Now, three years later, for me the real issue is that Kwak doesn't understand what markets are good for. Markets are incredibly useful because correctly guessing demand is incredibly difficult. The crazy thing is that this critique of Kwak's understanding is also applicable to even the staunchest market defenders such as yourself. This is easy enough to prove.
Here you supplied a story about basic income. But what would you guess is truly the demand for this topic? Again, if correctly guessing demand was so easy, then markets wouldn't be so useful. Your blog is not a market... therefore it's clear that you don't truly understand what markets are good for.
Turning your blog into a market would be really easy. Readers could simply "donation vote" (DV) for their favorite stories. DV is most commonly associated with people using donations to decide who will kiss a pig, or get a pie in the face, or get dunked into a water tank. Sometimes zoos use it to name a baby animal. But DV is also used to rank/sort/order/prioritize all the non-profits in the world. The Red Cross, for example, receives very many donation votes which is why it can use a very large portion of the world's limited resources.
Right now FEE is searching for a new president. How are the candidates going to be ranked? They definitely aren't going to be ranked by DV. Therefore, FEE doesn't truly understand what markets are good for.
Last year, much to my very pleasant surprise, the libertarian party (LP) used DV to choose its convention theme. Unfortunately, the LP didn't also use DV to choose the convention location, date and speakers. So just because an organization uses DV doesn't guarantee that it knows why the market is so useful.
The market is an incredibly useful tool. On a daily basis we use this tool to help each other prioritize. Yet, the LP has only once used this tool to improve its own priorities. FEE has never used this tool to improve its priorities. As a pro-market blogger you're in the same boat. Strange as it might seem, right now I'm the only person preaching the benefits of DV. Does this mean that I'm the only person in the world who truly understands what markets are good for? I guess. I'm the only person in this boat. Either I'm in the wrong boat, or everybody else is. I'd really hate to be in the wrong boat so please, if you think that I am, then I'm all ears. Make the case that some producers, such as pro-market bloggers, should be exempt from receiving specific and substantial feedback from consumers. Or make the case that cheap signals are just as credible as costly signals.
I clicked the *heart* button because… there’s a considerable amount of economic goodness in your story. However, there is a pretty glaring logical inconsistency. You start with a not unreasonable criticism of traditional rent… “traditional rent is income received not because of anything a person or business produces”… but then you go on to propose and promote virtuous rent. However, virtuous rent would also be “income received not because of anything a person or business produces”.
It can be very reasonably argued that your criticism of traditional rent is far more applicable to virtuous rent. With traditional rent, you have to spend your own time and money in order to make money. There’s uncertainty and risk and you might lose your shirt. But with virtuous rent, you’re not even spending your own time and money. You’re certainly not managing a property. You’re certainly not endeavoring to keep customers happy. You’re certainly not wining and dining politicians and gambling that they’ll keep their word. With virtuous rent there’s absolutely no sacrifice or diligence or effort or risk involved. It’s pure reward.
Income isn’t a function of owning resources, it’s a function of using them…
Moreover, what is a resource today may cease to be one tomorrow, while what is a valueless object today may become valuable tomorrow. The resource status of material objects is therefore always problematical and depends to some extent on foresight. An object constitutes wealth only if it is a source of an income stream. The value of the object to the owner, actual or potential, reflects at any moment its expected income-yielding capacity. This, in its turn, will depend on the uses to which the object can be turned. The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use which confers it. Not ownership but use of resources is the source of income and wealth. — Ludwig Lachmann, The Market Economy and the Distribution of Wealth
If it didn’t matter how resources were used, then all lottery winners would increase their wealth.
