unlike liberals, he's fine with the minimum wage where it is...

Trump is one of the few Republicans in the 2016 field who isn't skeptical of the usefulness of a federal minimum wage, but he doesn't think it should be increased from the current rate of $7.25 an hour. - Heather Long, So what exactly is Donald Trump's economic policy?

Clearly Trump hates Mexicans... but liberals hate Mexicans even more.

Just in case you didn't visit the Wikipedia entry on Migrant deaths that I linked to...

If your Spanish is a little rusty it says, "Caution! Do not expose your life to the elements. It's not worth it!"

The sign says one thing, but the minimum wage says another thing.


Some relevant passages....

“What concerns me are provisions in the bill that would bring low-wage workers into this country in order to depress the already declining wages of American workers,” Sanders said in May 2007. “With poverty increasing and the middle-class shrinking, we must not force American workers into even more economic distress.” - Seung Min Kim, Bernie Sanders and immigration? It’s complicated

In 1921 and 1924, Congress passed legislation that effectively shut down immigration into the US. Although much of the motivation behind these laws was to exclude ‘dangerous aliens’ such as Italian anarchists and Eastern European socialists, the broader effect was to reduce the labour surplus. Worker wages grew rapidly. - Peter Turchin, Return of the oppressed 

You know what youth unemployment is in the United States of America today? If you're a white high school graduate, it's 33 percent, Hispanic 36 percent, African American 51 percent. You think we should open the borders and bring in a lot of low-wage workers, or do you think maybe we should try to get jobs for those kids? - Bernie Sanders, Interview With Ezra Klein

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10 percent. Inflation had made the minimum-wage law, passed ten years earlier, irrelevant.  

But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage, to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years and has ranged as high as over 50 percent. - Thomas Sowell, Minimum-Wage Laws: Ruinous ‘Compassion’  

Legislative attempts to raise wages, limitation of competition in the labour market, taxes or restrictions on machinery, and on improvements of all kinds tending to dispense with any of the existing labour - even, perhaps, protection of the home producer against foreign industry - are very natural (I do not venture to say whether probable) results of a feeling of class interest in a governing majority of manual labourers. - J.S. Mill, Considerations on Representative Government

Even worse, this regulation will interact with the migrant flow from Latin America, to produce another set of unanticipated side effects. In some developing countries there is a huge army of unemployed who go to the cities, hoping to get one of the few high wage jobs available in the "formal" sector of the economy. With a $15 minimum wage, migrants will come from Mexico until the disutility of waiting for a good job just balances the expected utility of landing one of those good jobs. You'll have lots more angry, frustrated young Mexican illegal immigrants, with lots of time on their hands. - Scott Sumner, How bad government policies make us meaner

If the American automobile worker, railroadman or compositor says equality, he means expropriating the holders of shares and bonds for his own benefit. He does not consider sharing with the unskilled workers who earn less. At best, he thinks of equality of all American citizens. It never occurs to him that the peoples of Latin America, Asia, and Africa may interpret the postulate of equality as world equality and not as national equality. 

The political labor movement as well as the labor union movement flamboyantly advertise their internationalism. But this internationalism is a mere rhetorical gesture without any substantial meaning. In every country in which average wage rates are higher than in any other area, the unions advocate insurmountable immigration barriers in order to prevent foreign "comrades" and "brothers" from competing with their own members. Compared with the anti-immigration laws of the European nations, the immigration legislation of the American republics is mild indeed because it permits the immigration of a limited number of people. No such normal quotas are provided in most of the European laws. - Ludwig von Mises, Planning for Freedom

See also: Workers: Beggars or Choosers?

Maximizing Opportunities By Clarifying Demand Diversity

Reply to: Appreciate the response

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1) If you don’t accurately communicate your valuations of your relationships… then you run the risk of losing these people to the competition. More competition means more risk which means more incentive to accurately communicate valuations. More competition is a good thing. Hence the value of minimizing barriers to entry. Smaller barriers to entry means more employers which means more competition for labor. And with more competition for labor… the more you undervalue your employees… the more likely it is that they will be swooped up by the competition. 

2) Resources should be placed in the most beneficial hands… regardless of where those hands are located. We’re only going to truly maximize progress when we start thinking “humanity” rather than “nationality”. Hillary Clinton said something about the harm of keeping talent on the sidelines. Unfortunately, she thinks that this is only true of local talent. In reality though, the more countries that catch up with America… the more America will benefit. Just like the more kids that are energetically searching for Easter Eggs (beneficial discoveries/improvements)… the more Easter Eggs that will be found.

3) There’s no sound economic argument for a minimum wage. It’s never a good idea to input lies (garbage) into the equation that determines how society’s limited resources are used. There will always be harmful repercussions that tear through the economy like a tsunami. We need resources to shift when conditions change. Preventing resources from shifting doesn’t make the change in conditions go away… it just increases the size of the disparity and the shock when the adjustment is finally made. Imagine if we could prevent little earthquakes… would we want to do so if it meant that we were guaranteed to be hit with a big earthquake not too far down the road? Nooooo. We can forever eliminate recessions and depressions simply by allowing resources to freely adjust to changing conditions. 

