The cost of communicating the usefulness of things

Comment on: Moana, Complacency, and the Enduring Appeal of Steady-State Economics by Joshua Miller

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Imagine if people had to perform 100 push-ups before they purchased anything. What impact would this have? It would greatly increase the cost of trade. In other words, it would greatly increase the cost of communicating the usefulness of things. People would far less frequently communicate the usefulness of things, so everybody would be far less informed about the usefulness of things, and everybody would make far less useful decisions. The result would be far less progress.

Walking upright is kinda like doing less pushups before trading.

Using horses is kinda like doing even less pushups before trading. The earliest native Americans didn’t have horses. Therefore… ?

Taxpayers are prevented from using their own tax dollars to signal the usefulness of goods supplied by the government. Therefore… ?

Life is synonymous with colonization. Colonization is nature’s mandate. Because, species that aren’t adequately diversified generally don’t stick around very long. The sooner people recognize the correlation between trade and progress, the faster we’ll colonize the stars.

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This is relevant...

Alipay turned out to be so convenient that Liu began using it multiple times a day, starting first thing in the morning, when he ordered breakfast through a food delivery app. He realized that he could pay for parking through Alipay’s My Car feature, so he added his driver’s license and license plate numbers, as well as the engine number of his Audi. He started making his car insurance payments with the app. He booked doctors’ appointments there, skipping the chaotic lines for which Chinese hospitals are famous. He added friends in Alipay’s built-in social network. When Liu went on vacation with his fiancée (now his wife) to Thailand, they paid at restaurants and bought trinkets with Alipay. He stored whatever money was left over, which wasn’t much once the vacation and car were paid for, in an Alipay money market account. He could have paid his electricity, gas, and internet bills in Alipay’s City Service section. Like many young Chinese who had become enamored of the mobile payment services offered by Alipay and WeChat, Liu stopped bringing his wallet when he left the house. - Mara Hvistendah, Inside China's Vast New Experiment in Social Ranking 

Building Better Classrooms And Countries

Forum reply: 4th Grade Nation State

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You know I actually did something like this (in the loosest sense of the term) in sixth grade when I was 11. My teacher would give us fake money when we did things like help out other students, assist the classroom chores, and of course do well on money assignments (extra credit that we got paid for instead of points for). Afterwards we could spend the money in the store of knickknacks etc. There were other lessons associated with it such as checkbook balancing and loan management, but that wasn't the main goal. The goal was to demonstrate to the students how a simple market works, a person's place in it, and how to manage your money.

Did we create an independent economy between students? No, but that was never was the goal. Did we waste our parents money or try to cheat the system? No, there was no point in doing that. But what we did do was create a simple market where the classroom employed and paid students for doing jobs for the classroom and the students purchased things from the classroom. Would you consider that "building" something? - Lost heros 

What your teacher did was better than nothing. But would I consider it "building" something? Not so much.

Why do you perceive that the citizens of Classtopia are wasting their parents' money? You said that the students in your class purchased things "from" their classroom. But in Classtopia... the students are purchasing things "for" their classroom. Well... so far only labor has been purchased... but when the Garden Dept, for example, buys a plant... then it's going to be "for" their classroom... and/or the school. It's the difference between private goods and public goods.

Yesterday Michelle came over and picked up my collection of unused postcards and foreign currency. This week each of her 30 students will receive 22 foreign coins, around 4 foreign bills and around a dozen postcards. I put the items in 60 zip lock bags.

Of course the students are going to be given the opportunity to trade with each other. Not just trade though... but also buy, sell and share.

From my perspective, a market is obviously beneficial because the students aren't going to equally value their Christmas gifts. Some students might prefer the postcards while others might prefer the currency. Maybe most students will prefer the currency?

Michelle is going to ask the students what they can trade their gifts for. I'm hoping that one of the students will respond with "quotes". Then hopefully... while they are trading quotes for currency/postcards... they'll realize that they can trade copies of their quotes with each other.

When Michelle and I talked yesterday she guessed that perhaps the issue is that the kids have been indoctrinated against trading. Kids are known for making really bad trades... so their parents and teachers admonish them against making any trades. Sure, lots of kids don't know the real-world value of most things. When the kids are trading/buying/selling the postcards and coins... they aren't going to know their real-world value. Well... to be clear... I don't really know their real-world value. Except for the French Francs and the 100 yuan bills. Michelle told me that the Francs are obsolete but I wanted to know whether the metal itself had any value. I kinda gave up after a few searches. As far as the 100 yuan bill... I believe it's worth around $14 dollars. There were at least a couple of them in the collection.

Anybody who exchanges a 100 yuan bill for a Franc will probably be making a mistake. And I say "probably" because I can't know how much the student might value the coin itself.

Over Christmas break the students with the currency will have the project of using Google Sheets to inventory their collection. One of the columns will be for the currency's dollar value. So the students will need to do some research.

Generally it's a good idea to figure out something's market value before you decide to trade it. But I'm pretty sure that it's a good idea to allow the kids to make some bad trades in order to learn from their relatively small mistakes.

Building a better classroom means that you're making improvements that can benefit the next batch of students. If this year's Garden Dept buys a Tillandsia ionantha and attaches it to a tree in the school... then it can benefit the next batch of kids. Same thing if the Book Dept buys A Wrinkle in Time and adds it to the classroom library.

Sure... improvements can be made just by the students contributing their time... but that's certainly not how most countries work. Most countries have taxes. Of course, there aren't any countries that allow their citizens to choose where their taxes go. Nearly everybody takes our current system for granted. But I certainly do not. I've thoroughly researched our system and have found absolutely no logical/rational (ie economic) explanation for allowing a small group of people to spend everybody's taxes.

So... Classtopia. You have 30 citizens each using their pennies to say, "I've found some room for improvement and my penny is proof that the improvement should be made".

Can America learn anything from Classtopia? Imagine citizens using their dollars to say, "I've found some room for improvement and my tax dollar is proof that the improvement should be made".

Well...

A. Americans don't truly know where there's room for improvement

Or...

B. Voting is an adequate method for Americans to communicate where improvement is most needed

I'm pretty sure that neither of those is the right answer. Ideally, sooner rather than later, some of you will apply America's current system to some classrooms. The 30 students will elect one student who gets to decide how all their tax pennies are spent. And then we'll see! We'll see which system is better at improving classrooms. We'll see which system is better at building more beneficial classrooms.

Does Greg Stevens Have An Issue With Trading?

Comment on: Democracy 2.0: technology can improve how we elect leaders by Greg Stevens

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The thing is, "importance" can only be accurately measured by personal sacrifice.   In other words... preference intensity is a function of willingness to pay (WTP).   So from my perspective... the only way to "fix" voting is to replace it with spending.

Ideally it would be a "blind" and one shot deal.  Let's take prohibition for example and keep it simple with only two participants... you and I.  You're for prohibition and I'm against.  After we both finish spending our money on our preferred options... the results would be revealed...

Your WTP: $120
My WTP: $20

You won!   Prohibition would be enforced.  Since I lost I would get my $20 dollars back.  Plus, I would get your $120 dollars as well!  And it's not a shabby consolation prize.... given that I would have been willing to accept a minimum of $21 dollars.

Let's throw Jeffery into the mix on my side...

Your WTP: $120
My WTP: $20
His WTP: $10

You would still win but now the consolation prize would be proportionally distributed between Jeffrey and myself.   I would get 2/3rds ($80) and Jeffrey would get 1/3rd ($40).

You would essentially be paying Jeffrey and myself to not drink alcohol for an entire year.   You would get our abstinence and we would get your money.    The outcome would be mutually beneficial.  If it wasn't, then next year we'd adjust our WTPs accordingly.

So replacing voting with spending would facilitate trading.   It would really be no different than you paying Jeffrey and I to pull your weeds or paint your house.  Which means that if you have an issue with this proposal... you have an issue with trading.   Personally, I'm pretty sure we're better off with more, rather than less, trading.  This is because trading is a form of communication.   So is voting.... but trading is an infinitely more accurate form of communication.   More accurate communication allows society members to more quickly adjust/adapt to rapidly changing circumstances/conditions.


