Persuading Puppets Is Pointless

My reply to Adam Gurri

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You're correct that it's a huge leap!  But you really don't need to leap the chasm... there's a perfectly functional bridge.  It's called "diversity".  Markets are inherently diverse.  Let's say that an asteroid destroys our planet tomorrow.  Who do we blame for humanity's extinction?  Alex Tabarrok?  Nope...

http://marginalrevolution.com/marginalrevolution/2015/06/planetary-defense-is-a-public-good.html

Maybe we blame Mark Lutter?  Nope...

"With humanity concentrated on earth, an errant asteroid could wipe out civilization. Nuclear war could end human life. Rogue AI could eliminate humanity. Colonizing other planets limits the destructive potential of such threats. If life on earth is wiped out, Mars would still thrive. Private space exploration literally has the potential to save humanity."

https://medium.com/@marklutter/building-autonomous-for-profit-cities-4533f668a591#.kvfru0rm2

Of course we don't blame these two individuals.  Do we blame the market then?  Well no... contrary to Lutter's argument for private space exploration... we're talking about a public good here.  Therefore... the not-market would be entirely to blame for human extinction.  Centralization, by definition, limits the variety of the very different paths that individuals would be naturally inclined and incentivized to take.   Centralization, by definition, puts far too many eggs in far too few baskets.

If people were free to choose where their taxes go then we would have a market in the public sector.  As a result, public goods would be just as diverse as private goods.  This is because the demand for ALL goods is inherently diverse.  You and I wouldn't put the same exact public goods in our shopping carts just like we don't put the same exact private goods in our shopping carts.

Progress is a function of difference.  Sexual reproduction is all about difference and voila!  Here we are!

Regarding Schumpeter's "corrections"... any such thing is the logical, but extremely detrimental, consequence of centralization.  With the current system there are public "shepherds" who are so confident in their information that they are very eager to limit the natural diversity of markets.

Don't get me wrong... we need rules/regulations to protect diversity.  But nearly all of our rules/regulations do the very opposite.

Regarding the physicists... you seem to appreciate the benefit of persuasion.  So do I!   Persuasion is a function of choice though.  Take away people's choices and it becomes entirely unnecessary to persuade them.  If people are marionettes... then it's pointless to try and persuade them.  If you want marionettes to behave differently... then you're going to have to try and persuade whoever is pulling the strings.

Allowing people to choose where their taxes go would cut all the strings.  So we'd have infinitely more persuasion than we currently have.

For me it's not difficult to cleanly separate not-market factors from market factors.  You're an intelligent guy.  And you can't choose where your taxes go.  If the economy struggles in any way... then it's because your difference (creativity/intelligence/knowledge/foresight) and Tabarrok's difference and Lutter's difference and the difference of millions and millions of other people has been and continues to be squandered to a significant extent.

Our system needs to be less like Hitler and more like Churchill...

"Since the Germans drove the Jews out and lowered their technical standards, our science is definitely ahead of theirs." - Winston Churchill

John Quiggin vs More Weeds

In John Quiggin vs Weeds I shared what he wrote in the comment section of his blog entry... Income redistribution: Where should we start?...

Plume, I agree with other commenters here. From now on, for my post, can you limit yourself to one comment per post per day.

Catching up on some of his blog entries I just discovered another attempt by Quiggin to weed his garden.  In the comment section of Locke’s Road to Serfdom he wrote...

Brett, you were banned some time ago. I don’t want my discussion threads derailed by debates with you. Could other commenters refrain from responding to Brett, please.

Some weeds are hard to get rid of!  Clearly Quiggin doesn't value Plume's and Brett's contributions as highly as he values other people's contributions.  Just like I don't value all the different plants in my garden equally.  "Weeds" are the plants that I value the least.  I'd be happy if my garden didn't have any weeds in it!  In fact, I'd love to have a magic wand that would instantly turn each and every weed in my garden into an orchid!  How awesome would that be?  I would just wave the wand over a weed and voila!  It would be instantly transformed into an orchid!  Then my garden would provide me with much more value!   

Quiggin definitely wants his blog's comment section to provide him with much more value.   He also definitely opposes slavery.  But honestly I'm not quite sure why he opposes slavery.  I don't think that I've ever read a blog entry of his that he's dedicated to explaining why, exactly, he opposes slavery.    

What's wrong with slavery?  Let's take Brett for example.  Right now he's a weed in Quiggin's garden.  From Quiggin's perspective... all the space that Brett takes up in Quiggin's garden could be allocated to far more valuable plants.  In other words... the opportunity cost of Brett is too high.  What if Quiggin could wave his magic wand and transform Brett into an orchid?  Wouldn't that be a good thing?  And isn't slavery a magic wand that would do the trick?  Then Brett would do whatever Quiggin wanted him to do.

Crooked Timber and Australia are two different spaces.  The first is a virtual space and the second is a physical space.  Both spaces have Quiggin in common and it stands to reason that he would like to derive the maximum value from both of his spaces.  

In this blog entry... Private infrastructure finance and secular stagnation... Quiggin wrote...

