When Nassim Taleb Is A Beautiful Fly On Every Wall

Feel free to use Medium to comment on this story... The Importance Of Accurate Feedback Loops

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

In a recent blog entry I had no problem admitting that the economist Paul Romer broke my intellectual heart when he didn't show any interest in solving this pretty puzzle.  *sigh*  Oh well.  It's time to move on and take another risk.  I'm in the mood for intellectual love.

What about Nassim Taleb?  A while back I really enjoyed his book The Black Swan.   Recently I discovered and enjoyed his stories on Medium.   In this story...  How To Legally Own Another Person.... guess what I found?  I found a very pretty puzzle!

After being rejected by Romer... I feel some... errr... performance anxiety as I sit here trying to figure out how I'm going to paint this puzzle for Taleb.  I fear that the puzzle that I paint won't be pretty enough for him to truly appreciate!  So I must dig deep and utilize as much of my crazy creativity as I can capture.

I know that Taleb appreciates a good story.  The problem is that I'm a terrible story teller.  Why am I so terrible at telling stories?  I don't know.  But I'm not going to let this "minor" detail stop me from telling Taleb a story.  Let's see... where to begin...

Minimizing Economic Wackiness

Reply to: Thank you for the thorough and thoughtful response.

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

A year ago I created a group on reddit for participatory budgeting (PB). Not too long afterwards I ended up getting shadowbanned. Stupid reddit.

Apart from the banishment… I like the idea of reddit. It’s interesting and useful to know the relative popularity of ideas. 

The issue is when resources are allocated according to popularity. Take prohibition for example. The idea was popular enough for enough people to vote for it. And in order for the law to be enforced… massive amounts of resources were diverted away from numerous alternative uses. 

Allocating society’s limited resources to prohibition created X amount of value for society. If all these resources hadn’t been allocated to prohibition… then they would have created Y amount of value for society. 

If X > Y… then why bother with markets? Why should we want any consumer choice when voter choice and/or representative choice provides society with more value? 

With pragmatarianism… directly allocating taxes would be optional. Nobody would force you to choose where your taxes go. If you didn’t want to shop for yourself in the public sector…you could just give your tax dollars to congress. They would be more than happy to allocate your taxes for you. What percentage of the population do you predict would choose to have congress allocate their taxes for them? 

If you want to argue that representative choice creates more value for society than consumer choice does… then, in theory, you should predict that most people would choose to have congress spend their taxes for them. You would be the first to do so! For some reason, nobody ever predicts that most people will want congress to spend their taxes for them. Why doesn’t anybody predict that there’s a large demand for impersonal shoppers? Some possibilities…

1. It’s perceived that taxpayers don’t want more value
2. It’s perceived that few taxpayers recognize more value
3. It’s perceived that representatives don’t truly create more value

I’m pretty sure that we can cross out the first one. Because… who doesn’t want more value? Every living organism wants the most bang for its buck. If the second one is true… then we can’t have any confidence that voters (re)elect representatives who truly create more value. Which leaves us with the third explanation.

Would Obama allocate his taxes himself… or would he have congress allocate his taxes for him? Would smart people allocate their taxes themselves… or would they have congress allocate their taxes for them? If the answer isn’t readily apparent… then I think the jury’s still out regarding the efficacy of impersonal shoppers. 

Pragmatarianism, as you describe it, is one way of using the benefits of markets to shape public policy. But relying on departments (such as the EPA in your example) to adequately inform the public, and then relying on the public to magnanimously make decisions about somewhat abstract, long-term issues, seems impossible. As you mention about the free-rider problem with public goods, people are always pulled toward self-interest, and *short-term* self interest at that. I don’t see any way such a full degree of direct public control could lead to anything planful, let alone thriving.

If the EPA is going to improve at a faster rate without consumer choice… then why would this only be true of government organizations? If the government… either through PB or representatives… is going to allocate the optimal amount of funding to the EPA… then why would this only be true of government organizations? 