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Follow up comment...


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Let's keep it simple stupid again and imagine a two good economy.  The private sector produces food and the public sector produces defense.   In the private sector you decide that you want more food... so you spend your money accordingly.   But then you vote for more defense.   Except, more defense means less food.    

In this scenario.... does it matter how much, or how little, money you have?  Nope.   What matters is that voting makes it extremely likely that you're going to inadvertently shoot yourself in the foot.   If we reasonably assume that you truly wanted more food... then by voting for more defense you inadvertently subverted your own will.  

Of course, in a two good scenario you really wouldn't spend more money on food and then turn around and vote for more defense.  This is because it would be a no-brainer that more defense would mean less food.   Everybody would clearly see the trade-off between defense and food.  Everybody would clearly see that allocating more land to defense would mean allocating less land to farming.  Everybody would clearly understand that more "Einsteins" solving defense related problems would mean less "Einsteins" solving food related problems.    Everybody would clearly see defense and food competing for limited resources.  This clarity would guarantee that nobody would inadvertently subvert their own will.

Our economy produces a lot more than two goods.   But adding more goods to both sides (sectors) of the equation really doesn't eliminate the fact that there are always trade-offs.   It just guarantees that voters will not be able to clearly see these trade-offs... which guarantees that voters will regularly and inadvertently subvert their own will.

No country is ever going to truly thrive when all of its citizens regularly shoot their own feet.

So if you're rich and I'm poor... it's not about you having more political sway than I would have.  It's about ensuring that neither of us inadvertently overrides our own spending decisions.


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Follow up comment...


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PropA = replace voting with spending (yes/no issues)
PropB = give people the option to directly allocate their taxes (more/less issues)

Deciding whether prohibition should be enforced is a yes/no issue. So we would use PropA to decide it. If proponents spend more than opponents... then PropB would be used to decide how much money should be spent on prohibition.

With both proposals, the more money you have.... the more potential influence you'll have. The influence is only "potential" because, even if you have a billion dollars, it doesn't guarantee that you'll care one way or another about prohibition.

In your simple scenario... the two billionaires agreed on (and equally valued) every issue and the eight poor people agreed on every issue. Was this the case with prohibition? Or with marijuana? Or with gay marriage? Or even with the tax rate?

Here's kinda how I see your concern...

Gates: Hey Epi, I'll pay you $100,000 to quit drinking alcohol for a year!
Me: Wow! Why? Wait, never mind... it's a deal!
You: Woah woah woah. I forbid this trade!
Gates and me: Why?
You: Because Gates is so rich and you're so poor!
Me: So... he shouldn't be allowed to give me some of his money?

Let's compare it to the current system...

Majority: Hey Epi, we aren't going to even pay you one penny to quit drinking alcohol for a year!
Me: So you're going to screw me without even buying me a cheap dinner first?
Majority: Yup
Me: That sucks
You: Not really. It's only fair that the majority gets what it wants without having to pay for it. It's only fair that they screw you without compensating you at all. Our country thrives because of, rather than despite, tyranny of the majority.

Let's say that Gates offered to buy my old sneakers for $100,000 dollars. Would you forbid this trade from taking place because Gates is so much richer than I am? Let's say that Gates offers me $10 million dollars to sleep with him. Would you also forbid this trade for the same reason? Because... you don't want me to be exploited?

So the next time you're about to buy a computer, or buy a coffee from Starbucks, or buy anything on Amazon.... you would want me to forbid you from doing so? Because you, and the country, would be better off if you could only trade with people who have the same amount of money as you?

The challenge is to come up with a coherent story. My attempt at a coherent story is that trade facilitates accurate communication.... and accurate communication allows societies to rapidly adapt to constantly changing conditions/circumstances.

We both agree that progress depends on difference. Well... we both agree that this is true as far as evolution is concerned. But I perceive that this is also true as far as societies are concerned. Difference is expressed through trade. Blocking trade blocks difference.... which blocks progress.

If you and I had the option to choose where our taxes go... would we put the same exact public goods in our "shopping carts"? No, of course not. This is simply because we are different people. And I'm pretty sure that this difference is the source of all progress.


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Follow up comment...


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Right now alcohol is legal.  It's legal for people to make, sell and buy alcohol.   But let's say that mothers against drunk driving somehow managed to convince lots of people that alcohol should be illegal.

With the current system... it would be put to a vote.  People would go to voting booths and cast a vote either for, or against, prohibition.   The votes would be counted and whichever side received the most votes would win.   If the mothers against drunk driving won... then alcohol would be illegal.  Everybody who wanted to drink alcohol would be screwed.  They would be forced to do something that they didn't want to do... and they would receive absolutely NO compensation for their inconvenience.

With PropA.... people wouldn't go to voting booths.... they would go to spending booths.  They would spend their WTP on alcohol being legal or legal for one year.    Do you drink alcohol?  I do.  But I don't drink it very often... maybe once a month.  How much benefit do I derive from alcohol in one year?   It's hard to say.  Maybe $100 dollars?   So this would be my WTP.  This is how much I would spend for alcohol to remain legal.  How much would you honestly spend?

Let's say that the people who supported prohibition spent more money than the people who opposed prohibition.   What would happen?   I'd definitely get my $100 dollars back.  Plus, I would also receive my compensation.  My compensation would be proportioned according to the amount that I spent.   If my $100 dollars was 0.00001% of the total spent against prohibition... then my compensation would be 0.00001% of the total spent for prohibition.     If the other side spent $500 million... then my compensation would be $500 dollars.

So alcohol would be illegal... and I would still be thrown in jail and/or fined if I got caught selling, or buying or making it.  BUT, at least with this system I would be COMPENSATED for the inconvenience of having to sacrifice alcohol for one year.  I would receive $500 dollars for something that is only worth $100 dollars to me.   With the current system... there's absolutely no compensation.

Right now I would be fined/jailed if I got caught with marijuana and/or prostitutes.  Why?  Because the majority feels it's their duty to impose their morals on me.   But it doesn't even cost them a dime to do so.   With PropA... it would be an entirely different story.   Maybe, when confronted with the opportunity costs of their morals, they would decide that they had more valuable things to spend their own money on.   If not, then at least they would put their money where their morals are.   All this money would end up in the pockets of people who had different morals.

As I've tried to explain... the underlying goal here is clarity.   Prostitution is currently illegal... so I guess that the majority opposes it.   But I don't know HOW MUCH they oppose it.   Just like I don't know HOW MUCH my side supports the legality of prostitution.   PropA would facilitate a nationwide trade.  This trade would clarify the issue.  Each side would know just how important the issue was to the other side.   Our differences would be made crystal clear.    This essential information would allow everybody to make infinitely more informed decisions.

When everybody's valuations are far more accessible... then everybody's decisions will be far more valuable.

Right now my valuation of your blog entries is NOT accessible.  I sure did enjoy your blog entry on evolution.   It was great!   Just telling you this though isn't the same thing as giving you my money to communicate my valuation of your blog entry.   I haven't given you any money for that blog entry.    Does this make me a free-rider?   Not in this case!  In this case I haven't given you any money for that blog entry because your blog doesn't facilitate micropayments.   So this is an example of the forced-free-rider problem.

If your blog facilitated micropayments... then valuing your entries was as easy as "liking" them.  As a result, all your readers' valuations would be far more accessible.  This means that you, and everybody else, would be able to make far more valuable decisions.

Same concept if you and others could valuate the comments on your blog entries.

This concept is the idea of not underestimating the fact that nobody is a mind-reader.


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Follow up comment...


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I’m glad that you were willing to spend more time thinking about it!

I haven’t run across this specific idea before… but I don’t want to take credit for it because it’s entirely possible that someone else has already developed it.

Perhaps the credit for the general idea should be given to Ronald Coase. Here are some excerpts from his paper… “The Problem of Social Cost”…

“If we are to discuss the problem in terms of causation, both parties cause the damage. If we are to attain on optimum allocation of resources, it is therefore desirable that both parties should take the harmful effect (the nuisance) into account in deciding on their course of action. It is one of the beauties of a smoothly operating pricing system that, as has already been explained, the fall in the value of production due to the harmful effect would be a cost for both parties.”

