Is Virtuous Rent Truly Virtuous?

Reply to: Universal Income as a Good Form of Rent by Peter Barnes

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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.

Shallow vs Deep Input

But when your leaders are chosen by popularity, whether through vote or product buying or social buzz, you then have a Cathedral that is of the bazaar. The great secret — this is what the Dark Enlightenment types are morally afraid to face — is not that our elites are bad, but that our elites are bad because they were chosen by our undifferentiated majority. The herd isn't brilliant; it's stupid. Worse than stupid, it's deceptive and dishonest. The bazaar is the enemy, not the cavalry come to save us! - Brett Stevens, The Redundancy of the Dark Enlightenment 

The other day I went to a bazaar. I saw a small rug that I really liked...

...so I asked the vendor whether he accepted votes.  For some strange reason he didn't.

Isn't that weird? The guy only accepted money. He wouldn't let me buy his rug with my words (opinion/sentiment/feeling).  I even tried offering him a thumbs up...both real life and youtube...but he said no deal.  Same thing with facebook likes. He did pause at a reddit upvote though.

See guy, your mistake is lumping markets and democracy together.

In a market...in order to get the rug, I have to sacrifice something that I personally own and value...like my money (blood/sweat/tears).  Spending is deep input.

With voting, on the other hand, I'm simply talking. Talk is cheap. Voting is shallow input.

Our system fails because shallow input trumps deep input.  Words are given more weight than actions.  It wouldn't be so bad if our political leaders were omniscient....but they really aren't.  This means that resources are diverted to less valuable uses.

NRxc (anorexic...no economics on their bones) people guess that the solution is to eliminate shallow input (voice).  No, the solution is to facilitate deep input on public goods. How? By creating a market in the public sector.  Giving people the freedom to exit within the public sector would clarify the demand for public goods.

Let me tweak Stephen Crane a bit...

Democracy, thou art for suckling children,
Thou art the enlivening milk for babes;
But no meat for men is in thee.
Then-
But, alas, we all are babes.

When you're ready to grow up, pragmatarianism has the meat you'll need.

Value Signals

Just as I was about to publish this...I noticed Noah Smith's most recent blog entry...How should Charles Koch use his power?  It's a bit of synchronicity that we're both kinda answering the same question.  So I stuck a link to his entry here so you can compare our answers.

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The other day when I searched Google images for value signals...I didn't find any images that were even vaguely similar to the images that I had in mind.  So even though the photoshopped image above is pretty crappy...it's the best one of its kind.  Well...that I know of.  It's entirely possible that searching for other terms would yield similarly "instructive" images.  If you know of any...please share them.

What's a value signal?  A value signal is anything which indicates where there's value to be found.  If it helps highlight/reveal/locate value...then it's a value signal.  Prices, profits and wages are all value signals.   So is a treasure map.

Value signals are important because they help ensure that society's limited resources are put to their most valuable uses.  If value signals are distorted...then society, as a whole, will invariably be worse off.  This is because resources will flow in less valuable directions.  When resources flow in less valuable directions...the result is far less abundance of the things that we value most.

Using the image above...let's imagine that the true value signals are as follows...

$ = rescuing a cat from a tree
$$ = stopping a bank robber
$$$ = preventing Gotham's imminent destruction

Clearly society, as a whole, would be harmed if the Joker distorted the value signals...

$$$ = rescuing a cat from a tree
$$ = stopping a bank robber
$ = preventing Gotham's imminent destruction

Batman would respond to the wrong value signal.  As a result, his valuable skills would be wasted on saving a cat rather than saving Gotham.

Perhaps this might seem pretty obvious...but if it truly was...then I wouldn't have to write about it.

So how can we try and make the sanctity of value signals more obvious to more people?  Here are some of the things that crossed my mind.  In no particular order...

Bat signal - As you can see...the bat signal (Google images) was the option that I went with.  From Wikipedia...

The Bat-Signal is a distress signal device appearing in the various interpretations of the Batman mythos. It is a specially modified Klieg searchlight with a stylized symbol of a bat attached to the light so that it projects a large Bat emblem on the sky or buildings of Gotham City. In the stories, the signal is used by the Gotham City Police Department as a method of contacting and summoning Batman to their assistance in the event of a serious crisis and as a weapon of psychological intimidation to the numerous villains of Gotham City.

Flare - A flare is another type of distress signal.  We can imagine some people lost at sea during a stormy night.  They shoot a red flare to help rescuers find them.

Three kings (wise men) - The Bible story how three kings from the East followed an exceptionally bright star to find baby Jesus.  The Google images are quite relevant to the concept of a value signal.   From Matthew 2...

9 When they had heard the king, they departed; and, lo, the star, which they saw in the east, went before them, till it came and stood over where the young child was.
10 When they saw the star, they rejoiced with exceeding great joy.
11 And when they were come into the house, they saw the young child with Mary his mother, and fell down, and worshipped him: and when they had opened their treasures, they presented unto him gifts; gold, and frankincense and myrrh.