When it comes to allocation methods… it’s not economically consistent to simultaneously support markets and not-markets. With markets… people’s say is earned. Not-markets reduce people’s earned say. PB eliminates everybody’s earned say and gives them all an equal say. According to PB… people’s value judgements are equally good. People should all have the same power/control/influence over society’s limited resources… regardless of how resourceful or wasteful they’ve been. However, according to representation… people’s value judgements are not equally good. Some people’s values judgements are better… and we can effectively identify these people and give them more say by using a system where everybody has an equal say (voting). The additional say that is given to representatives has to come from somewhere though… and that somewhere is people’s earned say. 

Utilizing all three allocation methods results in a very contradictory, confusing and counterproductive system…

There’s a long line of people waiting to get into Bob’s Bakery. Evidently they really love his baked goods! So they are willing to wait in line for the opportunity to put their money into his pocket. After they purchase Bob’s delicious baked goods… they head over to the townhall where they engage in some PB. This entails reaching back into Bob’s pocket… taking out some of the money that they just put in there… and voting on how it gets spent. Uh… what? They already decided how it should be spent! They decided that it should be spent on Bob’s baked goods. Do they, or do they not, want more of Bob’s baked goods? 

If we make the crazy assumption that Bob’s customers are actually going to vote for spending their/his money on the public goods that Bob needs in order to improve his business… then we also need to make the crazy assumption that his customers somehow know better than he does which public goods these are. Without these two crazy assumptions… the logical result is that people are going to be made worse off. Why? Because they are veering significant resources away from something that, according to their own spending decisions, makes them better off (more of Bob’s baked goods).

This same economically wacky process gets repeated, more or less, when Bob’s customers vote for Elizabeth Warren…

There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you! But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. — Elizabeth Warren

With PB… one of the the crazy assumptions was that Bob’s customers know better than he does which public goods he needs more of. With representation… the crazy assumption is that Bob’s customers know that Elizabeth Warren knows better than Bob does which public goods he needs more of. Uh… what? So Warren knows best? 

The fact of the matter is that nobody has more incentive than Bob does to try and ensure that the line outside his bakery is as long as possible. So we can be confident that, if Warren truly does know better than Bob does which public goods that he needs more of in order to get richer… then he’ll be more than happy to put his taxes in her pocket. 

Personally though… I’m skeptical that 500 representatives can know better than millions and millions of business owners which public goods that they need more of in order to successfully operate their diverse businesses. In other words, I’m skeptical of command economies. In other words, I’m skeptical of socialism. Socialism doesn’t become any less sketchy just because it’s in our public sector. Overriding society’s dispersed knowledge and individual incentive is just as defective for public goods as it is for private goods.

In order to minimize economic wackiness… the basic rule should be that, once you voluntarily and intentionally and willingly put your money into somebody else’s pocket… then you shouldn’t be allowed to remove any portion of it. If you do happen to feel that Bob didn’t give you the most bread for your buck… then learn your lesson and buy your bread somewhere else next time. Consumer choice, driven by self-interest (the desire to maximize benefit) is how we truly maximize the rate of improvement. 

Regarding short-term self interest… what is it anyways? Partying when you should be studying? Playing when you should be working? Consuming when you should be producing? Taxpayers, by definition, are the people who give up momentary pleasure for future benefit.

Socialism wouldn’t be such a disaster if well-planned steps were usually in the right directions. But no amount of planning can guarantee that a step will be in the right direction. This doesn’t mean that we should eliminate planning… it means that we should never be so confident of our plans that we force people to go along with them. Solely relying on persuasion maximizes the flow of information. Like so! 

Decentralized planning helps society hedge its bets against a future that’s always uncertain. Which is why pragmatarianism is the world’s best plan. But as good as it is… I can never be 100% certain that it doesn’t have fundamentally fatal flaws. Therefore, I would never force anybody to invest any amount of their limited time/energy/money in it. 

Anyways, I appreciate your thoughts as well! 

Why Is Every Forum A Market?

A thread I posted over at the Nation States forum...Is This Forum A Market?

Linked to it from reddit...

Libertarian subreddit: Challenge to Liberals:  1 upvote, 6 downvotes
Dark Enlightenment subreddit: Challenge to Liberals:  4 upvotes, 1 downvote
Economics subreddit: Challenge to Liberals:  1 upvote, 3 downvotes

The economics subreddit is mostly liberals...so that makes sense.  But I'm not sure how to explain the disparity between the libertarians and the neoreactionaries.