4) If improving the standard of living was as simple as mandating higher wages… then the entire world would already have an extremely high standard of living. The standard of living can only be improved when resources are more efficiently allocated. There shouldn’t be any problem with robots “stealing” jobs anymore than there should be a problem with people in China “stealing” jobs. When the competition for labor is maximized… then people will have all sorts of beneficial alternatives to choose from. A closed door isn’t a problem when there’s a multitude of open doors. 

In 1978… when Deng Xiaoping gradually began opening China up to foreign investment… China had a massive surplus of labor. Would mandating a high minimum wage have helped lift millions and millions of Chinese people out of poverty? No, it would have made it less likely that foreigners would have risked their capital, time, energy and expertise “opening doors” for people in China. Thank goodness that China didn’t arbitrarily make its labor more expensive. Because China had a massive surplus of labor (aka cheap labor)… it was profitable enough for more and more foreigners to build factories in China. This increased the demand and competition for labor… which naturally pushed wages up. 

Correlation doesn’t mean causation. Higher wages are correlated with a higher standard of living… but they most definitely are not the cause of a higher standard of living. It was the more efficient allocation of resources which improved the standard of living. And the more efficient allocation of resources was only possible because wages in China accurately communicated that there was a massive surplus of labor. 

It’s really important to understand that demand is incredibly diverse. People want food? True. People want all the same type of food? Not true. So by clarifying demand and minimizing the barriers to entry… we maximize opportunities not just for consumers… but for workers as well. 

With command economies (our public sector)… humanity’s diverse demands are incredibly diminished…which of course diminishes opportunities. If we could apply demand diversity to public goods as well as private goods… then opportunities would skyrocket. Just like opportunities skyrocketed in China when Deng Xiaoping opened up China’s private sector to foreign capital, time, energy and expertise. We can easily open up our public sector to “foreigners” simply by allowing people to choose where their taxes go. Will people allocate their taxes differently? Of course… and that difference will drive a Cambrian explosion of different opportunities.

The Inefficient Allocation Of Labor

Reply to: Minimum Wage — Treating the Symptoms

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Check out this passage by J.S. Mill…

The fact itself, of causing the existence of a human being, is one of the most responsible actions in the range of human life. To undertake this responsibility — to bestow a life which may be either a curse or a blessing — unless the being on whom it is to be bestowed will have at least the ordinary chances of a desirable existence, is a crime against that being. And in a country either over-peopled or threatened with being so, to produce children, beyond a very small number, with the effect of reducing the reward of labour by their competition, is a serious offence against all who live by the remuneration of their labour. — J.S. Mill, On Liberty

Compare it to this passage by Adam Smith…

Every colonist gets more land than he can possibly cultivate. He has no rent, and scarce any taxes to pay. No landlord shares with him in its produce, and the share of the sovereign is commonly but a trifle. He has every motive to render as great as possible a produce, which is thus to be almost entirely his own. But his land is commonly so extensive that, with all his own industry, and with all the industry of other people whom he can get to employ, he can seldom make it produce the tenth part of what it is capable of producing. He is eager, therefore, to collect labourers from all quarters, and to reward them with the most liberal wages. But those liberal wages, joined to the plenty and cheapness of land, soon make those labourers leave him, in order to become landlords themselves, and to reward, with equal liberality, other labourers, who soon leave them for the same reason that they left their first master. The liberal reward of labour encourages marriage. The children, during the tender years of infancy, are well fed and properly taken care of, and when they are grown up, the value of their labour greatly overpays their maintenance. When arrived at maturity, the high price of labour, and the low price of land, enable them to establish themselves in the same manner as their fathers did before them. — Adam Smith, Wealth of Nations

Conditions improve when we efficiently allocate resources. But in order for resources to be put to their most valuable uses, we need prices to accurately communicate demand (valuations)…

The market economy should have natural mechanisms to limit inequality. If housing is very expensive in coastal California, more firms should build houses. If Mickey Mouse toys and Barbie dolls are profitable, more companies should produce those toys. If some professions make more than others, people should move into the higher-paying professions. — Scott Sumner, Kevin Erdmann, Here’s What’s Driving Inequality

Workers should move to the states with the highest wages and businesses should be created in the states with the lowest wages.

Unfortunately, this isn’t an easy concept. Here’s Scott Sumner again…

Why would a Conservative government sharply increase the minimum wage, in a budget that in many other respects favored small government? The minimum wage is currently 6.50 pounds/hour, and 9 pounds/hour is almost $14/hour in US terms. Also recall that average incomes in the UK are lower than in the US. It can’t be just politics, as they just had an election, and are 5 years away from the next one.

A few months back a commenter suggested that the new German minimum wage was aimed at cutting immigration from poorer EU members such as Romania and Bulgaria. Britain is also seeing a fairly large wave of immigration from Eastern Europe, and the Conservative Party seems to be increasingly opposed to high levels of immigration. Could this be aimed at slowing immigration? — Scott Sumner, Britain’s new minimum wage: Is there a hidden agenda?

Higher wages in one country would decrease the incentive for workers to move there? What about higher wages in one county?

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. — Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

What about immigration in terms of unions?

Typically, the most vocal opposition to changes in immigration laws that would permit more low-skilled immigration comes from labour unions representing blue-collar workers. In the United States, for example, the AFL-CIO has traditionally taken a very tough stance in favour of restrictive immigration laws and border control measures aimed at stemming illegal immigration into the country from Mexico. — Michael J Hiscox, Global Political Economy

What about immigration in terms of businesses?