Treasure map - Helps people find where the treasure/value is.  Entrepreneurs are treasure hunters.  As a society, we benefit when they find things that we value.  A fake treasure map is a fake value signal.  As a society we really don't benefit when entrepreneurs...

1. go on wild goose chases
2. bark up the wrong trees
3. tilt at windmills
4. leap without looking (at the correct information)

Gold rush - Prospectors hurry to the same general location because they all saw the same value signal.  The brighter the signal...the larger the rush.  People need incentives to be at the right (most valuable) place at the right (most valuable) time.

Easter Eggs - Kids make the effort to find Easter Eggs because they perceive it's worth it to do so.

Painting the target - Military term for when a laser guidance system is used to help direct a missile to its target.  Markets allow the crowd to use their dollar votes to guide resources to their most valuable uses.  As a result, consumers get the most bang for their buck.

Sirens / flashing lights - They help communicate priority...and right of way.  A path is cleared for more valuable uses of society's resources.  Flow is facilitated.

Traffic signals - A green light signals for resources to flow in a certain direction.

Can anybody think of any others?

It's imperative that we figure out how to help the crowd easily understand the harm caused by distorting value signals.  As it stands there's plenty of popular support for higher minimum wages and stronger unions.  Just like there's popular support for putting a ceiling on how much CEOs can earn.  In the past there's been popular support for lowering the cost of rent...and lowering the price of gasoline.

Consumers, as utility maximizers, clearly want to pay less money for things that they value...but they don't grasp that distorting value signals will divert resources to less valuable uses.  The logical result?  Far less abundance of the things that we value most.

If the price of gas is artificially lowered...then this prevents entrepreneurs from accurately gauging the demand for energy.  If entrepreneurs don't know exactly how much society values energy...then they can't make informed decisions as to whether they should risk making the effort to find/improve alternative forms of energy.  So in the not-so-long run...distorting the value signal will result in an inadequate and inferior supply of homogeneous energy.  The people who argued for lower gas prices are the same people who then argue that the government should subsidize alternative forms of energy.  

Raising minimum wages might seem beneficial...but the future harm is far greater than the momentary benefit.  If the minimum wage is raised...then this is a green light for unskilled labor.  More kids are incentivized to drop out of school and more people are incentivized to immigrate to the US.  This results in a surplus of unskilled labor.  Higher rates of unemployment results in more poverty.  The people who shouted for higher minimum wages are the same people who then shout that there's a greater need for government welfare.

This isn't anything new.  Bastiat wrote about it...

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. 

Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil. - Frederic Bastiat, Seen vs Unseen

Adam Smith wrote about it as well.  Smith provided a very detailed description of the logical and harmful consequences of distorting value signals...

When the government, in order to remedy the inconveniences of a dearth, orders all the dealers to sell their corn at what it supposes a reasonable price, it either hinders them from bringing it to market, which may sometimes produce a famine even in the beginning of the season; or if they bring it thither, it enables the people, and thereby encourages them to consume it so fast as must necessarily produce a famine before the end of the season. The unlimited, unrestrained freedom of the corn trade, as it is the only effectual preventative of the miseries of a famine, so it is the best palliative of the inconveniences of a dearth; for the inconveniences of a real scarcity cannot be remedied, they can only be palliated. No trade deserves more the full protection of the law, and no trade requires it so much, because no trade is so much exposed to popular odium. 

In years of scarcity the inferior ranks of people impute their distress to the avarice of the corn merchant, who becomes the object of their hatred and indignation. Instead of making profit upon such occasions, therefore, he is often in danger of being utterly ruined, and of having his magazines plundered and destroyed by their violence. It is in years of scarcity, however, when prices are high, that the corn merchant expects to make his principal profit. He is generally in contract with some farmers to furnish him for a certain number of years with a certain quantity of corn at a certain price. This contract price is settled according to what is supposed to be the moderate and reasonable, that is, the ordinary or average price, which before the late years of scarcity was commonly about eight-and-twenty shillings for the quarter of wheat, and for that of other grain in proportion. In years of scarcity, therefore, the corn merchant buys a great part of his corn for the ordinary price, and sells it for a much higher. That this extraordinary profit, however, is no more than sufficient to put his trade upon a fair level with other trades, and to compensate the many losses which he sustains upon other occasions, both from the perishable nature of the commodity itself, and from the frequent and unforeseen fluctuations of its price, seems evident enough, from this single circumstance, that great fortunes are as seldom made in this as in any other trade. The popular odium, however, which attends it in years of scarcity, the only years in which it can be very profitable, renders people of character and fortune averse to enter into it. It is abandoned to an inferior set of dealers; and millers, bakers, mealmen, and meal factors, together with a number of wretched hucksters, are almost the only middle people that, in the home market, come between the grower and the consumer.   

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

What I shared was just a small portion of Adam Smith's painstaking efforts to help people understand the importance of value signals.  Yet, more than 200 years later...it's painfully obvious that the "inferior ranks of people" still do not understand the sanctity/significance of "extraordinary profits".