Even if there wasn’t a logical inconsistency at the heart of your support for virtuous rent… you still have a fundamentally flawed premise with regards to externalities. There are numerous and significant negative externalities associated with producing sofas. Do these negative externalities represent a cost to society? Sure. Definitely. But do you think that you can adequately guess the size of this cost? If so, then do you also think that you can also adequately guess the size of the benefit? Of course there’s absolutely no need for you to do so because that’s what consumers are for. But in the absence of the spending decisions of consumers… do you think that you could adequately guess the size of the benefit? I’m sure that you recognize that this is the very premise of socialism. I’m also sure you’re aware that socialism doesn’t work so well at guessing society’s benefits or costs.
It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community’s utility and sacrifice against each other. — Knut Wicksell, A New Principle of Just Taxation
Sofas, like every product, have a light side (yang) and a dark side (yin). The yang of sofas is having a comfortable place to cuddle. The yin of sofas is living in a more polluted world. It’s just as beneficial to know how much consumers are helped by sofas’ yang as it is to know how much consumers are hurt by sofas’ yin. Consumers have the freedom to use their cash to communicate their valuation of sofas’ yang… but they have far less freedom to use their cash to communicate their valuation of sofas’ yin. This is because of taxes.
The premise of taxes is pretty reasonable…. the free-rider problem. When you spend your money to communicate your valuation of a sofa’s yang… then you and your cuddle buddy get the sofa all to yourselves. I can only sit on, and enjoy, your sofa if you give me permission to do so. However, if you spend your money to communicate your valuation of a sofa’s yin… then you don’t get the marginally more clean world all to yourself. You have to share it with me and everybody else.
So the premise of taxes is pretty reasonable. What is not reasonable is the fact that planners get to decide for us how our taxes are spent. It really doesn’t matter that we get to elect our planners… it’s still socialism. The logical and detrimental consequence of having socialism in our public sector is that planners will not adequately guess our true valuations of the yin of products… just like planners cannot adequately guess our true valuations of the yang of products.
The solution is simple. We create a market in the public sector by allowing taxpayers to choose where their taxes go (pragmatarianism). To give credit where credit is due… the Nobel prize economist James Buchanan deserves credit for this idea… The Economics of Earmarked Taxes. Netflix subscribers already have to pay a fee… so they might as well use their fee to accurately communicate their valuation of the content. They have absolutely no incentive to pretend that they value some content less than they truly do. “Lying” won’t reduce their Netflix fees… so they might as well be honest.
Right now we have a market in the private sector. Consumers have absolutely no incentive to lie about their valuation of sofas’ yang. If we had a market in the public sector…. then taxpayers would have absolutely no incentive to lie about their valuation of sofas’ yin. Instead of progress being lopsided and skewed to the superficial, it would be balanced and harmonious.
Economic enlightenment means clearly seeing that the true source of society’s problems is not the market in the private sector… it’s the absence of a market in the public sector.
It’s neat, and smart, that you juxtaposed the two things. But it doesn’t seem like you did an adequate job of making the case for subsidizing lower productivity workers. Why would we want to subsidize lower productivity workers? This paragraph seemed to be the extent of your case…
Rising premium on quality signals like educational attainment, polarizing wages, and lower social mobility / “Coming Apart” dynamics may therefore all be symptoms of the same phenomena. For better or worse, pooling equilibria promoted a degree of churn between rungs on the social ladder, and denied the ability of imperfect signals to sort one into a low wage destiny.
I’m pretty sure that Ezra Klein isn’t going to hire me as a writer. Which makes sense… I’m a pretty terrible writer. But if he did hire me… then I’d get paid more (certainly more than Medium pays me!)… and somehow I’d also become a better writer? A much better writer? If there was solid evidence that this was indeed the case then I think that Klein would act on it. Who doesn’t love a diamond in the rough?
However, your conclusion doesn’t seem to be that Klein really needs to open his eyes and see and appreciate and understand the enormity of my raw and untapped potential… your conclusion seems to be… universal basic income.
You give up on trying to persuade Klein of my incredibly latent value and instead reach into his pocket and put his money into my hand. Thanks? My writing skills would greatly improve? Voila!? I would shine on like the crazy diamond that I truly am?