American business and farm associations have taken a very different position, often lobbying for more lenient treatment of illegal immigrants and for larger quotas in various non-immigrant working visa categories. — Michael J Hiscox, Global Political Economy

Mandating price changes and restricting immigration guarantees that resources will be inefficiently allocated. Garbage in, garbage out.

A minimum wage guarantees that labor will be inefficiently allocated. It also guarantees that businesses will be inefficiently allocated.

When, as in J.S. Mill’s passage, there’s a surplus of labor (and all the associated problems)… the last thing that we should do is mandate a wage increase. Mandating a wage increase will have two main consequences…

1. Decrease the incentive for people to move elsewhere
2. Decrease the incentive for people to start businesses

We really want businesses to be created where they are most needed… but this really can’t happen when we prevent wages from accurately communicating need.

In short… the true solution is to maximize the demand for labor. This involves minimizing everything that makes it less likely that somebody will start a business.

Let me know if you have any questions. And welcome to Medium!

1 Question For Anybody Who Opposes Privatizing Marriage

Which arguments are worse... the arguments against unbundling cable or the arguments against unbundling marriage?  Which weighs more... a pound of feathers or a pound of rocks?

Probably the single biggest argument against unbundling cable is that doing so would increase the costs of the individual components.  And this is a bad thing because higher prices are always bad for consumers.  Right?  Wrong, really wrong.  Prices are never bad for consumers when they accurately communicate demand.  If, for example, consumers are willing to pay higher prices for animal shows... then this would reveal that there's a scarcity of animal shows.  Higher prices for animal shows would incentivize producers to create more animal shows.  Voila!  Shortage solved!  Scarcity eliminated!  Consumers would have an abundance of animal shows!   As a result of this abundance, prices would decrease... and so too would the incentive for producers to create more animal shows.

It's super sad that the gist of this economic explanation really isn't anything new...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations

Einstein defined insanity as doing the same thing over and over but expecting a different outcome each time.  Am I being insane by sharing an explanation that was shared a gazillion years ago?  Why am I expecting a different outcome?  Maybe I'm guessing that most people still haven't gotten the memo?  Or perhaps I'm guessing that my own explanation is different enough?  Maybe all Smith's explanation lacked was an embedded example?  I wish.  Sigh.

In my explanation... I used "Voila!" to describe the change in supply.  To be fair, perhaps "Voila!" isn't always the most accurate way describe the supply response.  But in all cases where "Voila!" isn't so applicable... most, if not all, of the delay in supply response is a consequence of government intervention.  For example, minimum wages guarantee that "Voila!" isn't the best way to describe how a huge chunk of labor responds to changes in demand.  This is because a minimum wage effectively hides all the disparities in demand that occur beneath the minimum wage.  Hiding demand disparities effectively eliminates the incentive for supply to respond to them.  It really doesn't become profitable for labor to respond to changes in demand.  Garbage in, garbage out.

Bundling effectively hides demand disparities and, as such, eliminates the incentive for suppliers to respond to them.  Bundling does an excellent job of protecting producers from consumers.  Except, why in the world would we ever want to protect producers from consumers?

Perhaps some lateral thinking would help...

Can you imagine if we protected flowers (producers) from hummingbirds (consumers)?  What would happen to the supply of flowers if we reduced hummingbirds' choice in the matter?  From the perspective of hummingbirds... would the supply improve?  Would flowers fiercely fight for the attention of hummingbirds?  Would flowers have the maximum incentive to produce an abundance of nectar?  Would there be a greater variety of flowers for hummingbirds to choose from?  Would hummingbirds have more freedom?  Would hummingbirds truly be happier?

How often do we hear biologists cry to reduce hummingbird choice?  How often do we hear economists cry to reduce human choice?  Biologists cry when we do interfere with the environment.  Krugman cries when we do not interfere with economy.  Well... Krugman doesn't literally cry.  Who wants to see Krugman literally crying?  Well... hmmmm... big, fat, juicy tears rolling down his cheeks and dripping from his elfish face.  I wonder how his tears would taste?  Like heaven.  Now I have a craving for Krugman's tears!

In a recent blog entry... The free-rider problem is an argument against democracy... I shared this passage by Hayek...

True, if we want at any time to make sure that we achieve as quickly as we can all that is definitely known to be possible, the deliberate organization of all the resources to be devoted to that end is the best way. In the area of marriage, to rely on the gradual evolution of suitable institutions would undoubtedly mean that some individual needs which a centralized organization would at once care for might for some time get inadequate attention. To the impatient reformer, who will be satisfied with nothing short of the immediate abolition of all avoidable evils, the creation of a single apparatus with full powers to do what can be done now appears therefore as the only appropriate method. In the long run, however, the price we have to pay for this, even in terms of the achievement in a particular field, may be very high. If we commit ourselves to a single comprehensive organization because its immediate coverage is greater, we may well prevent the evolution of other organizations whose eventual contribution to marriage might have been greater. - Friedrich Hayek, The Constitution of Liberty

Hah...ok, yes, I took a couple liberties with this passage.  You caught me.  But the basic economic/evolutionary concept is just as applicable to marriage as it is to welfare.  Hayek also wrote... "The introduction of such a system therefore puts a strait jacket on evolution and places on society a steadily growing burden..."  Yes!!!