Is the problem that people haven't read Adam Smith?  Or is the problem that they have read him but haven't understood him?  If the problem is the latter...then sharing relevant passages by Adam Smith will match Einstein's definition of insanity...doing the same thing over again but expecting a different outcome.

What am I doing differently?  I shared an illustration!  Look at the illustration and then read Adam Smith and then look at the illustration.  And then?  Read Adam Smith again.  And now?  Read Oskar Lange...

The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two

Read Smith again...

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

Look at the illustration again...

Read Lange again...

The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two

Read Smith again...

The increase of demand, besides, though in the beginning it may sometimes raise the price of goods, never fails to lower it in the run. It encourages production, and thereby increases the competition of the producers, who, in order to undersell one another, have recourse to new divisions of labour and new improvements of art which might never otherwise have been thought of. The miserable effects of which the company complained were the cheapness of consumption and the encouragement given to production, precisely the two effects which it is the great business of political œconomy to promote. - Adam Smith, Wealth of Nations

Look at the illustration again...

Read Lange again...

The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two

Read Smith again...

The establishment of any new manufacture, of any new branch of commerce, or of any new practice in agriculture, is always a speculation, from which the projector promises himself extraordinary profits. These profits sometimes are very great, and sometimes, more frequently, perhaps, they are quite otherwise; but in general they bear no regular proportion to those of other old trades in the neighbourhood. If the project succeeds, they are commonly at first very high. When the trade or practice becomes thoroughly established and well known, the competition reduces them to the level of other trades. - Adam Smith, Wealth of Nations

Look at the illustration again...

Read Lange again...

The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two 

Read Smith again...

When by an increase in the effectual demand, the market price of some particular commodity happens to rise a good deal above the natural price, those who employ their stocks in supplying that market are generally careful to conceal this change. If it was commonly known, their great profit would tempt so many new rivals to employ their stocks in the same way, that, the effectual demand being fully supplied, the market price would soon be reduced to the natural price, and perhaps for some time even below it. If the market is at a great distance from the residence of those who supply it, they may sometimes be able to keep the secret for several years together, and may so long enjoy their extraordinary profits without any new rivals. Secrets of this kind, however, it must be acknowledged, can seldom be long kept; and the extraordinary profit can last very little longer than they are kept. - Adam Smith, Wealth of Nations

Look at the illustration again...

Read Lange again...

The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two 

Did you cheat?  Did you just skim and glance rather than carefully read and seriously look?   If so, then try again.

We really don't fool batman, superman and wonder woman (political correctness...sigh) by honestly signaling what our true values are.  And we certainly stand to benefit when they endeavor to save Gotham rather than rescue a cat from a tree.

On the flip side...we really don't want batman, superman and wonder woman forming a cartel.  If there's one thing that Adam Smith wrote more about than the importance of value signals...it's that producers are only too happy to use the government to limit competition.  The solution is to clarify the demand for public goods.

But producers really aren't the only ones who want a free lunch.  This means that democracy fails for the same reason that taxation must be compulsory.  In case you missed it, the solution is to clarify the demand for public goods.

Can David Brin Cite Hayek And Smith?

Comment on: A Brincipiled take on things

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This was the first search result for "neoreaction "adam smith"". Turns out that if it wasn't for Brin...this post wouldn't have been a result.

I'm going to try and help both of you out...

Isn't that the central basis for the libertarian creed? The notion that educated free adults can be trusted with matches... not to mention their bank accounts and votes? If the masses are intrinsically stupid -- sheep -- then the paternalists are right and no future society of maximized freedom will ever be possible. - David Brin, Essences, Orcs and Civilization: The Case for a Cheerful Libertarianism

The problem isn't with the masses being stupid sheep. Nope. It has to do with the fact that they all want a free lunch. They are only too happy to try and externalize the costs of their benefits. As a result of this very faulty input, resources are redirected from more valuable uses to less valuable uses.

Neoreactionaries correctly discern that there is a problem with democracy...but they lack the economics to correctly diagnose the problem. As a result, they end up barking up the really wrong tree. Brin should have, but didn't, point this out. Why didn't he?

The solution is simple...we create a market in the public sector. If Brin doesn't support this solution...can he still cite Hayek and Smith?

I have just summarized Hayek and Smith correctly. And dig this… neo reactionaries want to set up systems that will reduce the net number of deliberators, decision makers and allocators FAR below the requisite smart mob that Smith and Hayek recommend. Do not cite Smith or Hayek, you insult them.

Nope, if Brin doesn't support tax choice (many more "allocators and deciders")...then he can't cite Smith or Hayek either. Personally, I can cite both for days...

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 government planners can't discern the "natural proportion" of milk, then clearly they can't discern the "natural proportion" of defense. By definition, you can't discern one without the other. If Smith could have stood on his own shoulders...then he certainly would have figured it out. Hayek missed it because Mises missed it. Rothbard caught it...but then his solution was to destroy the entire public sector. Errr...yeah. He missed the part where taxation and individual taxation are not mutually exclusive.

So...I'm just kidding about revoking Brin's citation rights. We need more, not less, people citing Smith and Hayek.