Speaking of diamonds… I don’t think that I’ve been equally productive in every romantic relationship that I’ve ever been in. Just like I don’t think that all of my relationships have been equally healthy or beneficial. If it was possible, would it be desirable to mandate a minimum benefit for relationships? I don’t think it would be. You’d be giving people an incentive to stay in less productive relationships.
What if people could get the minimum benefit even if they weren’t in a relationship? It seems obvious that this would decrease their incentive to find and start productive relationships.
No two relationships are equally productive. This isn’t just true of romantic relationships…. this is true of all relationships. The minimum wage gives workers an incentive to stay in less productive relationships. And a basic income would decrease people’s incentive to find and start productive relationships.
A good relationship depends on good communication. People’s willingness to sacrifice is a super important form of communication. Actions speak louder than words. So it’s a problem when the government decreases the goodness of communication. Like most government “solutions”, universal income would make the problem even worse.
If you truly want to help people… then you should focus on improving the goodness of communication. Can we get rid of minimum wages? At this point in time it seems a bit outside our range of effectiveness. But what about here on Medium? What if there were some coin and dollar buttons below every story?
If you liked my story, despite how poorly it was written, you could clearly communicate your valuation of my content by clicking the 50 cent button. Fifty cents would be automatically withdrawn from your digital wallet and deposited into mine. The total value of my story would increase by 50 cents. When people searched for stories the default sorting would be by their value. It would be easy to find the most valuable stories. Once I had enough money in my wallet… I could cash out and Medium would take a very fair and reasonable cut.
Wouldn’t this system increase the goodness of communication? Of course! It would eliminate the payment problem. However, there would still be the free-rider problem. So what if, for example, Netflix allowed their subscribers to use their monthly fees to communicate their valuation of the content? A while back I sat down and figured out how I might allocate one month’s worth of fees…
1. Amelie: $1.50
2. Black Mirror: $0.25
3. Castaway on the Moon: $0.25
4. Rake: $1.25
5. Shaolin Soccer: $0.50
6. Sidewalls: $0.25
7. Snatch: $0.25
8. Spaced: $1.00
9. The League: $0.75
10. The Man From Earth: $4.00
Yeah, it was really hard. Talk about opportunity cost. But I had absolutely no incentive to understate my valuations. Doing so certainly wouldn’t have decreased my monthly payment.
Wouldn’t this system (the pragmatarian model) increase the goodness of communication? Wouldn’t consumers have better relationships with content creators?
Minimum wages decrease the goodness of communication. And so would a universal basic income. Decreasing the goodness of communication makes society worse. If we want to make society better… then we need to increase the goodness of communication.
Markets are all about the goodness of communication. Improving communication means improving markets. Better communication means better markets. Right now Medium is a pretty terrible market. We can’t use our cash to communicate our valuations of each others’ stories. Facilitating payments would make Medium a much better market. If the free-rider problem is a real problem, which it probably is, then switching over to the pragmatarian model would make Medium an even better market.
How many websites are really terrible markets? Is Vox a terrible market? Of course it is. I’m sure you’ve never used your cash to communicate your valuation of any of Klein’s stories. Klein is certainly a better writer than I am… but to the extent that I understand what makes markets better… I’m certainly a much better economist than he is. He’s a great writer and a terrible economist. I’m a terrible writer and a great economist. Sounds like a match made in heaven! But he never returns my phone calls. :(
And even with those websites that do put their content behind paywalls… can subscribers use their monthly payments to communicate their valuation of the content? Nope. So they are terrible markets as well.
The internet has a gazillion really terrible markets. If we vastly improved these markets by applying the pragmatarian model to them, then we would all clearly see that any perceived necessity of a universal basic income was the consequence of people’s failure to understand the importance of good communication. And people’s failure to understand the importance of good communication is the consequence of my terrible writing skills.
Of course I might be wrong! I might have fallen asleep in a few econ classes or zoned out while reading a few econ books. So if you think there are any details, minor or major, that I’m missing… please enlighten me!