Government marriage has definitely put a straight jacket on the evolution of marriage.  It's obviously true that this straight jacket doesn't prevent all change... given that marriage now includes gays.  But as usual, the challenge isn't to see the seen... the challenge is to see the unseen.  What would marriage look like now if it had been privatized 50 years ago?  If marriage had been exposed to the full, direct, and extremely powerful force of consumer choice... would it be closer to, or further from, the preferences of consumers?  Would the market have found/made more, less, or the same number of improvements?  Would society have allocated more, less, or the same amount of its limited resources to debating marriage?  Obviously I wouldn't be spending my time writing this blog entry.

Here's Milton Friedman, nearly 50 years ago, theorizing what would happen to television if it was more fully subjected to consumer choice...

What kind of TV system would emerge from the free and unfettered operation of market forces?  No one can say in detail. The market is most ingenious and always produces surprises. But certain things are clear. First, there would still be programs supported entirely by advertising—as giveaway newspapers are now. Second, there would be many programs supported partly by advertising, partly by fees—as many newspapers and magazines are now. Third, there would be many programs supported entirely by fees—as so many books and other publications are now.  Fourth, the TV bill of fare would be far richer than it now is. It would cater to all viewers, not just those influenced by advertising. It would provide expensive programs for limited audiences as well as low-cost programs for mass audiences. - Milton Friedman, How to Free TV

The specifics might not be applicable to marriage... but the general concept certainly is.  If we fully subjected marriage to consumer choice, then the supply of marriage would more accurately reflect the diversity of the demand for marriage.

Over at the Federalist... Stella Morabito posted this article... 5 Questions For Libertarians Who Support Privatizing Marriage.  Here's my one question for anybody who opposes privatizing marriage...

1. What impact does a reduction of consumer choice have on supply?

A. Supply improves at a faster rate
B. Supply improves at the same rate
C. Supply improves at a slower rate

Unfortunately, this is a really difficult question for way too many people.  Alex Tabarrok is my favorite living economist... but he opposes unbundling cable.  Jason Kuznicki might not be my favorite libertarian... but he's definitely way up there.  I only have 8 followers on twitter... and he's one of them!   Just in case you're wondering, my favorite libertarian is David Boaz... in no small part because of his endorsement of tax choice.... We should get to decide how the government spends our taxes.  Even though Kuznicki is one of my favorite libertarians... he opposes privatizing marriage.  Does he also oppose unbundling cable?  Does Tabarrok also oppose privatizing marriage?

Perhaps I should point out that I'm not a libertarian... I'm a pragmatarian.  For libertarians, the only way to subject marriage to market forces would be to move marriage from the public sector to the private sector.  However, as a pragmatarian, I believe that there's a second way.  Rather than marriage going to the market... the market can go to marriage.  This second way could easily be accomplished by allowing people to choose where their taxes go.

So actually, given that David Boaz endorses tax choice, he isn't a libertarian... he's a pragmatarian.  This is an important distinction.  It differentiates those people who merely give lip service to market forces (libertarians) from those who actually appreciate and understand the benefits of market forces (pragmatarians).  Anybody who doesn't publicly endorse allowing people to choose where their taxes go... doesn't truly understand the value of consumer choice.  What about Friedman, Hayek and Smith?  Well... unfortunately, they didn't have the opportunity to consider pragmatarianism... so "conversion" wasn't an option.

What about anarcho-capitalists?  Unlike pragmatarians, they fail to recognize that the free-rider problem is a real problem.  But is the free-rider problem applicable to marriage?  Heh.  No.  Eh...?  No.  So I don't see a problem with marriage going to the market.  It wouldn't be my first choice... but it's infinitely better than allowing marriage to remain largely protected from consumer choice.

Even though I'm not a libertarian... I'll throw some answers at Morabito's 5 Questions For Libertarians Who Support Privatizing Marriage...

1. How does lack of state recognition of marriage—replaced by a system of domestic partner contracts—actually shrink government involvement? As Dalmia notes, these partnerships still need to be authorized, recorded, and registered by the state, all according to government regulations. Trading in the simple marriage license for a system of contracts seems akin to trading in a simple flat tax for today’s Internal Revenue Service tax code. The government is and will be deeply involved in the law, rules, regulation, and enforcement of contract law. So, please explain and demonstrate how the government’s role in our lives would be minimized by ending state-recognized marriage.

Uh what?  It might help to have it straight from the horse's mouth...

At the most basic level, even if we can get government out of the business of issuing marriage licenses, it still has to register these partnerships (and/or authorize the entities that perform them) before these unions can have any legal validity, just as it registers property and issues titles and deeds. Therefore, government would need to set rules and regulations as to what counts as a legitimate marriage "deed." It won't—and can't—simply accept any marriage performed in any church—or any domestic partnership written by anyone. Suppose that Osho, the Rolls Royce guru who encouraged free sex before getting chased out of Oregon, performed a group wedding uniting 19 people. Would that be acceptable? How about a church wedding—or a civil union—between a consenting mother and her adult son? And so on—there are innumerable outlandish examples that make it plain that government would have to at least set the outside parameters of marriage, even if it wasn't directly sanctioning them. - Shikha Dalmia, Privatizing Marriage Is a Terrible Idea

LOL... just in case anybody was wondering why marriage is referred to as the last legalized form of slavery.  Wives are property of their husbands?  Or is it the other way around?