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In case anybody is curious...the reason I searched for "neoreaction "adam smith"" was because I was curious whether any neoreactionaries had shared this passage from Smith...

Even a bad sovereign feels more compassion for his people than can ever be expected from the farmers of his revenue. He knows that the permanent grandeur of his family depends upon the prosperity of his people, and he will never knowingly ruin that prosperity for the sake of any momentary interest of his own. - Adam Smith, Wealth of Nations

If any neoreactionary wants to cite Adam Smith in defense of monarchism...then I suppose that would be a pretty decent passage to use.  But if any neoreactionary wants to defend monarchism...then...errrr...perhaps they should do a "bit" more reading.

Samuelson, Tiebout, Buchanan and Exit Granularity

There are 25 irrelevant search results for "Exit Granularity"

Reply to reply: Is This Forum A Market?

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[note]I say this sincerely and with no malice: you're taking peoples' complaints about the repetitive nature of your threads far too seriously. - Orham[/note]

It's just a helpful reminder. Kinda like some people need a friendly reminder that coffee from McDonald's is hot.

Eh, I'll go with the "forums are economies" metaphor. It's not entirely baseless, though it's not strictly true either. Anyway, on to the nitty-gritty then. - Orham

I like the part where you're the first person to point out that this forum is a mixed economy. Except, you didn't even come close to tackling my actual argument.

You spent quite a bit of time spelling out the obvious...that the supply of police isn't determined by the demand for police...but then when it came time to explaining why the visible hand wouldn't work for threads (my actual argument)...this is all the magic I got for my moment...

A moderation market, and especially an unregulated one (which it would need to be in order to be a characteristically pure market rather than a regulated market), would be unable to deliver objective rulings guided solely by the forum's equivalent to rule of law. - Orham

Your mission, if you choose to accept, is to explain to me why it wouldn't work to elect representatives to choose which threads consumers reply to. I know the answer...do you? If you don't know the answer...then how can you know that your answer regarding police is correct?

See? Supply and demand, as far as moderation is concerned, aren't being guided by market activity. The moderation supply is being rationed, distributed according to a planned schedule and set protocol which operates independently of present demand levels or consumer preferences for a particular sort or amount. - Orham

If the command outcome for police is more valuable than the market outcome would be...then why isn't this also true for threads? This is my question...which is based on my argument...which you entirely failed to address.

This forum, if it is to be metaphorically examined as an economy at all, is definitely neither a pure market system nor a pure command system. It is certainly a mixed system, and the reason why is because some services it provides are delivered according to command principles rather than market principles. - Orham

You missed my argument the first time. And I thought it was quite obvious. So perhaps it will help if I make it even more obvious. So...ok...I'm not disagreeing that this forum is a mixed economy. And, mad props for pointing that out. But, it doesn't help us tackle the issue of why elected representatives couldn't create more value by choosing which threads we replied to.

Xero, there are forums and websites where moderators are elected officials rather than appointed ones. Rational Wiki is an example. - Orham

Again, and again, and again...there aren't any forums which choose for you which threads you reply to. Should there be? If not, then why not? If so, then please let me know when you start one. Maybe then you'll learn why command economies fail. How priceless would it be to have that knowledge?

You dug yourself pretty deep with this one considering there are sites which charge premiums for use of their services (online tutoring services come to mind), forum moderators may or may not be elected officials (Rational Wiki), and NS is a profitable site regardless of the fact that its moderation services are rationed. - Orham

Again, again, again and again...there aren't any forums which determine which threads you spend your time on. Why is that?

...really, you've dug so deep I can't even see you anymore. - Orham

Errrr...you've simply closed your eyes...that's why you can't see me anymore. If you want to bury me that badly...then start a forum where elected representatives choose which threads you reply to. If it thrives...then my world view would be annihilated. It will be an extremely unpleasant feeling. But so be it. I prefer reality. What about yourself?

If you had a million dollars laying around...I'm sure you wouldn't hesitate throwing $10,000 at the development of your proof. But that's not the case right? And I don't think you're going to sell your car to start a representative forum. And you're probably not going to ask the bank for a loan. So why not try and crowdfund it?

If you try and crowdfund it...then you can see if there's any demand for a forum where elected representatives dictate which threads you reply to.

While I'm here...let me share a bit of my reality with you.

In my OP I mentioned The Pure Theory of Public Expenditure. It was written in 1954 by the Nobel Prize winning liberal economist Paul Samuelson. It is by far the most widely cited economic justification for government.

His argument was that, because people can benefit from public goods without having to pay for them, it wouldn't work to simply ask people how much they value public goods. People would have an incentive to state that they value public goods less than they actually do. As a result, public goods would be undersupplied. Therefore, compulsory taxation is necessary.

Samuelson and I agree on this pretty fundamental point. Everybody wants a free lunch. We all want to externalize costs.

This leaves us with the issue of determining how much people truly value public goods. Is it important to figure this out? Well...yeah...the optimal supply depends on this information. You can't say, "hey man nice shot" if you don't know where the target is. In economics, the target is demand. The value of the supply is judged by its proximity to demand. How valuable is this thread? The answer depends on how closely it matches the preferences of consumers.