“It is all a question of weighing up the gains that would accrue from eliminating these harmful effects against the gains that accrue from allowing them to continue.”

“The problem which we face in dealing with actions which have harmful effects is not simply one of restraining those responsible for them. What has to be decided is whether the gain from preventing the harm is greater than the loss which would be suffered elsewhere as a result of stopping the action which produces the harm.”

“Economists who study problems of the firm habitually use an opportunity cost approach and compare the receipts obtained from a given combination of factors with alternative business arrangements. It would seem desirable to use a similar approach when dealing with questions of economic policy and to compare the total product yielded by alternative social arrangements. In this article, the analysis has been confined, as is usual in this part of economics, to comparisons of the value of production, as measured by the market. But it is, of course, desirable that the choice between different social arrangements for the solution of economic problems should be carried out in broader terms than this and that the total effect of these arrangements in all spheres of life should be taken into account.”

Vote selling/buying is a related concept. A different variety of this concept has recently been proposed and discussed… “quadratic voting”.

Payment Costs

Reply to: Hey there!

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Glad you appreciated the info!

Regarding volunteers… aren’t we volunteers? Here we are on Medium pouring our time, effort, energy, experiences, uniqueness, information, sweat, tears, blood, bones and brains into our stories! Well… more or less… heh. And nobody pays us for our significant sacrifices! Sheesh!

Maybe our sacrifices are worthless? Or maybe it’s the free-rider problem? Or maybe it’s the compensation barrier problem?

Here’s your story that I recommended…. Money Is A Broken System Of Value. Clearly I liked it… hence the recommendation. And recommendations are certainly useful! It’s nice to know whether people like a story. But the problem with votes/likes/recommendations is that they don’t communicate how much somebody likes something.

Does it matter how much your sacrifice is worth to other people? For sure!

Let’s say that your story was worth 10 cents to me. Is it possible for me to send you 10 cents? Of course! If paypal doesn’t allow payments as small as 10 cents then I could snail mail you a letter with 10 cents in it. The problem is that the postage would cost a lot more than 10 cents. Not to mention the time and effort involved in getting your address, finding a letter and writing your address on it, finding a dime and putting it into the envelope, sealing it and risk getting a paper cut on my tongue, looking up the correct postage, finding stamps and sticking them on the letter and putting it in my mail box.

The harder it is to give you 10 cents… the less likely it is that I will do so. This is the compensation barrier problem. Actually I just made that term up. Maybe barrier to payment would be a better term? Barriers to entry is a real term… but for a different, albeit equally important, concept. Perhaps the closest correct term would be transaction costs.  However… that entry doesn’t mention anything about the difficulties associated with making a payment (unless I missed it). So maybe “payment costs” would be a better term?

Right now the payment costs on Medium are too high. One way to reduce the payment costs would be to give us all digital wallets. I could use paypal to put $10 dollars into my Medium wallet. Then I could click the dime button that was next to the recommend button on your story. Voila! With one click 10 cents would be transferred from my wallet to your wallet! It would be sooooooo stupid easy and quick to give you 10 cents! You could either spend that 10 cents on other stories or you could save up your money and have Medium paypal it to you.

Here’s another way of looking at it…

Recommend button (free)
Really recommend button (1 cent)
Really really really really really recommend button (5 cents)
Really really really really really really really really really really recommend button (10 cents)

You get the idea. Rather than having a recommend button with 25 “reallys” in front of it… it makes more sense simply to have a 25 cent button.

With the current system… we can sort stories by popularity (number of recommendations received). But if Medium did a better job of facilitating compensation/communication… then we would be able to sort stories by value (amount of money received). I’m pretty sure that most people would prefer to sort stories by value rather than by popularity!

If valuating stories was as easy as recommending them, then Medium would have a lot less volunteers and a lot more paid writers. It stands to reason though that few, if any, of the compensated writers would be able to quit their day jobs. But… it might encourage them to quit their less profitable pastimes. The more lucrative it is to write stories… the less lucrative it becomes to play video games or watch TV or have sex.

So by giving you 10 cents for your story… I’d essentially be trying to motivate/incentivize/bribe/encourage/inspire you to continue doing something that benefits me… instead of doing something that doesn’t benefit me.

In economic terms… giving you 10 cents for your story marginally increases the opportunity cost of you doing something other than writing stories.

With this in mind… if I truly value your story at 75 cents…. but, because of the free-rider problem, I only give you 5 cents… then I’m inadequately incentivizing you to do something that I benefit from. On the other hand… 5 cents is certainly better than 0 cents!

Let’s say that only members of Medium could read stories and it cost $5,000 a year to be a member. Members would be completely free to choose which stories they spent their $5,000 dollars on. Would this eliminate the free-rider problem? Yup. But would it result in the maximum payment for stories? It seems… doubtful. Having to pay $5,000 dollars to become a member of Medium would create a pretty high barrier to entry.

x = a lot of people paying a little
y = a little people paying a lot

Eh? Midgets would have to pay the most?

x = a lot of people paying a lit
y = a lit of people paying a lot

Maybe it would be nice if “a lit” was the opposite of “a lot”? Or something like…

x = a large amount of people paying a small amount
y = a small amount of people paying a large amount

That works… but it requires too many letters! Or…

x = more people paying less
y = less people paying more

I suppose that’s the best way?

Anyways…

It’s entirely possible that x > y.

By minimizing payment costs… Medium would become a market. Or, it would become a better market. Who doesn’t want to participate in a better market? But it’s not like the model would be impossible to copy. So competitors would quickly emerge. And we’d see a continuum of membership fees. All else being equal… whichever website/market has the highest paid writers would have discovered the optimal membership fee.

Minimizing payment costs helps to clarify demand. Clarifying demand increases benefit. The optimal membership fee will be the fee that provides the most demand clarity… which will maximize benefit.

You know what India has? A lot of nice orchids. You know what I like? Pictures of nice orchids growing on trees. That link takes you to my favorite photos on flickr. I’ve favorited 100s and 100s of photos of orchids growing on trees. When I search my favorites for “India” there are only 47 results! That’s way too few results! There should be a lot more results!

Here’s one photo that I particularly like… Foxtail Orchid. It’s a nice photo of a really nice orchid. Here’s a photo that I might like even more… Acampe praemorsa. Even though the orchid isn’t even blooming… the photo really shows how dry the habitat is. Which is right up my alley! I live in very dry Southern California… so I’m especially interested in drought tolerant epiphytic orchids.

Dinesh Valke took the photo of the epiphytic orchid in a dry habitat… and I’m the only one who fav’d it.

So there Valke is in India. And there you are as well. He took a photo that I like and you wrote a story that I like. Both of you voluntarily did something that I benefit from. And in neither case did I accurately communicate the amount of benefit that I derived from your respective actions. And in neither case is it entirely my fault. This is because neither Flickr nor Medium have grasped the value of minimizing payment costs. In other words… neither website understands the value of clarifying demand.

My point is… yes, I’m sure that that the government in India is a problem. But it’s only a problem because people don’t understand the value of clarifying demand. And changing the government is probably the hardest thing that you could possibly do to help people understand the value of clarifying demand. It would be a lot easier to change Medium or Flickr. And, honestly, this really isn’t the first time that I’ve told Medium that it should minimize payment costs by facilitating micropayments! So if changing Medium is an epic mission… then trying to change the government would be a monumentally epic mission.

It’s probably a lot easier to grab a couple of your best programming friends and create a website that minimizes payment costs. Your website would help people understand the value of clarifying demand and our respective governments would quickly change accordingly.

Am I stereotyping you Indians by assuming that you have at least a few friends that can program? Heh.

I actually modified some code to create a forum that facilitates micropayments. This blog entry… RudeBagel… has some links to some of the code that I modified. Let me just say that I’ve spent infinitely more time studying economics than I’ve spent studying programming!! The code works… as long as there aren’t any 12 year old hacker kids around!