Not too long ago I registered a domain name.  I didn't even have to leave the house.  And it was super cheap... and quick.  Does my domain name ownership have any legal validity?  Will it stand up in court?  If not, then I'd want a full refund.  If I didn't get a full refund, then I'd organize a boycott!  Next question...

2. How would you deal with possible legislation to license all parents, including biological parents, once the state no longer recognizes any union, including that of biological parents, as marriage? As stated above, the loss of state recognition of their union as anything more than an ordinary contract will deprive biological parents of the presumption of custody. This scenario seems to open us up to more state meddling in family life, as well as meddling by other parties—particularly when it comes to the child custody.

And I thought that marriage was the last legalized form of slavery?!  If the for-profit or non-profit organization that certified your marriage didn't also offer a really good deal on certifying your custody... then you should get a refund.  Same thing if the custody didn't hold up in court.

3. How does privatizing marriage preserve spousal immunity? At present, the government cannot force you to testify against your spouse. That is currently the law in all 50 states. But once the state no longer recognizes you and your spouse as a family unit—only as partners in an ordinary business-style contract—the case for spousal immunity significantly weakens. After all, what’s the rationale for immunity if a “marriage” is no more special than an ordinary contract, and “spouses” are merely associates, individual parties to ordinary contracts? It seems clear this would invite more state intrusion in family relationships, not less. It would invite less privacy, not more. If you disagree, please lay out your plan for preserving spousal immunity in a system without state-recognized marriage.

Hah.  "Honey, aren't you so happy that we're officially business partners!??"  LOL.  How romantic?  I'm pretty sure that there's a pretty significant difference between business partners and life partners.  And I'm also pretty confident that the market will cater to this difference.  So as long as life partners are certified as such... then the rationale for immunity is exactly the same.

4. What do you make of the fact that Sunstein, the Obama administration’s regulator-in-chief from 2009 to 2012, argues for essentially the same plan? Sunstein is a long-time advocate of policies that grow government. He’s a big fan of nanny-state style “nudging” intended to modify everyone’s behavior. Clearly, your intent for limited government deviates about 180 degrees from his intent for big government. (Ditto with Fineman’s project to end state-recognized marriage.) So it’s worth connecting a few dots and figuring out what actual path the abolition of civil marriage puts us on. Sunstein has thought this issue through for a very long time and he no doubt sees a road to bigger government. Explain how he is incorrect.

Hehe.  Oh, I'm chuckling too much.  This is by far the most solid argument against privatizing marriage.  Sunstein's super shady.  He's so shady that I wouldn't be surprised if he was somehow tricking me into writing this blog entry.  Am I being choice architectured?  It might help to do a bit of homework...

In a chapter titled "Privatizing Marriage," Thaler and Sunstein advocate, quite sensibly, moving in a libertarian direction by separating marriage and state. They point out that, despite the evidence, almost 100 percent of people who get married think that they are highly unlikely to get divorced. This is one of those systematic, but wrong, biases that people have. People also think that arranging pre-nuptial agreements will "spoil the mood." The result? Most people are vulnerable to "a legal system that has an astonishing degree of uncertainty." They advocate a nudge: a default contract that favors the weakest parties, typically women. Then, people would be free to avoid the default by tailoring a contract to their desires. They also suggest that taking marriage away from the state would, with one fell swoop, solve the thorny problem of gay marriage. Let churches and other organizations choose whatever marriages they want to approve and let people choose their churches. Interestingly, their nudge is a small part of this proposal, just as with their proposal on malpractice. - David Henderson, What Nudge Really Says   

I dunno, maybe Henderson also got choice architectured?  It's entirely possible!  That Sunstein is real sneaky!

5. How would abolishing state-recognized marriage promote freedom of association for all? The family serves as a buffer zone, or mediating institution, between the individual and the state. But logically, if the government does not have to recognize your marriage, it does not have to respect it. It does not have to recognize your family relationships at all, or your family as a unit. You are merely a separate party in an ordinary contract with someone else, as far as the state is concerned. While the contract with your associate might mutually recognize one another as a “spouse,” and claim that your biological children are “yours,” the state isn’t bound to do the same. And this legal separation in the eyes of the state is destined to reverberate through every other personal association in society. Please explain how abolishing state-recognized marriage protects the family and helps insulate individuals from an increasingly Leviathan state.

The reason that the state is Leviathan is because people don't recognize the value of consumer choice.  Tax choice only has 81 likes on facebook!  Given that people don't respect each other's choices... why should we expect anything different from the government?  Even in a representative democracy, the government can't be better than the people.  If people disrespect each other, then their government will disrespect them.

If we can convince enough people that marriage would be improved by consumer choice... then this would be a huge step in the right direction.































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Bueller's Basement

Last year I started a thread in a cactus forum... Plant On Plant Action.  It was about growing plants epiphytically.  Here was one of the replies that I received...

Aha i see your tree, so u just hack some holes in a tree and stuff um with shpagnam moss then toss some seeds or a plant in their and WAHLA! Epitree's ! - KittieKAT 

WAHLA!?  Eh?  I scratched my head for a while before I figured out that she meant VOILA!  For some reason I found it terribly endearing and WAHLA!  Now we're married!  Hah, not... really.  Those few exchanges in the thread were pretty much the extent of our interaction.