What Samuelson did was simply assume that government planners already know what our preferences are. In other words, he just assumed that government planners are omniscient. Seriously. I really disagree with Samuelson on this fundamental point. And I sure wasn't the only one.

Two years after Samuelson published his paper...Charles Tiebout published A Pure Theory of Local Expenditures. It's been cited over 10,000 times...which gives you a pretty decent idea of its importance.

Tiebout's paper was a response to Samuelson's argument that it was impossible to discern people's true preferences for public goods. In his paper, Tiebout argued that people will move to whichever communities supply levels of public goods which most closely match their preferences. Basically, foot voting solves the preference revelation problem. Well...it was a great argument because there was a decent amount of truth to it...but many economists were not very satisfied with the answer. Therefore, many economists have been trying to figure out other ways to get people to reveal how much they value public goods.

Now, I'm pretty sure you've never even heard of Tiebout or his extremely well cited paper. Just like I'm sure you've never heard of any of the economists since then who've attempted to solve the preference revelation problem. Clearly you're not even aware of the preference revelation problem.

I'm especially bringing up Tiebout though because of his relevance to your post. In the real world...there are significant costs to moving to a new community. Foot voting is not cheap. So the push/pull has to be pretty significant before you'll move to the next community...let alone to another country.

But this really isn't the case with forums. Foot voting for a different forum is far less costly than foot voting for a different real life community. It was pretty much the easiest thing for people to migrate from Friendster to MySpace to Facebook. And unlike real communities...we can live simultaneously in numerous online communities. This means that the supply of public goods in forums will more closely match the preferences of consumers than the supply of public goods in towns will. It's far easier to start a new forum than it is to start a new town.

So you're right that this forum is a mixed economy...but the supply of public goods is more accurate/valuable (closer to the target) because leaving (exit) is relatively easy. If it was just as easy to move in the real world...then it wouldn't be as important to try and help people understand why pragmatarianism is by far the best option.

In 1963, seven years after Tiebout published his paper, the Nobel Prize winning market economist, James Buchanan, published The Economics of Earmarked Taxes. It's only been cited 246 times. Sometimes it takes the crowd a while to recognize an Easter Egg. That being said, the crowd finds infinitely more Easter Eggs than government planners can.

Buchanan's argument was basically that if people have to pay taxes anyways, then it's in their selfish interest to spend their taxes on the public goods that most closely match their preferences. If your buck is a foregone conclusion, then you might as well spend it on whatever gives you the most bang. If your moment is a foregone conclusion, then you might as well spend it on whatever gives you the most magic. If you've already paid for a buffet...then you might as well select the dishes that you find most delicious. When consumers are free to spend their time/money on the items that most closely match their preferences...producers have the strongest possible incentive to try and supply better items. As I said in an earlier post...consumer choice has very beneficial consequences.

To summarize...

1954 - Samuelson - omniscient government planners
1956 - Tiebout - foot voting
1963 - Buchanan - tax voting

Foot voting and tax voting are by no means mutually exclusive. But it's the epitome of throwing the baby out with the bath water if people totally exit because they don't have the option to specifically exit. It would destroy value if the only way you could exit from this thread would be to exit from this forum. Therefore, you should be free to exit from funding the war on drugs just like you're free to exit from this thread. You should be free to exit from funding the DoD just like you're free to exit from the NRA.

Imagine how absurd it would be if the only way vegetarians could avoid buying meat would be to move to a town where nobody purchased meat. If you take that absurdity and multiply it by a really giant number you end up with our public sector.

First you move your money/time...and if that doesn't work...then you move yourself.

I like your sig by the way. At this stage in the game...there's no such thing as bad publicity.

Also, out of curiosity...have you ever wondered whether you're more analytical than most?

The Reality Of Compulsory Taxation

Mike Konczal really wants to have his cake and eat it too.  His essay over at the Democracy Journal,  The Voluntarism Fantasy, was a very valiant attempt to destroy the conservative and libertarian dream of replacing government welfare with private charity.

In order to clearly see the glaring and gaping logical flaw in Konczal's argument, it's necessary to see things from an economic perspective.  Let me try and help you with that...

The Nobel Prize winning liberal economist, Paul Samuelson, provided the best (most widely cited) economic justification for government...The Pure Theory of Public Expenditure.

Samuelson's argument was basically that compulsory taxation is necessary because if we simply ask people (surveys, voting, polls) how much they value public goods then it would be in their selfish interest to give false signals.

Unlike with private goods, people can benefit from public goods without having to pay for them.  It stands to reason that far too many of you are only far too happy to take the benefits of public goods and pass the costs onto others.  Everybody wants a free lunch (cost externalization).

So sorry Mike Konczal.  I know that you really want to have your cake and eat it too...but you really can't have it both ways.  If you agree with Samuelson that people want a free lunch...then you can't trust their superficial signals when it comes to public goods.  If you disagree with Samuelson that people want a free lunch...then you must agree that taxes should be voluntary.