The website is online… but every page should, in theory, redirect to the login page and I’ve disabled the registration. I’m trying to make some modifications and am looking for any excuse to procrastinate.

You and your programming buddies are welcome to build on the micropayments forum idea or create some other type of website that minimizes payment costs. In any case, should you get stupid rich from doing so, then I’ll be sure to sue you for a huge chunk of the money! Because I’m American! And we Americans love suing people. :D

Actually… the general trend is in the direction of clarifying demand. Take Patreon for example. However, Patreon was created with the intention of helping creators get paid. It wasn’t created with the intention of clarifying demand. This is a subtle but important distinction. If the founders of Patreon had actually understood the value of clarifying demand… then they would have set it up so that sponsors would be free to pay what they wanted for specific creations.

Dinesh Valke has 275 pages of photos on flickr. Do I value all his photos equally? Noooooo.

Here’s my valuation ranking of his photos…

1. Epiphytic orchids growing in dry habitats
2. Epiphytic orchids
3. Epiphytes
4. Plants
5. Animals
6. Other

I don’t want to encourage Valke to take more photos in general… I want to encourage him to take more photos of epiphytic orchids growing in dry habitats. I want to encourage him to do something that creates more, rather than less, value for me.

Clarifying demand is all about increasing the accuracy of communication… which is what increases benefit.

Basically, we want treasure maps to be more, rather than less, accurate.

Let’s say that Flickr minimizes payment costs and Bob, an American, is about to spend a few months backpacking around India. Before he take his trip… he searches Flickr for “India” and sorts the photos by value. What types of photos are the most valuable? Which subjects are in the greatest demand? Perhaps after scrolling down a bit Bob will see that I’ve allocated $100 dollars (hah… I wish!) to Valke’s photo of the epiphytic orchid in the dry habitat.

Medium, like Flickr, also clarifies demand so Bob decides to search Medium for “India” as well. What stories are the most valuable? Which stories are in the greatest demand? Bob also conducts the same search on Youtube… which also clarifies demand.

Bob ends up with a fairly accurate treasure map. With some luck and skill he can cover the cost of his trip. Of course, a billion people in India will have access to the same exact treasure map! So Bob will have some pretty stiff competition when it comes to supplying the demands of consumers. Which is really wonderful for consumers.

Anyways, I’ve rambled enough! If not, then here are some more ideas on the same topic… Creating The Most Efficient Demand Net.

Are Anti-Discrimination Laws Necessary?

Nation States forum post: Are Anti-Discrimination Laws Necessary?

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My favorite liberal in the whole wide world, John Holbo, recently wrote an excellent piece on the Indiana controversy... Religious liberty and the Romance of Orthodoxy.

I'm going to go out on a limb and guess that most of you Nation Staters believe that anti-discrimination laws are necessary.  Just to be sure, I've attached a poll.  If you do believe that anti-discrimination laws are necessary... then you believe that supply wouldn't meet demand without them.  Clearly you have a rule that supply should meet demand.

But if most of you truly do have a rule that supply should meet demand... then how do we reconcile the fact that 65% of you do not support even some tax choice?  The supply of cakes should meet the demand for cakes... but the supply of NASA should not meet the demand for NASA?

Let's try and visualize the basic economics...

Chris, the Christian, is refusing to sell his cake to Gabe, the gay.  I'm pretty sure that most of us would agree that Chris is making a mistake.  He started a bakery to make money.... and now here he is turning down perfectly good money.  As a result, supply isn't meeting demand.  Does this one mistake justify anti-discrimination laws?

Here's Chris turning down twice the amount of money.  The size of his mistake has doubled.  Has the justification for anti-discrimination laws doubled?

Now the size of his mistake has tripled.  Has the justification for anti-discrimination laws tripled?

Chris is making a big mistake.  Big justification for anti-discrimination laws?  Was this Lot in Sodom and Gomorrah?

He's making a huge mistake.  Huge justification for anti-discrimination laws?

Here's Lilith informing Chris that he's making a huge mistake.

Chris didn't listen to Lilith so now the government steps in.  Because... most of you have a rule that supply should meet demand.

In a better market, Chris's mistake/loss would be the gain of Alex, the atheist.  Competition and Entrepreneurship, by Dr. Israel Kirzner, is the best lecture ever on the topic.

The Civil Rights Act of 1964, from the purely economic perspective, wasn't about cakes... it was about motels...

when you take a cross county drive and find it necessary to sleep night after night in the uncomfortable corners of your automobile because no motel will accept you; - Martin Luther King, Jr., Letter from a Birmingham Jail

in states where Negroes may expect to be turned away from all places reserved for whites, their position rather closely approximates that of the old English traveler: food, shelter, and protection are hard to come by. - Jack Greenberg

Congressional testimony included the fact that our people have become increasingly mobile, with millions of people of all races traveling from State to State; that Negroes in particular have been the subject of discrimination in transient accommodations, having to travel great distances to secure the same; that often they have been unable to obtain accommodations, and have had to call upon friends to put them up overnight… and that these conditions had become so acute as to require the listing of available lodging for Negroes in a special guidebook which was itself "dramatic testimony of the difficulties" Negroes encounter in travel… We shall not burden this opinion with further details, since the voluminous testimony presents overwhelming evidence that discrimination by hotels and motels impedes interstate travel. - Supreme Court, Heart of Atlanta Motel v. U.S.

The supply of motels did not meet the demand for motels.  Part of the problem was that the supply was blocked from meeting the demand.

Personally, I oppose anti-discrimination laws.  The more necessary they are, the greater the disparity between supply and demand.  And the greater the disparity between supply and demand, the greater the opportunities/rewards for entrepreneurs to decrease the disparity. 

Right now in Los Angeles there isn't an orchid nursery that will sell orchids to African Americans.  Or to gays.  Or to Christians.  The fact is that Los Angeles doesn't have an orchid nursery.  If you want to buy nice orchids in person, then you either have to drive 100 miles up to Santa Barbara (Santa Barbara Orchid Estate) or drive 100 miles down to Encinitas (Andy's Orchids).

We've all had to drive way too far to purchase things that we want/need.  And way too many entrepreneurs have started a business where there was inadequate demand.

From my perspective, what the government, or Google, or Facebook, or anybody with enough money should do is create a website where we can map our unmet, or inadequately met, demands.  Everybody who lives in Los Angeles and would prefer not to have to drive 100 miles to inspect/purchase really nice orchids, could indicate on the map where they want an orchid nursery to be.  Entrepreneurs could enter any zip code and see a list of the most demanded businesses in that area.  The website would show where an orchid nursery, gas station, KFC, used bookstore and every other type of business was most needed/demanded.  Of course a huge pile of cash on a map wouldn't guarantee a huge pile of cash in an entrepreneur's pocket.  But it would certainly decrease their chances of making the mistake of barking up the really wrong trees.

Ok citizens of Nation States!  Let's discuss!

1. How do you reconcile opposing tax choice but supporting anti-discrimination laws?  For bonus points stick to economic explanations.
2. Why should Christians not be able to withhold cakes from gays like liberals can withhold cash from Kochs?  Why is ethical consumerism ok but ethical producerism not ok?
3. Does anybody have an obligation to engage in ethical builderism?  That's where you start a business to employ/serve people who've been discriminated against.
4. Can you think of a good domain name for the inadequately met demand (IMD) website?  The best that I came up with is "SameBoat.com".  For bonus points come up with a name that isn't already taken.
5. Can you think of a better way to measure IMD?
6. What are some specific examples of IMD from your own life?  Is your favorite restaurant too far?  If so, how far is it?  And yes, it has to be a business.  No sob stories about long distance relationships.

Teaching Economics To Kids

The other day I was sitting on the couch working on my computer.  On the couch next to mine was a random kid named "Laelia" playing minecraft on her tablet.  And by "random" I mean a friend's kid.  I don't have any kids because, when it comes to this topic, Bryan Caplan doesn't hold a candle to Friedrich Nietzsche...