Why did I find her WAHLA! to be so endearing?  I don't know.  I don't think I'm more easily endeared than the next guy.  Or maybe I am?  My favorite movie is Chungking Express.  It has an abundance of quirky/endearing details.  That's why I've been able to watch it far more times than any other movie.

Why is there a scarcity of movies that have an abundance of quirky/endearing details?  Part of the answer surely depends on the fact that I haven't been given the opportunity to accurately communicate my demand for Chungking Express.  Am I supposed to buy the same movie 10 times?  Not really.  The supply can't be optimal when demand is largely unknown.  Producers aren't omniscient.

Netflix allowing people to choose where their fees go would certainly help clarify demand.  What about taxes though?  Movies fall in the category of goods that we treat like private goods... but doing so goes against their true nature.  So I'm inclined to believe in the Dept of Movies...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations

If we could choose where our taxes go... would we have to worry about people spending too much of their tax dollars on the Dept of Movies?  Not according to Smith...

It is thus that the private interests and passions of individuals naturally dispose them to turn their taxes towards the public goods which in ordinary cases are most advantageous to the society.  But if from this natural preference they should turn too much of it towards say, the Dept of Movies, the fall of benefit in it and the rise of the benefit in all others... such as the Dept of Books... immediately dispose them to alter this faulty distribution.  Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. 

If marriage was privatized, would we have to worry about producers allocating too much capital to supplying marriage certificates?  No... because after a certain point... there would be a surplus.  And we would know that there was a surplus because the profitability of supplying marriage certificates would decrease.  Other endeavors would be relatively more profitable... and capital would shift accordingly.

If the market went to marriage though... would we then have to worry about government producers allocating too much capital to supplying marriage licenses?  After all, there wouldn't be any profits to guide the producers.  Profit, however, is merely a reflection of consumers' perception of relative scarcity.  As long as consumers can allocate their money to communicate their perception of relative scarcity... then the distribution would still be optimal.  Because as more and more resources were allocated to the Dept of Books... there would be less and less resources available for defense.  This would increase people's perception of the relative scarcity of defense... which would increase the benefit of allocating taxes to the DoD.  But of course we don't all have the same perception of relative scarcity.  Which is a big part of the reason why consumer choice is so important.

It's really not easy to describe a mass of individuals each allocating their money according to their different perceptions of relative scarcity.

If a market is missing, then make one!

Reply to: The Relationship Economy — Part II

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The owners of the machines earned their wealth by serving consumers better than their competitors did. Would it make sense to reverse the choices of consumers and give their money to the less beneficial competitors? If not, then why would it make sense to give their money to random producers? Redistributing money makes just as much sense as redistributing votes.

But it’s really cool that you’ve identified several “sectors” of productivity that the market doesn’t compensate. It’s really recommendable…  except for the part where you conclude that the government should take money from the most effective producers and give it to these uncompensated producers. Subverting the true will of the people really isn’t cool.

My guess is that the market didn’t compensate you for this story that you’ve taken the time and made the effort to produce and share on Medium. You’re an uncompensated producer. So you can add Medium to your list of uncompensated sectors. Therefore… we should take money from compensated producers and give it to you, me and everybody else who writes a story on Medium? We should override the decisions of consumers? We should divert their votes?

Here’s the mistake in your logic. Just because Medium doesn’t facilitate compensation… doesn’t mean that it can’t facilitate compensation. All it would have to do is add coin buttons next to the recommend button. Consumers of your stories could click the penny button or nickle button or dime button or quarter button and compensate you for your stories. Voila! Compensation! Assuming of course that some readers derive some value from your stories.

According to this story of yours, the only solution to missing markets is government intervention/redistribution. But in fact… there’s another solution… to make markets.

A market is missing? Yeah? Ok, so make one! That’s what being an entrepreneur is all about. You identify a deficiency… and you correct it. If what you identified was truly a deficiency… then consumers will compensate you accordingly. The greater the compensation, the greater the deficiency that you found and corrected.

Regarding the specifics of how you’d go about making markets for all the sectors you’ve identified… well…those would have to be worked out. The basic concept boils down to facilitation. Think Uber. They created an ap that facilitated connecting drivers with people needing transportation. They also facilitated compensation. They also facilitated rating. They made it stupid easy to trade with other people.

Medium already facilitates the connection… here we are! All it would have to do is facilitate the compensation.

The benefit of making markets, rather than having the government redistribute money, is that you don’t subvert the true will of the people. If the government was any good at determining the true value of productivity… then command economies (socialism) would work just as well as market economies. Command economies fail because allocations of society’s resources don’t accurately reflect society’s valuations. The only way allocations can accurately reflect valuations… is if we give consumers the opportunity to communicate their valuations. And that’s what consumer choice effectively accomplishes. How consumers spend their money communicates their valuations of other people’s productivity. A higher valuation provides the producer with more money… which gives them greater control/influence/power over society’s limited resources. This ensures maximum benefit for society. Hence the value of making a market rather than allowing additional government intervention.

Markets facilitate communication, governments distort communication.