Now let's get super dialectical.  Starting with Konczal...

One reason Progressives looked to the state to provide social insurance was that it was seen as necessarily compulsory. By making it universal, low-wage workers could be included. Also, forcing employers to participate was fair because they would directly benefit from such coverage. As Rubinow argued, American workers “must learn to see they have a right to force at least part of the cost and waste of sickness back upon the industry and society at large, and they can do it only when they demand that the state use its power and authority to help them, indirectly at least, with as much vigor as it has come to the assistance of the business interests.” Because of all this, insurance had a direct public purpose, and should in turn be publicly provided. - Mike Konczal

Corporations and unions both want to pass the costs of their benefits onto others.  Again, everybody wants a free lunch...

As it is the interest of the freemen of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market. - Adam Smith, The Wealth of Nations  

Back to Konczal...

He later backtracked, creating the Reconstruction Finance Corporation to provide emergency credit to hard-pressed relief agencies as well as banks and railroads. However, these loans were not made available until early 1933. Hoover, in Hawley’s words, allowed for the New Deal to emerge because of his “reluctance to recognize that the private sector was inherently incapable of meeting the demand for social services on its own.” - Mike Konczal

The demand for social services?  As in...counting all the people who line up for free lunches?   Konczal completely fails to give any plausible way to truly measure the unmet demand for public goods...

More from Konczal...

This is precisely what they did in the decades after the Great Depression. As the historian Andrew Morris describes in The Limits of Voluntarism, FWAA members began adding the term “service” to their titles, as well as “welfare,” both of which suggested character-building enterprises. There were also extensive moves into marriage counseling, and other ways to supplement civil life outside of providing bare necessities. Rather than simply crowding out private charity, the welfare state allowed it to evolve and become more targeted. There would be a new arrangement between the public and the private sector, with the public taking on the heavy weight that the private sector could no longer bear. - Mike Konczal

The line for free lunches was too long for the private sector?  Because nobody saw that coming...

When the state is responsible for establishing fraternity [distributive justice] on behalf of its citizens, we shall see the entire people transformed into petitioners. Landed property, agriculture, industry, commerce, shipping, industrial companies, all will bestir themselves to claim favors from the state. The public treasury will be literally pillaged. Everyone will have good reasons to prove that legal fraternity should be interpreted in this sense: “Let me have the benefits, and let others pay the costs.” Everyone’s effort will be directed toward snatching a scrap of fraternal privilege from the legislature. The suffering classes, although having the greatest claim, will not always have the greatest success. - Frédéric Bastiat, Justice and Fraternity

Yup, this is definitely brand new territory...

This monopoly has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The Member of Parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists. - Adam Smith, The Wealth of Nations

Another passage from Konczal...

The first is what Salamon describes as philanthropic insufficiency. This occurs when the voluntary sector can’t generate enough resources to provide social insurance at a sufficient scale, which, as noted, is exactly what happened in 2008. There is also the problem here of geographic coverage. As Hoover discovered, charity will exist in some places more abundantly than in others; the government has the ability to provide a more universal baseline of coverage. - Mike Konczal

Again with the "shortcomings" of the private sector.  Again and again, how does Konczal know what the actual size is of the unmet demand for public goods?   Is he going to argue that Samuelson was wrong about the incentive that people have to give false signals?  Maybe people's shouts really do reveal their true preferences?

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, Democracy and Decision 

Maybe popular feelings, opinions and sentiments really do reveal true preferences?

They will not indeed submit to more labours and privations than other people, for the relief of distressed fellow creatures: but they make amends by whining over them more.  It is not difficult to trace this sort of affectation to its cause. It originates in the common practice of bestowing upon feelings that praise which actions alone can deserve. - J.S. Mill 

Maybe an absence of active concern means absolutely nothing?

If a woman told us that she loved flowers, and we saw that she forgot to water them, we would not believe in her "love" for flowers.  Love is the active concern for the life and the growth of that which we love.  Where this active concern is lacking, there is no love. - Erich Fromm, The Art of Loving

More from Konczal...

The third element of voluntary failure relevant here is philanthropic paternalism. Instead of charity representing a purely spontaneous response by civil society, or a community of equals responding to issues in the commons, there is, in practice, a disproportionate amount of power that rests in the hands of those with the greatest resources. This narrow control of charitable resources, in turn, channels aid toward the interests and needs of those who already hold large amounts of power. Prime examples of this voluntary failure can be seen in the amount of charitable giving that goes to political advocacy, or to elite colleges in order to help secure admission for already privileged children, even as the needs of the truly desperate go unmet. - Mike Konczal

The amount of charitable giving that goes to political advocacy?  It's a lot?  So the wealthy want a free lunch too?  Of course that's what happens when the tit's that big.

Back to Konczal...