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

[note]You don't have to be here. Really.[/note]

In a few threads I've argued that this forum is a market. Nearly everybody categorically rejects the concept.

In the most recent thread where I brought it up, I was given the green light to create a thread dedicated to the topic.

So here I am. Why do I think this forum is a market?

First off...it's not just this forum...any forum is a market. Forums are markets because they have...

1. demand
2. supply
3. choice

Right now I'm being a producer. I'm using society's limited resources to create/produce/supply a new option (builderism). The resources that I'm using are...

My own resources...

-Brain
-Time
-Energy
-Calories
-Keyboard
-Computer
-Monitor
-Mouse
-Internet
-Electricity
-etc

This website's resources...

-Software
-Server
-Storage space
-etc

The variety of resources required to create this one thread are really too numerous to list in their entirety. This concept was wonderfully illustrated by the I, Pencil video.

So here I am taking these resources and putting them to a new use. I'm actually being quite unreasonable...

The reasonable man adapts himself to the conditions that surround him. The unreasonable man adapts surrounding conditions to himself. All progress depends on the unreasonable man. - George Bernard Shaw

The economist who has by far done the most work in the area of entrepreneurship is Israel M. Kirzner...

Entrepreneurial discovery represents the alert becoming aware of what has been overlooked. The essence of entrepreneurship consists in seeing through the fog created by the uncertainty of the future. When the Misesian human agent acts, he is determining what indeed he 'sees' in this murky future. He is inspired by the prospective pure profitability of seeing that future more correctly than others do. These superior visions of the future inform entrepreneurial productive and exchange activity. The dynamic market process is made up of such profit-motivated creative acts in regard to the future. - Israel M. Kirzner, How Markets Work

I'm sure some of you will quickly object, "Hey! But you're not making any money by creating this thread!"

As a society we do tend to equate profit with money...but it's more accurate to think of profit as gain. I'm making the effort to put a new option on the table because my individual foresight indicates that it might be worth the risk to do so. Clearly I want the largest benefit for the smallest cost. If I perceived that the only thing that I'd gain from this endeavor was an old dirty sock...then I would do other things with my resources.

Personally I like to dream that this new thread/product/option will help everybody understand how markets work. Economic enlightenment has extremely beneficial consequences.

It's important for me to emphasize that it's my potential personal gain/benefit that incentivizes me to make the effort to put a new option on the table. Incentives really matter.

Land occupied by such tenants is properly cultivated at the expence of the proprietor as much as that occupied by slaves. There is, however, one very essential difference between them. Such tenants, being freemen, are capable of acquiring property, and having a certain proportion of the produce of the land, they have a plain interest that the whole produce should be as great as possible, in order that their own proportion may be so. A slave, on the contrary, who can acquire nothing but his maintenance, consults his own ease by making the land produce as little as possible over and above that maintenance. - Adam Smith, Wealth of Nations

Once I put this new option/thread/product on the table...then it's up to you, the consumer, to decide whether you'll "buy" it. Buying this thread won't cost you money...it will cost you time. And your time is an extremely limited resource. This isn't a video game where we get unlimited lives. Not yet at least.

It is through the gaze of my extinguished self that I realize the limitations that make scarcity necessary. Through this gaze into my own limitedness - a limit always established by the impending cessation of space and time for me - through this gift of death, I discover in nature the best way to be efficient. Thanks to death I must choose x rather than y. This has become a feature of 'nature' - a demystified 'nature' that bears no possibility of participation in the eternal. This is consistent with capitalism. - D. Stephen Long

You, as the consumer, inherently understand that any time you spend on this thread (x) can't also be spent on other threads (y). This is one of the most important economic concepts...opportunity cost.

Given that your time is limited...you desire to get the most value for your time. The most mucus for your minute. Ugh, that's really not right. The most marjoram for your minute? The most mayo for your minute? The most mustard for your minute? The most macadamias for your minute? The most maybelline for your minute? The most muscles for your minute? The most music for your minute? HAHA...I got it! The most magic for your minute! The most magic for your moment? The most magic for your musical moments?