Every animal, including the bête philosophe, instinctively strives for an optimum of favorable conditions under which it can expend all its strength and achieve its maximal feeling of power; every animal abhors, just as instinctively and with a subtlety of discernment that is "higher than all reason," every kind of intrusion or hindrance that obstructs or could obstruct his path to the optimum (– it is not his path to ‘happiness’ I am talking about, but the path to power, action, the mightiest deeds, and in most cases, actually, his path to misery). Thus the philosopher abhors marriage, together with all that might persuade him to it, – marriage as hindrance and catastrophe on his path to the optimum. Which great philosopher, so far, has been married? Heraclitus, Plato, Descartes, Spinoza, Leibniz, Kant, Schopenhauer – were not; indeed it is impossible to even think about them as married. A married philosopher belongs to comedy, that is my proposition: and that exception, Socrates, the mischievous Socrates, appears to have married ironice, simply in order to demonstrate this proposition. Every philosopher would say what Buddha said when he was told of the birth of a son: ‘Râhula is born to me, a fetter is forged for me’ (Râhula means here ‘a little demon’); every ‘free spirit' ought to have a thoughtful moment, assuming he has previously had a thoughtless one, like the moment experienced by that same Buddha – he thought to himself, ‘living in a house, that unclean place, is cramped; freedom is in leaving the house’: so saying, he left the house. The ascetic ideal points the way to so many bridges to independence that no philosopher can refrain from inwardly rejoicing and clapping hands on hearing the story of all those who, one fine day, decided to say ‘no’ to any curtailment of their liberty, and go off into the desert: even granted they were just strong asses and the complete opposite of a strong spirit. Consequently, what does the ascetic ideal mean for a philosopher? My answer is – you will have guessed ages ago: on seeing an ascetic ideal, the philosopher smiles because he sees an optimum condition of the highest and boldest intellectuality [Geistigkeit], – he does not deny ‘existence’ by doing so, but rather affirms his existence and only his existence, and possibly does this to the point where he is not far from making the outrageous wish: pereat mundus, fiat philosophia, fiat philosophus, fiam!…" - Friedrich Nietzsche, On the Genealogy of Morality

The opportunity cost of having a kid is way too high.  Not sure if that will ever change for me personally.

Most kids are annoying but Laelia, who's around 11, isn't too terrible.  So it's not the end of the world when she somehow manages to persuade my gf to bring her over.  But I don't want her to have too much fun when she's here though, or else she might want to come over more often.  Hence, Econ 101.  But it's not like I really need that much of an excuse to teach somebody about opportunity cost.

It took a few visits but Laelia eventually developed a pretty good grasp of the opportunity cost concept.  This puts her on par with Paul Krugman.  Which means that it doesn't feel like a real noteworthy accomplishment for either Laelia or myself.  Helping Laelia successfully grasp the "earner valuation" concept, on the other hand, now that would be something to write home about.

So there we were in the living room each doing our own thing.  Except for the part where she would frequently narrate out loud what she was doing in minecraft.  Whenever she did so I would think to myself... "unsubscribe...unfollow...".  My ears perked up though when I heard her mention something about using arrows to keep creatures away.  Ah ha!

If you read... Why I Love Your Freedom... then you would know why I thought "Ah ha!"

What follows is a very rough account of my bumbling first attempt to teach a random kid the next level of economics.  To be clear, at no point did I have her full attention.  Minecraft had most of it.  Perhaps I could have used some authority to get her full attention?  Naw....

No discipline is ever requisite to force attendance upon lectures which are really worth the attending, as is well known wherever any such lectures are given. Force and restraint may, no doubt, be in some degree requisite in order to oblige children, or very young boys, to attend to those parts of education which it is thought necessary for them to acquire during that early period of life; but after twelve or thirteen years of age, provided the master does his duty, force or restraint can scarce ever be necessary to carry on any part of education. - Adam Smith, Wealth of Nations

Adam Smith was so cool.

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Xero: Did you say arrows?
Kid: Yeah
Xero: Imagine there's a target on this wall.
Kid: Ok
Xero: Now pretend that the target represents your preferences.  Errr... do you know what "preferences" are?
Kid: No
Xero: Oh.  Uh... your preferences are uh... things that you like.
Kid: Ok
Xero: So pretend that minecraft is an arrow.
Kid: Ok
Xero: How close is minecraft to the target?

[Here's my depiction...

To be clear, I didn't actually have either a target or an arrow.  This is just how it was supposed to look like in imagination land.  And I just "drew" this.

When I asked her how close minecraft was to the target... I moved the hand holding the imaginary minecraft/arrow closer and then further from the imaginary target.]

Kid: Close
Xero: Now here's another arrow [I grabbed the closest "arrow" in reach... Andrew Cohen's book Toleration]  Is this arrow close to the target?

[Unlike with minecraft, this time the "arrow" (product) was actually something that I could hold in my hand.  I also moved it closer and then further from the imaginary target when I asked her the question.]

Kid: No
Xero: What about this other arrow?  [I reached over and grabbed the second closest "arrow"... a box of Samoas (girl scout cookies)].  Is this arrow closer to the target?

Kid: Yeah
Xero: Ok [At this point I wasn't exactly sure what was the best way to proceed.  So I sat there thinking for a bit while she continued playing minecraft.]
Kid: Ooooo! iron!
Kid: I really want to watch Caroline. [I thought that Caroline was some new movie.  Later, when I googled for it, I guessed she meant Coraline.]
Xero: Let's say that you spend your money on Caroline.
Kid: I don't want to watch it that badly!
Xero: Hah!  You want your mom to spend her money on Caroline for you?
Kid: Yeah
Xero: Do you think the producer of Caroline is happy when your mom gives him money?
Kid: Yeah
Xero: Are you happy when people give you money?
Kid: Yeah
Xero: Are the girl scouts happy to get money?
Kid: Yeah
Xero: Are the producers of minecraft happy to get money?
Kid: Yeah
Xero: Was Andrew Cohen, the person who wrote this book, happy when I bought his book?
Kid: Yeah
Xero: So here's the target... [again I made an imaginary target with one arm and held an imaginary arrow in my other hand].  If people want more money do they try and shoot the arrows closer or farther from the target?
Kid: Closer!
Xero:  Exactly!  Every time we buy something we let the producer know that that their arrow, a product, was close to the target, our preferences.  So whenever you give somebody money... you're saying "Hey man nice shot!"

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What ended the lesson was when I tried to teach her the terms "efficient allocation" and "inefficient allocation".  She gave me a blank stare and didn't even attempt to repeat the terms.  And I didn't blame her.  When I said the words out loud to her, it helped me especially appreciate that the terms sound like indistinguishable gibberish. Certainly it would have helped if I had written the words on a chalkboard.  Most people are visual learners.  But it's really preferable to have "tools" that are easier to use.   The revolution was postponed for lack of simpler jargon.

What was super neat though was how quickly my econ lesson, as terrible as it was, was put to good use.  That evening she wanted to watch something on Netflix that really didn't match my preferences.  So I quickly pointed out that what she wanted to watch was close to her target... but really far from my target.  This immediately registered with her and she agreed to keep searching.  After a bit of searching we settled on one of the Fred movies.  Trust me, it could have been worse!

Perhaps an AAR (After Action Review) is appropriate.

What was supposed to happen?

The mission was to teach a kid about earner valuation.  Whenever Laelia is as happy as a kid in a candy store... she should fully understand and appreciate that, because of consumer sovereignty and producer incentives, there are numerous products (arrows) that are close to her preferences (target).  In other words, she should know where better options come from.

What happened?

I used the idea of arrows and a target to try and help illustrate the relationship between preferences and products.  Plus, I tried to explain that, because producers want more money, they try and shoot the arrows closer to people's targets.

What could be improved?

Maybe it would have helped to actually have a lesson plan?  Perhaps it would have helped if she could have seen the disparity in our preferences...

Couldn't hurt to throw in a picture of two people trading and considering what is being gained/lost...

Ideally there should be a book or video that wonderfully/accessibly illustrates the story that I'm struggling to tell...