At a basic level, much of our elite charitable giving is about status signaling, especially in donations to elite cultural and educational institutions. And much of it is also about political mobilization to pursue objectives favorable to rich elites. As the judge Richard Posner once wrote, a charitable foundation “is a completely irresponsible institution, answerable to nobody” that closely resembles a hereditary monarchy. Why would we put our entire society’s ability to manage the deadly risks we face in the hands of such a creature? - Mike Konczal

Hey Posner...what's going on?  How could a non-profit fail to be answerable to the people who voluntarily contribute to its continued existence?  Who would choose to continue to fund a non-profit that failed to respond?  Imagine the horror of contributing more and more of your life to an unresponsive organization that you weren't free to exit from...

The distinguishing characteristic of [public] goods is not only that they can be consumed by everyone, but that there is no escape from consuming them unless one were to leave the community by which they are provided. Thus he who says public goods says public evils. The latter result not only from universally sensed inadequacies in the supply of public goods, but from the fact that what is a public good for some - say, a plentiful supply of police dogs and atomic bombs - may well be judged a public evil by others in the same community. It is also quite easy to conceive of a public good turning into a public evil, for example, if a country's foreign and military policies develop in such a way that their "output" changes from international prestige to international disrepute. - Albert O. Hirschman, Exit, Voice, and Loyalty

We can easily exit from private hands...just ask Lenny Bruce...

Capitalism is the best. It's free enterprise. Barter.  Gimbels, if I get really rank with the clerk, 'Well I don't like this', how I can resolve it? If it really gets ridiculous, I go, 'Frig it, man, I walk.' What can this guy do at Gimbels, even if he was the president of Gimbels? He can always reject me from that store, but I can always go to Macy's. He can't really hurt me. Communism is like one big phone company.  Government control, man. And if I get too rank with that phone company, where can I go? I'll end up like a schmuck with a dixie cup on a thread. - Lenny Bruce

...but exiting from public hands isn't so easy...

But in the case of PGs they may not have an avenue for criticism nor a feasible exit opportunity. They may be compelled to consume a particular good. Therefore, it is important to ascertain whether a good’s publicness in form goes hand in hand with publicness in substance – actual enjoyment of the good by all. - Inge Kaul, Public Goods: Taking the Concept to the 21st Century

Posner wants to redeem himself (a bit) by sharing some insight into why liberals think it's ok to block the exit from public hands...

The problem would disappear if government were omniscient, as implicitly assumed by Hotelling, but government is not omniscient and throughout his career Coase has insisted very sensibly that in evaluating the case for public intervention one must compare real markets with real government, rather than real markets with ideal government assumed to work not only flawlessly but costlessly. - Richard A. Posner, Nobel Laureate: Ronald Coase and Methodology

Why would anybody want to exit from God's hands?

This brings us back to President Truman’s vision of true charity. The public’s role in combating the Four Horsemen by providing for social insurance doesn’t kill private charity. It allows it to fully thrive. It enables private charity to respond with targeted and nimble aid for individuals and communities, rather than shouldering the huge, cumbersome burden of alleviating the income insecurities of a modern age. A public social insurance state gives every individual the security necessary to take risks, which enriches both our economy and our society. And it also establishes a baseline of equality and solidarity among all citizens, so that charity enhances the lives of the less fortunate instead of forcing them to rely on those with money and luck. - Mike Konczal

How are we forced to rely on those with money and luck?  The market works because producers are forced to rely on their ability to cater to the true preferences of consumers.  If a producer fails to make our lives more fortunate, then, just like Lenny Bruce, we can take our money and head for the exit.

The freedom to exit from specific organizations has extremely beneficial consequences.  It's understandable for liberals to fail to grasp how beneficial these consequences truly are (that's why they are liberals)...but what excuses do conservatives and libertarians have?  Their "solution" is to exit more or less entirely from the public sector.  Seriously?  They should really know better.

The only thing wrong with the public sector is that we aren't free to exit from specific government organizations.  That's it.  We can't pull a Lenny Bruce in the public sector.  Reducing the size of the public sector doesn't change that.  All it does is ignore the painfully obvious fact that everybody wants a free lunch.  Therefore, the real solution is simply to facilitate exit from specific government organizations...aka pragmatarianism aka tax choice.

So libertarians and conservatives...it's imperative that you stop attacking the size/scope of government.  This will free up your creative energy for far more beneficial uses...such as turning the contents of this messy blog entry of mine into a reality that even Mike Konczal wouldn't choose to exit from.

******

HT Marginal Revolution

Free Lunches Require Externalizing Costs

The Wikipedia entry on cost externalizing really wants you to believe that only businesses have an incentive to pass costs onto others.  How convenient...right?  It's only companies that want a free lunch?  Voters don't also want a free lunch?  Unions don't also want a free lunch?

Unfortunately, I'm banned from Wikipedia so I can't internalize the cost of correcting the Wikipedia page.  How convenient...right?  The easiest improvement to make would be to edit the See Also section and add a link to the There ain't no such thing as a free lunch entry.

Reply to reply:  Future of Labor Unions in Changing U.S. Economy

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Xero

We have compulsory taxation because we don't think it's unreasonable that people want a free lunch. Yet, what structures do we have in place that prevent voters, unions and corporations from ordering free lunches and/or congresspeople from serving free lunches?