Markets are magic because of consumer choice. You, the consumer, you know your preferences, you consider your circumstances, you survey your situation, you ponder your priorities, you weigh the alternative uses of your time and you sacrifice the least valuable uses. As a result of your choice (demand/input), how society's resources are used (supply/output) becomes that much more relevant/valuable/magical to you. Consumer choice is consumer sovereignty.

But if only one person buys my product (this thread)...then my buddy and I...we aren't going to significantly shift the supply in our direction. In order for more resources to flow in our direction...more and more consumers would have to agree that this is a valuable direction. Imagine 100 people replying....1,000 people replying....10,000 people replying. Visualize people joining this forum in droves in order to reply.

More and more replies to this thread would require more and more servers and more and more servers require more and more space...one warehouse...one block...two blocks...more and more blocks of server space.

In a market, supply shifting is the epitome of a group valuation/vetting process. Significant supply shifts require crowd vouching.

The multitudes vouching for my use of society's resources means that I'd receive a mountain of minutes...a moon of moments. A mountainous moon of magically musical moments. And it's easy to see the moon...and it's easy to see that I'm the only one who owns it...and it's easy to think that it's unfair. But is it unfair? Did I force anybody to give me their time? In case you missed it, you don't have to be here. Really.

Some threads in this forum are more magical than others...and resources are allocated accordingly. As a result of the free flow of input, the allocation (distribution) of resources is efficient. This means that redistributing moments would definitely destroy magic. It would destroy magic to mandate the minimum amount of minutes/replies that every member of this forum earns.

People want minimum wages just like they fail to grasp that this forum is a market. The two are one in the same. If somebody grasps that this forum is a market then they won't want minimum wages to be mandated.

If this forum wasn't a market...then it would be a command economy. We wouldn't be able to shop around for the most valuable threads to spend our time on. Instead, we'd be marionettes, our time would be allocated for us. Planners would create threads and allocate our time/replies accordingly. It's a given that we'd spend most of our limited time reading and writing about topics that really didn't match our preferences.

Do you think it's a coincidence that there isn't a single forum that is a command economy or a representative democracy? Maybe? Perhaps it's just been overlooked? It's entirely possible that nobody thought to create a forum structured exactly like our public sector. Well...now the thought is out there. If you truly believe that our public sector creates so much value...then you'll jump at the chance to earn your own magic moon by starting a representative forum.

Just take your business proposal to the bank. Tell the loan officer that you want to start a forum that works exactly like our public sector. How could he possibly doubt the business model? Or, if you want to be ironic, try and crowdfund your top down forum.

Boy...wouldn't I be surprised if one of you actually did it? I'd be even more surprised if you made any money. Holy cow would you make me eat my words. How awesome would that be for you? You'd have plenty of money and real evidence that command economies can function and even thrive.

It's funny because the Nobel Prize winning liberal economist who provided the best (most widely cited) economic justification for our government is the same guy who said, "the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."

C'mon you believer...create your command forum. If the proof doesn't quickly materialize then cry aloud to Samuelson; for he is a god; either he is talking, or he is pursuing, or he is in a journey, or peradventure he sleepeth, and must be awaked.

Follower Redistribution

There are five search results for "Follower Redistribution" but 485,000 search results for "Wealth Redistribution".

Comment on: valuation dilemmas

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

Hi, how's it going? I have a blog too...but you're a much better writer than I am. My blog only has 10 followers... :(   Noah Smith's blog, on the other hand, has 660 followers. It's follower inequality...and I'm all about follower redistribution. You too?

Ok, the socialist calculation debate. I like the part where you've been reading quite a bit about it. Unfortunately, you haven't grasped it.

Shopping is the process by which consumers communicate their preferences and circumstances to producers. If producers were omniscient...then we wouldn't need to waste our time shopping. But producers are not omniscient. Nobody is omniscient. You had absolutely no idea that I was going to spend any amount of time on this product of yours.  Just like I have no idea how much time you're going to spend on this product of mine.

Maybe you'll simply delete my reply? Maybe it won't match your preferences like your blog entry matched my preferences?

You know who really matches my preferences? Bastiat. I really love that guy. He destroyed Keynes before Keynes was even born...

This means that the terraces of the Champ-de-Mars are ordered first to be built up and then to be torn down. The great Napoleon, it is said, thought he was doing philanthropic work when he had ditches dug and then filled in. He also said: "What difference does the result make? All we need is to see wealth spread among the laboring classes."