1. Choice... we have to choose
2. We all want to choose the most valuable option (MVO)
3. Spending has a cost, and an opportunity cost
4. Choosing the MVO depends on accurate information
5. Choosing/spending has consequences
6. Producers aren't omniscient
7. How we spend our money communicates what our preferences are
8. Producers want more, rather than less, money
9. The supply moves closer to our preferences
10. Everybody benefits because everybody is free to choose

It really seems like this entire story should already exist in some book or video for kids.  Shouldn't it be surprising if it doesn't?  Found this great website... EconKids.  It lists numerous children's books that can help kids understand important economic lessons.  I didn't have a chance to go through them all.  But if anybody does find the "complete" story either there or someplace else... then please let me know!  Because it's got to be a big problem if such a book/video doesn't already exist.

What's the earliest age that an average kid would be able to understand/appreciate this story?  If anybody does attempt to teach/tell this story to some kid... then please let me know the following...

1. how old the kid was
2. how you told the story
3. how well the kid grasped it

Builderism

Anybody else starting 2015 with a cold?  Sore throat, runny nose, achiness...it's really not the best way to start a new year.  So far no good.  I'm not superstitious, much, but I do feel some need to offset this lousiness with lots of awesomeness.  So I'm going to post this entry today even though it could probably do with a few more days/years of refining.  To help hedge my bets, at the end I'll share my recipe for the very best breakfast to make when you're sick.

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Who really helps the poor?  Does Cutlass?

Context: Welfare Theorem vs Progress Theorem

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A huge part of the problem here is that you think that elections (cheap talk surveys) accurately reflect the demand for public goods...

No, I don't. Because elections can't segment out that level of discrimination. But they can and do aggregate it, to a point. And within a useful margin for discussion. So while it is an imperfect measure of preference, and while it is an aggregated measure, rather than an individual measure, it still is a measure of revealed preferences.

And that revealed preference is for not helping the poor. Not beyond a minimum point, anyways.

Taxpayers, at least initially, would be paying the same taxes. They would be able to choose where their taxes go...and congress would still be in charge of determining the tax rate. So the amount of money that congress itself receives will reflect how satisfied taxpayers are with the tax rate. If the tax rate is too high...or too low...then congress will lose money. And whether the tax rate is too high...or too low...depends on how much value the public sector is creating relative to the private sector. To learn more...pragma-socialism.

Now you are opening yourself to 2 economic fallacies: Free rider problems and public goods problems. People will express false preference in order to save themselves a buck, and free ride on the generosity of others. And that causes a public goods problem, in that underinvestment in public goods is the normal course of individual preferences.

Education doesn't benefit the poor?

Giving endowments to major universities doesn't feed or house the poor.

The Koch brothers employ far more people than I do...so I'm certainly in no position to judge their concern for other people's welfare.

Employing people has nothing to do with providing aid the poor. The Koch brothers, on the other hand, spend vast fortunes to try to convince people of their point of view, and that point of view is that government should take from the poor and give to the Koch brothers.

So, in effect, you started this discussion with the brief of making things better for the poor through a different means of government. But then since then you've been defending making the poor much worse off by empowering those who want to harm them, and disenfranchising those who wish to help them.

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If somebody was a connoisseur of contradictory arguments then they might really appreciate this guy's argument.  Let me try and break it down...

1. Voting adequately reveals people's preferences
2. People don't really want to help the poor
3. People lie in order to save a buck
4. Pragmatarianism would...
A. disenfranchise those who want to help the poor
B. empower those who want to hurt the poor

#3 negates #1 and #2 negates #4A.  Except, if #1 isn't true, as this paper suggests, then perhaps neither is #2.  If people really do want to help the poor, then would pragmatarianism prevent them from doing so?

A Global Free-trade Agreement for Public Goods

People sometimes ask me how, in a tax choice system, we'd determine which organizations would qualify to receive tax payments.  My usual quick response is that, very generally speaking, voters would decide what's on the "menu" and taxpayers would order the "dishes" that most closely match their preferences.

An idea that was interesting enough to blog about just crossed my mind as I was browsing Inge Kaul's book...Providing Global Public Goods.  Now, I'm not saying it's a good idea...or a bad idea...and I'm not quite sure if I'd support it...but it's definitely thought provoking enough for me to throw out there.    

Continuing with the restaurant analogy...rather than limiting taxpayers to only dining at their own country's restaurant...why not allow them to dine at any country's restaurant?  Taxpayers would have to eat (pay their taxes) but they would be able to select the dishes from any country's menu.

Let's take Sarah for example.  She's a young American taxpayer whose number one priority is the environment.  At anytime throughout the year she could make a tax payment directly to the Brazilian equivalent of the EPA.  Sarah would receive a receipt...which, along with all her other receipts, she would submit to the IRS by April 15.

Markets allow resources to flow where they create the most value.  A tax choice system would create a market in our public sector...but the flow would generally be restricted to within our country.  Completely removing that restriction would allow for the global free-trade of public goods.  In theory this would create far more value.

Can you predict which country would receive the greatest inflow of public funding?  What impact would it have on the Israeli-Palestine conflict?

Clearly this public goods free-trade agreement would facilitate global convergence.  But how much would it help developing countries catch up with the rest of the world?  Well...that would depend on the rate of outflow.  As I argued in my response to John Holbo's critique of libertarianism...we can gain far more from global innovation than the world can gain from American innovation.  The more we help developing countries catch up...the more we'll benefit from their innovation contributions.

Speaking of my favorite Crooked Timber Liberal...I'll conclude this brainstorm with this comment that I posted on John Holbo's blog entry on selling votes (the discussion on my blog)...

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Peter T…oh man…never thought of that! It’s an extremely fascinating point though.

Let’s say Brazil was going to vote on whether it should develop or conserve the Amazon rain forest. Given that I’m not a citizen of Brazil I wouldn’t be able to directly vote on the proposal…but nothing would stop me from sending money to any Brazilian who was on my side of the issue. So I’d send $100 to a Brazilian conservation organization that would be responsible for buying votes for the pro-conservation side.

Everybody in the world would benefit from saving the rain forest…so how much money would everybody in the world send to the conservation organization? Then we can imagine all that money being exchanged for votes…in essence all that money would be transferred to Brazilian citizens that were willing to sell their votes in favor of conservation.

That’s some really heavy stuff. People in country A wouldn't send money to country B unless they cared about the outcome of elections in Country B. Imagine there was an Islamic fundamentalist party running against a pro-Western party in some Middle Eastern country…how much money would the world send to the organization responsible for purchasing votes for the pro-Western party? Then we can imagine all that money being transferred to people willing to sell their votes to the organization responsible for buying votes for the pro-Western party.

Were the Pyramids a Smart Investment?

Yes, the Egyptians could have used the resources to build steam engines or a moon rocket or any number of things. They didn't, however, and the results still helped stabilize the Egyptian culture for millenia. It worked, and the fact that the Egyptians were probably quite happy to help their god-king in the afterlife by building funerary complexes like pyramids is only a bonus. That simple act of being a net positive, historically, is what matters. - Avenio

Here's my response...

The simple act of not having to eat your children, historically, is what matters...

This eyewitness account comes from Abdel-Latif Al-Baghdadi, a physician/scholar from Baghdad who was in Egypt from 1194 to AD 1200. He reported that people emigrated in crowds and that those who remained habitually ate human flesh; parents even ate their own children. Graves were ransacked for food, assassinations and robbery reigned unchecked and noblewomen implored to be bought as slaves. Al-Baghdadi's account is almost an exact copy of that recorded by Ankhtifi, more than 3000 years earlier. - Fekri Hassan, The Fall of the Egyptian Old Kingdom

Yes, the Egyptians could have used the resources to build steam engines or a moon rocket or any number of things. - Avenio

Any given Egyptian could have used his resources to produce any number of things. He could have produced something and taken it to the market. Would other people have bought whatever it was that he produced? Perhaps? If yes...then he could have hired other Egyptians to help him produce his useful product. If no...then he could have worked for other Egyptians to help them produce their useful products.