One “minor” detail is that markets in the sectors you identified will probably be subject to the free-rider problem. There are lots of solutions to this problem. One of my favorites is to tie compensation with promotion. The more money somebody contributes to academic achievements… the higher their name/company/website will be displayed on your homepage. Plus, every academic achievement will probably have its own page… and to the right or left of the achievement you can display donors (name/company/website) sorted by the amount they contributed to that achievement.

With this system, you can help ensure that the academic achievements are actually relevant. It’s doubtful that there’s going to be much interest in contributing to achieving a degree in underwater basket weaving. But we can imagine law firms competing to reward law degrees. And Silicon Valley competing to reward technology degrees. Their contributions will help influence career decisions.

A market for academic achievements would clarify the demand for academic achievements. This information would help people make informed academic decisions. In the absence of this information, or if this information is distorted by government intervention, then the logical result is a garbage in, garbage out (GIGO) situation. We end up with degrees to nowhere just like we end up with bridges to nowhere and wars to nowhere.

Knowing society’s valuations of productivity is the only way we can put society’s limited resources to their most valuable uses.

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Where's Alvin Roth when you need him?

Me Being Unclear On The Importance Of Clarity

I’m mostly convinced, and this article supports me regarding architects, that opacity in communication is inversely correlated with the quality of the content. - Daniel Miessler, Stop Being Proud of Complexity

I wish that your rule was true! Then we could safely skip over any opaque writing and be utterly confident that we weren't overlooking an Easter Egg!

But think about a layman trying to read some programming code. It would be the epitome of Greek to him. This doesn't necessarily mean that the code is not conveying something important.

Check this doozy out...

Recall the strong path dependence of individual connectionist learning. The use of external memory systems helps ameliorate some of the effects of this path dependence by allowing achieved innovations ("redescriptions") to be transmitted between individuals. This allows the collective construction of representational trajectories that crisscross individual cognizers and hence increase the chance of a good idea finding a viable niche for further development. This is, of course, an old idea. But it is one whose value cannot be fully appreciated except in the context of our increasing understanding of the boundedness and extreme path dependence of individual reason. - Andy Clark, Economic Reason: The Interplay of Individual Learning and External Structure

Hah... what? I don't grasp everything that's going on here... but I like what I do grasp! It's definitely a good idea to increase the chances of good ideas finding fertile places to germinate, grow and benefit humanity. Honestly though I only really skimmed the paper. I'd like to read through it more carefully... someday.

The issue is that communicating and understanding are two entirely different skill sets. Some people have one skill but not the other... while some lucky bastards have both skills!

Personally, I'm a lot better at understanding than I am at communicating. Words fail me more often than not! There's always room for improvement though. But, on the other hand, a jack of all trades is a master of none. More breadth means less depth. Everybody learning to read/write programming language would shift their limited time away from other uses. However, everybody learning programming language would increase the rate at which programming languages were improved... which would decrease the time required to learn programming languages. Eh? Does English's rate of improvement depend on the number of speakers? But English doesn't seem like it's gotten easier to learn over time. I have no idea if that's true or not.

Anyways, regarding the distinct skills... one metaphor that comes to mind is playing volleyball... one person "sets" the ball... and another person "spikes" it.  It's a division of labor.  One person finds an Easter Egg... and another person clearly communicates why it's an Easter Egg. This clear communication increases the chances that other people will be able to perceive different and potentially beneficial uses of the Easter Egg.

Except, when there are a lot of balls being "set"... what are the chances that a clear communicator will "spike" the most valuable one?

Right now we use citations to determine a paper's importance. More citations means more importance. This is a defective system because, in the real world, importance is a function of sacrifice. And a citation isn't much of a sacrifice. Just like a vote isn't much of a sacrifice. Same thing with links. Here's a link to the most widely cited defense of government. The fact that I linked to this paper doesn't really clarify my demand for this paper. Well... I actually linked to the search results for this paper... the order of which was determined by links.

Eventually we'll switch over to putting our money where our citations, links, votes and likes are. When we quantify our interests then, and only then, will it be readily apparent which discoveries should be clearly communicated sooner rather than later. Personally, I'd spend a lot more money on this link...

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his "true" preferences for public goods. - James Buchanan, The Economics of Earmarked Taxes

I'm certain that this passage is opaque to most people... but, based on my understanding of public finance, the content is very high quality. The content gets to the heart of the matter of government.

Samuelson said that we need taxes because, without them, people will lie about their valuations of public goods in order to save a buck...

Gov: How much do you value national defense?
Citizen: Does my payment depend on my answer?
Gov: Yes
Citizen: Then not very much

Buchanan pointed out that, if taxes were a foregone conclusion, then there's no point in lying...

Gov: How much do you value national defense?
Citizen: Does my tax obligation depend on my answer?
Gov: Nope, just your allocation
Citizen: Then, allocate 100% of my taxes to defense

The free-rider problem means taxation... it really doesn't mean allowing 500 congresspeople to allocate everybody's taxes. In other words, the free-rider problem really doesn't mean socialism.

Socialism would work if our valuations do not matter. However, our valuations do matter... which is why socialism does not work.

Clearly communicating with words is important... but words can never communicate as clearly as actions.  How we spend our money reflects our priorities... which reflect our preferences as well as our circumstances... which are constantly changing. So when we spend our money... we effectively communicate our preferences and changing circumstances to the rest of society... and limited resources freely flow in the most valuable directions.