Does the data reflect the absence of these necessary structures?

A. it does
B. it doesn't

If B...then why doesn't it?

A. people don't really want a free lunch
B. there are necessary structures in place

If B...then what are the necessary structures? I'm certainly not aware of any that actually work. You'd have to be blind to fail to appreciate that the government hands out free lunches left and right.

As far as I can tell...the only structure that would work would be to clarify the demand for public goods.

RGacky3

The structures we have are elections ....

Also sometimes a free lunch is neccessary for the economy.

Xero

"The structures we have are elections ...."

Infinite patience.

Xero: Hey Samuelson! What's going on man? The benefit principle is pretty great...why can't taxes be voluntary?
Samuelson: If we simply ask people (survey, voting) how much they value public goods then it would give them the opportunity to try and snatch some selfish benefit.
Xero: Can you put it another way?
Samuelson: Sure...people can benefit from public goods without having to pay for them...so it is in their selfish interest to give false signals.
Xero: Oh, yeah, that does make sense. We wouldn't want to give people the opportunity to externalize costs. But how do you propose we determine what people's true preferences are with regards to public goods?
Samuelson: Easy, we just assume that government planners are omniscient.
Xero: That sounds iffy.
Samuelson: The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive
Xero: I'm actually still kinda skeptical. Why don't we just allow taxpayers to choose where their taxes go? If the cost is a foregone conclusion...then it would be in their selfish interest to give true signals.
Samuelson: It's easier to just assume that government planners are omniscient.
Xero: But if we created a market in the public sector then people wouldn't be able to externalize costs.
Samuelson: I'm just a stupid monkey.
Xero: That's true.

"Also sometimes a free lunch is neccessary for the economy."

Externalized costs are sometimes necessary for the economy?

The economy is an equation. If we enter accurate input...then the output will be accurate.

Accurate input = internalized costs = what I buy with my own credit card
Inaccurate input = externalized costs = what I buy with your credit card

Do you think that I'd buy the same things with your credit card that I'd buy with my credit card? It's easy enough to find out.

RGacky3

Yes sometimes free lunches are necessary, when everyone gets together to build a road, a community, through taxes or other mechanism, the guy who uses it more is getting a free lunch.

Xero

The guy who uses the road most is passing the cost of his benefit onto others? Why not just give him the opportunity to internalize the cost of his benefit? All that's required is creating a market in the public sector.

Why do you want the supply of public goods to reflect externalized costs rather than internalized costs? How could the supply possibly be correct when everybody is trying to benefit at the expense of everybody else?





[Update:  28 Dec 2014]  Couldn't remember which blog entry had this video and a google search really didn't help...which is because this entry didn't contain the words "Adventure Time" or "City of Thieves" or this passage by Bastiat...

When the state is responsible for establishing fraternity [distributive justice] on behalf of its citizens, we shall see the entire people transformed into petitioners. Landed property, agriculture, industry, commerce, shipping, industrial companies, all will bestir themselves to claim favors from the state. The public treasury will be literally pillaged. Everyone will have good reasons to prove that legal fraternity should be interpreted in this sense: “Let me have the benefits, and let others pay the costs.”  Everyone’s effort will be directed toward snatching a scrap of fraternal privilege from the legislature. The suffering classes, although having the greatest claim, will not always have the greatest success… - Frédéric Bastiat

The Value Of Internalizing Costs

There is exactly one search result for "The Value Of Internalizing Costs"

Reply to reply on: Wars on Everything

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Hah, thanks. That truly would be an awesome superpower! It's kind of easy to have a general picture of a world where incentives aren't perverse. We just work backwards...

Right now we have the invisible hand in the private sector. If we replaced it with the visible hand...what would happen to private goods?

1. Variety? Plummet
2. Quality? Plummet
3. Cost? Skyrocket

In the public sector we have the visible hand. If we replaced it with the invisible hand...what would happen to public goods?

1. Variety? Skyrocket
2. Quality? Skyrocket
3. Cost? Plummet

If we want people to internalize costs...then we have to help them understand that they will be better off if they do so. We have to show them that "lunches" only increase in value when consumers can clearly see the (opportunity) costs and choose accordingly.

One image that comes to mind is a long line of people waiting to go inside a restaurant to get a "free" lunch. The people walking out of the restaurant are smiling and oblivious to the fact that they are wearing only their underwear. Chances are good that they wouldn't have thought the deal was so great if they could clearly see what it would cost them.

The fact of the matter is...deals are never great when costs are externalized. If people can't shop around for the best deals...then there's absolutely no incentive for producers to offer better deals.

Another image has two candy stores. One candy store says "Internalized Costs" and the other says "Externalized Costs". There's a kid in each candy store. Which kid is happier? The kid in the EC store walks out with one "free" candy corn. The kid in the IC store paid $.25 and walks out with a huge bag of candies.

Lots of superpowers are nearly impossible to develop. I really hope that showing people the value of internalizing costs isn't one of them.