A famine in Egypt obviously meant that there was a shortage of food in Egypt. But does that mean that they had a shortage of goods that they could have traded with other countries for food? In the case of ancient Egypt...yeah. They spent their nation's limited resources building the pyramids which had absolutely no trade value. They couldn't eat the pyramids and they couldn't trade the pyramids for food.

Here's an insight into the mentality of a conceited ruler...

Apart from their other characteristics, the outstanding thing about China's 600 million people is that they are "poor and blank". This may seem a bad thing, but in reality it is a good thing. Poverty gives rise to the desire for changes the desire for action and the desire for revolution. On a blank sheet of paper free from any mark, the freshest and most beautiful characters can be written; the freshest and most beautiful pictures can be painted. - Mao Zedong

During the Great Leap Forward...Mao used China's limited resources to try and help China catch up with the rest of the world. Rather than acknowledge and protect the unique information that was already written in each person's mind...he overwrote their information with his own information. The result was an artificial famine which led to the deaths of 20-40 million people.

Carefully and thoroughly read over this passage by Adam Smith...

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder. - Adam Smith, Theory of Moral Sentiments (1759)

Do you see how this ties into Mao's belief that each of the 600 million Chinese person was a blank page? Mao completely failed to understand the fundamentally important concept that each person has their own principle of motion. Good thing for China though that somebody did understand this fundamentally important concept...the pragmatic consequentialist Deng Xiaoping. The result? Millions and millions of Chinese people were lifted out of poverty.

We've completely fetishized the idea of freedom but few people truly understand its inherent value. Freedom means that nobody prevents you from using your limited resources. If you choose to use your limited resources to produce something that I value...then I will choose to give you some of my own limited resources. The market process is constantly redistributing resources to the people who use society's limited resources for society's maximum benefit.

So what would have happened If Egyptian taxpayers could have chosen which government organizations they gave their taxes to? They would have given their taxes to whichever government organization was producing the maximum benefit for society. Would the Egyptian taxpayers have agreed? When does everybody always agree on everything?

But do we really want all the taxpayers to agree on how our society's limited resources should be used? Do we really want to put all our eggs in one basket? Or do we want to hedge our bets?

We're all unique individuals with our own perspectives. Freedom allows us to use different approaches to tackle different problems. One of Deng Xiaoping's famous sayings was "cross the river by groping for stepping stones." If we want to cross rivers...if we want to successfully overcome obstacles...then we shouldn't limit the expression of our individuality.

 ... an increase in the power of the State ... does the greatest harm to mankind by destroying individuality which lies at the heart of all progress... – Gandhi

Our individuality is the source of innovation, ingenuity and resourcefulness. Markets work because we all have the freedom to give our own limited resources to the people who are using society's limited resources for our benefit.

The capitalist society is a democracy in which every penny represents a ballot paper. - Mises 

We all want more for less which is why the market process leads to an abundance of what we, as a society, value.

Taking vs Trading

If aliens arrived on our planet...would they want to trade with us or would they just take whatever resources they wanted?  It's my firm belief that they would want to trade with us.  Here's my logic...

In order for an alien civilization to advance to the point that it could actually visit us...they would already have learned that progress depends on trading rather than taking.   This is because taking destroys individual foresight and if you destroy individual foresight then you hinder progress.

In very simple terms...two heads are better than one.  We all have unique perspectives so we can see numerous uses of the same exact resource.  Trading integrates perspectives which allows resources to be put to their most productive uses...while taking does the opposite.  It seems highly unlikely that an alien civilization could efficiently allocate all the resources necessary to visit out planet...yet fail to appreciate that their progress was a direct result of integrating everybody's unique perspectives.  

Here on planet Earth we still haven't figured out that our progress depends on integrating people's perspectives.  If we had figured this out then taxpayers would be able to choose which government organizations they gave their taxes to...aka pragmatarianism.  Once we understand why people's perspectives should matter...then we'll allow taxpayers to trade their taxes for public goods that they value...our rate of progress will increase...and visiting inhabited planets will happen sooner rather than later.  With the understanding of progress under our belts...we would see the value in trading with the aliens rather than taking their resources by force.

This concept was the point of Bastiat's Parable of the Broken Window...

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented. - Bastiat, What Is Seen and What Is Not Seen. 

Right now we allow 538 congresspeople to spend around $4 trillion dollars.  Did they labor to earn that money?  No...they did not.  Taxpayers did.  When we allow congress to spend money that they did not earn...the perspectives of millions and millions of taxpayers are blocked from determining how their money should be distributed in the public sector.  As a result...progress is severely hindered.  Yet, people see roads and schools...so they see their tax dollars at work.  But they are simply seeing the SEEN...anybody can do that.  The challenge is to try and see the UNSEEN.  The unseen is the outcome of applying millions and millions of our most productive perspectives to the public sector.

The next time you watch a movie in which the aliens take the resources they want by force...or vice versa...hopefully you'll understand that what you're watching is merely a reflection of our society's lack of understanding regarding the correlation between perspectives and progress.

What are Taxes Worth?

In my post on A Wife Swapping Economy...I predicted that Peter Boettke would be the first economist to fully endorse pragmatarianism.  Here's my extended response to his blog entry...Don Boudreaux on Ludwig Lachmann...

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In the comments, Tom Palmer shared his favorite essay by Lachmann, "The Market Economy and the Distribution of Wealth".  I read it twice and found lots of great clues.  Here's one..

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. - Lachmann, The Market Economy and the Distribution of Wealth

...which you can compare to this clue that Bastiat offered before Lachmann was even born...

If the socialists mean that under extraordinary circumstances, for urgent cases, the state should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions, we will, of course, agree. This is done now; we desire that it be done better. There is, however, a point on this road that must not be passed; it is the point where governmental foresight would step in to replace individual foresight and thus destroy it. It is quite evident that organized charity would, in this case, do much more permanent harm than temporary good. - Bastiat, Justice and Fraternity

...which you can compare to this clue that Turgot offered before Bastiat was even born...

There is no need to prove that each individual is the only competent judge of this most advantageous use of his lands and of his labor. He alone has the particular knowledge without which the most enlightened man could only argue blindly. He alone has an experience which is all the more reliable since it is limited to a single object. He learns by repeated trials, by his successes, by his losses, and he acquires a feeling for it which is much more ingenious than the theoretical knowledge of the indifferent observer because it is stimulated by want. - Turgot, The Turgot Collection

Our most valuable resource isn't any of our material resources...it's our individual "foresight"...our own "particular knowledge"...which I've taken to refer to as our unique perspectives...Perspective Matters - Economics in One Lesson.  Our unique perspectives allow us to see how limited resources might be used in new, valuable and productive ways.

Yet, for the past 300 years the people who have understood the value of perspectives have argued to limit the scope of government and reduce taxes.  Why didn't they see the value of millions and millions of taxpayers, each with their own unique perspective, having the freedom to use their taxes, the symbolic representation of their own countless sacrifices, to determine the proper scope of government?  Why didn't Turgot or Bastiat or Lachmann or Hayek or Friedman or Buchanan or Boettke or Kling or Rizzo or Caplan or Boudreaux see the value of allowing millions and millions of our most productive perspectives to use their taxes to reveal exactly what the government does that is worth their countless individual sacrifices?

You guys have the power to fundamentally change the debate with liberals.  Why not switch tactics on them?  Why not simultaneously prove that Einstein's definition of insanity doesn't apply to you guys?  Why not try an Aikido move by letting liberals have their taxes in exchange for individual foresight?  Would it be worth it to give up one thing you value in exchange for another thing that you value even more?  That is, of course, the very definition of sacrifice.

Why not have this discussion with liberals?  Discussion is simply free-trade.  It's where two or more people freely exchange their perspectives with each other.  We all value our perspectives... so wouldn't we all stand to benefit by freely trading our perspectives on perspectives?

How would liberals respond to our offering?  Is Paul Krugman really going to argue that his perspective does not matter?  Is Jeffrey Sachs really going to argue that the combined perspectives of 538 congresspeople are more valuable than the combined perspectives of 150 million of our most productive citizens?  Would Krugman and Sachs really argue that, from their perspectives, one use of a limited resource is as good as any?  Would they really argue that, from their perspectives, economics does not matter?  Let's find out!