So if you care about clear communication... then you should care about the fact that actions (spending) speak louder than words (votes, likes, links, citations, etc). Giving more weight to words results in a garbage in, garbage out situation.

Scott Sumner - Keynesian Imperialist

And I'd say the same about Jose's comments on Keynesians. Lots of Keynesians do favor wealth redistribution, but there isn't any necessary linkage. As I point out in this post, it's perfectly possible to be a conservative Keynesian and favor small government. You can simply use tax cuts as your preferred form of fiscal stimulus. - Scott Sumner, I don't favor an interventionist monetary policy to fix recessions

Ouch, my brain.

This is so many types of weird.

A small government Keynesian (SGK)?  This is perfectly possible?  Like, Big Foot is perfectly possible?  What's the point in telling us that Big Foot is perfectly possible?  I'm not interested in the perfect possibility of his existence... I'm interested in evidence of his existence.  If Sumner knows of a SGK then he should tell us this person's name!  So we can take pictures.  And perform experiments.

Maybe Sumner is a SGK?  If not, then why not?  Let's pretend that he is!

Let's say that Sumner and Henderson both want tax cuts.  However, Sumner is a SGK while Henderson is not.  This is because Sumner wants tax cuts to stimulate the economy while Henderson just wants tax cuts to...uhhhh... not stimulate the economy.

Sumner:  I support tax cuts so that people will have more money to spend!!!
Henderson:  I support tax cuts so that people will have more money to save!!!

I take issue with this idea of needing, for any reason, to stimulate the economy.  If the economy has problems... if it's sluggish...  then it's because resources are inefficiently allocated.

Like, one time, my gf accidentally threw her keys away.  Hey Sumner, how do you translate her action into "econ"?  You know the answer... right?  Yeah?  The answer is... she "inefficiently allocated her keys".  Because she inefficiently allocated her keys, we wasted several hours searching for them.

When Sumner talks about "fiscal stimulus"... then I honestly have to wonder whether he truly grasps what it means for resources to be (in)efficiently allocated.

My second favorite liberal in the whole wide world kinda has this rule...

Quiggin's Implied Rule of Economics (QIRE) - Society's limited resources should be put to more, rather than less, valuable uses

Does Sumner think QIRE is a good rule?  Wouldn't you like to know?  I sure would.

Personally, I think it's an excellent rule!  Society maximizes benefit when it does the most beneficial things with its limited resources.

So where is the role for "fiscal stimulus"?  In theory, it has a role when the economy needs fixing.  But the only reason that the economy should ever need fixing is because QIRE is being violated.  The goal for every economist should be to clarify how, exactly, QIRE is being violated.

Tyler Cowen recently linked to this article in the LA Times about minimum wages...

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. 

Some cities, including Santa Monica and West Hollywood, are already considering raising the minimum wage. However, larger cities in the county, including Pasadena and Long Beach, have remained on the sidelines of the debate. - Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

Eric Garcetti is the mayor of Los Angeles.  Here's his logic...

Cause: LA mandates higher wages
Effect: LA increases its supply of workers

By mandating higher wages, Garcetti is effectively saying, "Hey everybody in the world!  LA has a shortage of workers!!!  So we're increasing your incentive to help us solve this huge problem!!!"

LA has a shortage of workers?  I guess.  Because, why else would Garcetti want to increase the supply of workers?  It sure wouldn't make sense to increase the supply of workers when there's a surplus of workers.  Except, if LA truly does have a shortage of workers... then why in the world would the mayor need to mandate higher wages?  Usually prices automatically increase when supply doesn't meet demand.  Evidently Garcetti is under the impression that prices are broken.  From his lofty vantage, the mayor can clearly see that LA has a shortage of workers... and the price of labor does not accurately communicate this reality.

Who should we trust?  Garcetti?  Or prices?

If we trust prices then, in reality, LA has a surplus of workers.  And raising the minimum wage will only make this problem worse.  It will result in an even more inefficient allocation of unskilled labor.  It will hurt the economy.

And how do we help the economy?  Stimulus!  Uhhhh...no.  In order to help the economy we first have to identify exactly how QIRE is being violated.  When my gf threw her keys away she violated QIRE.  When Garcetti throws workers away he violates QIRE.

Cause: Garbage in
Effect: Garbage out

Society's limited resources are misallocated and the inevitable problems are "solved" with... stimulus.  And what's stimulus?  The misallocation of resources.    

Keynesians really did an excellent job of capturing the narrative.  I'll give them that!  The topic of debate isn't the system... it's stimulus.  Scott Sumner is allocating his scarce resources to help promote this narrative.  The economy isn't my girlfriend and I digging threw the trash to find her keys.  It's not unskilled workers wandering around LA trying to find jobs.  Instead, the economy is some sentient being... completely independent of individuals.  When this being has a problem... then invariably the solution is stimulus.  Just like in the military how Motrin will "solve" any problem.  Sucking chest wound?  Have some Motrin.

Motrin is an easy "fix".  Just like stimulus.  Even the word "stimulus" is easier to write than "inefficient allocation of resources".  The revolution was postponed...yet again, because of semantics.  The other side has all the best word smiths!  And in our superficial system, style always wins over substance.