If your blog entry was the equivalent of a ditch being dug and then filled in over and over again...then I'm pretty sure I wouldn't have spent any of my limited time replying to it. I would have just assumed that you were insane.  Just like if some guy offered to dig up and replace my lawn each week.

The market works because you're not going to spend your money/time on nonsensical uses of society's limited resources.  Shopping is a vetting/vouching group effort.

Command economies fail because...

A. it's assumed that "life condition" surveys will provide enough information to ensure that society's limited resources are put to their most valuable uses.

B. it's assumed that incentives don't matter. Effort does not need to be tied to reward. The kids will make the same effort whether they are looking for Easter Eggs or poop.

Mises got consumer sovereignty (dollar voting) right...but he got prices wrong. It can't be about prices because if it was...then I'd have no idea how much of my time to spend replying to your blog entry. There's no price tag on your blog entry...yet here I am spending my time.

Every war since the 1920s was a consequence of Mises fetishizing prices. If he had made more effort to expand the relevance of consumer sovereignty...then he would have grasped that the only thing wrong with government is the visible hand.

Eliminating the visible hand would be as simple as allowing people to shop for themselves in the public sector. Their valuations would be far more truthful than any sort of cheap talk surveys...

As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. - Geoffrey Brennan, Loren Lomasky

When it comes to spending their own money...war is nonsensical to the vast majority of people. Unfortunately, wars will continue as long as people like you fail to understand the problem with a top down approach. So here I am. Gambling my own resources on a long shot.

Public Craps < Public Oks < Public Goods < Public Greats < Public Awesomes

Reply to:  Public vs Private System of Representation

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

TNAR, what if 50% of taxpayers didn't value any option in the public sector? You're looking at it all wrong. I can guarantee that 100% of taxpayers are going to want better options in the public sector...just like 100% of consumers want better options in the private sector. Who doesn't want better options?

So consider the factors...

1. 100% of taxpayers will want better options
2. taxpayers will be able to choose how they spend their taxes
3. 100% of government organizations are going to want more revenue

What do you get when you put these three things together? What is the result? Do we end up with fewer options? Does the variety of options decrease?

Once we implement pragmatarianism...the government will be like putty in the hands of taxpayers. Why? Because taxpayers will incentivize government organizations to do better things with society's limited resources.

Right now you're attacking pragmatarianism by describing the supply of public goods on the first day of pragmatarianism. This is why I said that your view is shortsighted. You have to understand and look at the market process over time. What happens to the supply of goods over time?

It shouldn't be that difficult to predict the general result. This is because there have been several instances where countries have transitioned from command economies to mixed economies. What happened when they created markets in their countries?

In 1978 when Deng Xiaoping created a market in China...how would you have described the supply of goods on the very first day? Would you say it was optimal? Would you say that there was a wide variety of goods to choose from? Of course not...it was only the first day. So would you point to the variety, quality and quantity of goods on the first day to criticize the decision to create a market in China? Of course not...yet that's exactly what you're doing here.

"Oh, pragmatarianism isn't that great because 50% of taxpayers wouldn't find any public goods that they wanted to spend their taxes on." You're going to blame the crappy supply of public goods on pragmatarianism? Really?

A crappy supply of public goods is the logical consequence of allowing 500 people to choose how an entire country's taxes are spent. A small variety and quantity of poor quality goods is the logical consequence of command economies. Yet this is what you are using as an argument AGAINST creating a market in the public sector.

You're using the symptom of the disease to argue against the cure.

When we create a market in the public sector...the supply of public goods won't perfectly match taxpayers' preferences the next day...or the next week...or the next year. But the trend in the supply of public goods will be towards the preferences of taxpayers. How could it not be when they are the ones choosing how to spend their taxes?

Why spend your taxes on public craps when you could spend your taxes on public oks? Why spend your taxes on public oks when you can spend your taxes on public goods? Why spend your taxes on public goods when you can spend your taxes on public greats? Why spend your taxes on public greats when you can spend your taxes on public awesomes?

We won't have public awesomes on the first day that pragmatarianism is implemented. Yes, this is true. But if we don't implement pragmatarianism then we'll never have public awesomes.