Perspectives Matter - Backstory

The study of knowledge (epistemology) is pretty darn interesting.  Here are a couple discussions which provide some recent background on my upcoming post (Perspectives Matter - Economics in One Lesson).  The first discussion took place on a political forum...Libertarian Pudding Tastes Good!!!...and the second discussion took place on Gene Callahan's recent an entry on business cycles....Notes on a General Theory of the Social Cycle.

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Reiver

Why isn't socialism a viable concept? Because it's impossible for a king...or a committee...to determine the optimal level of funding for an organization.

This doesn't make sense. Economic planning is the norm in all viable economic paradigms. Capitalism is certainly reliant on it, with the invisible hand often deliberately avoided.

Not Amused

Companies change their plan with conditions, government try to force the condition to fit their plan.

Companies often reduce spending, and terminate products that are no longer viable. Government rarely reduces spending, and rarely only terminates program spending.

Over time, companies provide more value for the same, or less cost, or go out of business. The cost of government has little to do with it's value.

Reiver

Companies change their plan with conditions

But they actively avoid the market. The visible hand is just as prone to error from distributed knowledge, with the price mechanism no longer directly used for allocative purposes. That ensures his comment was nonsensical. Note I'm not defending government planning at all (especially as government planning is not needed within socialism, except with the usual need to take into account market failure in social investments)

Xerographica

It's only nonsensical if you're unfamiliar with the opportunity cost concept...

Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice". The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs. - Wikipedia

To familiarize yourself with this concept take a look at the following...

• Partial Knowledge and Opportunity Costs
• The Opportunity Costs of War
• The Opportunity Costs of Public Transportation
• The Opportunity Costs of Public Goods

If a pragmatarian system were implemented...would you guess that the scope of government would narrow or broaden? In other words...would the result be anarcho-capitalism, pragma-socialism or somewhere in between?

Reiver 

It's only nonsensical if you're unfamiliar with the opportunity cost concept...

Opportunity costs ensure a distinction between economics and accountancy. It doesn't provide any counter to my comment. Try again:

The visible hand is just as prone to error from distributed knowledge, with the price mechanism no longer directly used for allocative purposes. That ensures his comment was nonsensical. Note I'm not defending government planning at all (especially as government planning is not needed within socialism, except with the usual need to take into account market failure in social investments)

To familiarize yourself with this concept take a look at the following... 

I'm not interested in your petty advertising of your blog. Defend your argument with something that makes sense!

Xerographica

Reiver, the bottom line is that either your perspective matters...or it doesn't. For the intents and purposes of this discussion I'm defining "perspective" as all your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge.

Does your perspective matter? If not, then I'll just spend all your money for you. Will you be able to complain about how I spend your money? Of course not. You know why? Because your perspective doesn't matter.

Xerographica

Maybe you missed my question. Here it is again...

Reiver, the bottom line is that either your perspective matters...or it doesn't. For the intents and purposes of this discussion I'm defining "perspective" as all your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge.

Does your perspective matter? If not, then I'll just spend all your money for you. Will you be able to complain about how I spend your money? Of course not. You know why? Because you perspective doesn't matter.

So does your perspective matter? Is this a difficult question for you?

Reiver

The problem is that you have made economic comment that is certainly invalid. Clearly you also cannot (at least attempt to) suggest otherwise.

Xerographica

Why are you avoiding the question? Let me ask again. Does your perspective matter?

Reiver

If you want to improve your comments and achieve some validity? Certainly! So far I haven't seen a valid economic comment from you. Your attempt to reply with a reference to opportunity costs, for example, was laughable

Xerographica

So your perspective matters! But only in terms of me improving my comments and achieving some validity? Your perspective only matters in this ridiculously limited regard? You exist solely to improve my comments? Are you sure your perspective doesn't also matter in other areas as well?

Reiver

Your dodge really isn't imaginative or entertaining. Except for your petty attempt at advertising your blog, care to actually try to respond 'with economics'?

Xerographica

LOL...I'm asking you if your perspective matters. How did I define "perspective"? I defined it as all your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge.

Economics, in case you missed it, is the study of scarcity. For some reason you believe that your perspective...your values, desires, wants, needs, concerns, fears, hopes, dreams, tastes, preferences, priorities and partial knowledge...has nothing to do with with study of scarcity.

*awkward*

Hmmm...maybe you should read my blog and then try again.

Reiver

You're not going to impress me with reference to ECon 101 textbooks. Let's see if we can coax you towards economic comment, just for the crack:

The socialist calculation debate has effectively been won. Rather than referring to the theoretical reproduction of neoclassical perfect competition, we can refer to the use of market socialism and how- with a more stable market supported by the defence of property rights (including the worker right to receive the value of their labour)- it actually reduces the need for economic planning

Try and critique the comment. Don't go back to the insipid dodging!

Xerographica

Insipid dodging? My "insipid dodging" definitively proved that you don't know the first thing about economics. You can't even answer the question of whether your perspective matters. If people's perspectives do not matter then what's the point of discussing scarcity? One use of a limited resource would be as good as any.

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The economist Gene Callahan recently posted an entry on business cycles....Notes on a General Theory of the Social Cycle.  So I posted a comment on how how perspectives matter...but Callahan totally misunderstood me.  I took full responsibility and tried again.  Here was his response...

@xerographica: “The problem is that I’m the only one seriously advocating that taxpayers be allowed to directly allocate their taxes.”

That’s cool and all, but i don’t see what it has to do with creating a general theory of social cycles.

Shucks.  Here was my third attempt...with a bit more polishing...

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It boils down to hedging our bets. We all make mistakes…aka fallibilism…therefore…we shouldn’t put all our eggs in one basket. Let’s evaluate this on three levels...

1. Epic Fail = Socialism resulted in epic fails because all the eggs were in one basket. One committee controlled an entire nation’s resources.  
2. Substantial Fail = Mixed economies like our own result in depressions and recessions because we allow a committee (538 congresspeople) to control the distribution of 150 million people’s taxes. In other words…we have way too many eggs in one basket. For example, a tax rate of 25% means that 538 congresspeople control around one quarter of our nation’s resources.
3. Micro Fail = If I gamble my home on a business idea that doesn't pan out…then I'll lose my home...but this won't have any impact on my neighbors’ homes.

The only difference between the three failures is scale/scope.  Depressions and recessions...widespread failures...are a direct result of large scale resource misallocations.

As we established…the efficient use of limited resources depends entirely on our perspectives. Does congress have any idea what your perspective is on how they should spend your taxes? Does it matter that they do not?  What difference does it make that 538 congresspeople have no idea what 150 million people’s unique perspectives are?

People think that voting reveals their perspectives. Nothing could be further from the truth. The only way to reveal somebody’s perspective is to allow them to make decisions with their own, individual time/money. This is exactly why taxpayers should be able to choose which government organizations receive their own, individual taxes. This would allow them to integrate their unique perspectives…which would lead to the efficient allocation of public funds…which would reduce…if not eliminate…widespread failures.

Of course…I could be wrong!  The thing is though...this very concept is based on the idea of fallibilism…

It follows, then, that a less centralized society has the advantage of a greater diversification of its performance across a larger number of preceptors. This is because diversification here dilutes the impact of the ability, or the lack thereof, of each preceptor on the aggregate societal performance. – Raaj K. Sah, Fallibility in Human Organizations and Political Systems

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Callahan responded that I was trolling and bothersome.  He also said that pragmatarianism is my "pet peeve".  It's my "pet peeve" that the perspectives of 150 million taxpayers do not matter in the public sector?  That's one way of putting it.  Why isn't it his pet peeve as well?   Why isn't it every economist's pet peeve?  Does it matter that your perspective has no direct influence on the distribution of public funds?  Is it possible for a committee of 538 people to efficiently allocate a huge chunk of our nation's resources?  Am I tilting at windmills here...or are economists ignoring the neon pink bull wreaking havoc in our china shop?