Apart from the direct effect of lower investment, there’s a strong case that infrastructure investment increases the returns from private investment in general and therefore stimulates growth.

Quiggin wants the Australian government to spend more money on infrastructure.  Evidently he perceives a positive correlation between growth and infrastructure spending.  Just like he perceives a negative correlation between growth and war spending.  

Does Quiggin want to rely on slavery to ensure that people spend more of their money on infrastructure?  Well... 

Let's say that Brett is in the US.  This means that, no matter how much money the Australian government spends on infrastructure, none of that money would be taken from Brett's labor.   Brett wouldn't be forced to do something that makes Quiggin happy.  Brett wouldn't be Quiggin's slave.  

But what if Brett moved to Australia?  Then more of Brett's labor/life would be spent/sacrificed to infrastructure.  Brett would be Quiggin's partial slave.  Brett would be forced, in some part, to do something that makes Quiggin happy.  "Partial slave"?  Errr... part-time slave?  

It would make me happy if Quiggin addressed the topic of full-time vs part-time slavery.  What if I had a magic wand that would force Quiggin to stop whatever it was that he is doing and spend an hour or two... or three... or four... writing a blog entry on the topic of full-time vs part-time slavery?  Would I wave my wand?  Probably... not.  It would be very presumptuous of me to do so.  I have absolutely no idea what Quiggin is doing now!  Maybe what he's doing now is more important/valuable than what I want him to do.  Yet, Quiggin has no problem waving his magic wand (voting) trying to force millions of his fellow Australians to spend more of their money on infrastructure.  As if it's very unlikely that any of them have more important public goods to spend their money on.

Quiggin has accused Locke of hypocrisy for speaking out against slavery while profiting from the slave trade.  Is it hypocritical for Quiggin to criticize Locke while fully endorsing part-time slavery? 

Personally, as a pragmatarian, I have absolutely no problem with people being forced to pay taxes.  My problem is when people are prevented from choosing where their taxes go.  Does it make me a hypocrite that I oppose slavery but support taxation?  Well...

The reason that I oppose slavery is because I support difference.  

Progress is a function of difference.  Slavery limits progress because it diminishes difference.  Less difference means less progress.  More difference means more progress.  Sexual reproduction is superior to asexual reproduction because the outcome of sexual reproduction is more difference... which means more progress.    

Giving people the freedom to choose where their taxes go would inject a massive amount of difference into the public sector.  This massive amount of difference would yield a massive amount of progress.

Is Brett's difference diminished when he's forced to spend some of his dollars on public goods?  Nope.  Everybody needs public goods just like everybody needs private goods.  The incredibly obvious and fundamentally important yet intensely unappreciated aspect is that we don't all need the same exact amount of public or private goods at the same exact time.   Our preferences and circumstances are incredibly diverse!  This is why markets are just as necessary for public goods as they are for private goods.  And it's why the absence of a market in the public sector is directly responsible for diminishing Brett's difference.  Brett can't shop for himself in the public sector.  He can't decide for himself whether more defense or more infrastructure will maximize the value he derives from the public sector.  Brett is a slave to the extent that he can't decide for himself how his own resources are allocated.  And Quiggin supports slavery to the extent that he supports preventing Brett from deciding for himself how his own resources are allocated.  

Part of the problem is the opaqueness of the part-time slavery mechanism.  If Brett lived in Australia then Quiggin probably wouldn't go to Brett's home and force him to spend more of his dollars on infrastructure and less of his dollars on defense.  Instead, Quiggin votes for representatives who might be elected and might spend more of Brett's dollars on infrastructure and less of his dollars on defense.  Just because the mechanism is so indirect and imprecise doesn't change the fact that Brett can't choose for himself which public goods he spends his dollars on.

Admittedly, accusing anybody of supporting any amount of slavery generally isn't the best way to make friends and influence people.  But as I've pointed out numerous times before... Quiggin is my second favorite liberal.  I'm confident that he will assume good faith and correctly perceive that my criticism is entirely constructive.  It's a very important topic and it's entirely possible that my logic is fatally flawed.  Maybe Brett isn't a part-time slave?

Well... while I'm at it... perhaps I should address the very popular topic of equality from the perspective of difference.  Let's say that Brett is super poor and Quiggin is super rich.  This means that Quiggin allocates a lot more resources than Brett allocates.  Quiggin and Brett are both different... but, because of the disparity in their wealth, Quiggin's difference has far more weight than Brett's difference.  Compared to Quiggin... Brett's difference is vanishingly small.  Given that my basic premise is the importance of difference.... wouldn't there be greater progress if a good chunk of Quiggin's wealth was given, in some form, to Brett?

For some time now Quiggin has been working on a book about opportunity cost.  Do you think it's awesome that he's writing a book about opportunity cost?  I sure do!  This means that I plan to purchase his book as soon as it's published.  When I do so I will be expressing my difference.  My difference is my interest in the topic of opportunity cost.  This difference of mine will be made manifest by my choice to allocate my money, a limited resource, to the purchase of Quiggin's book on opportunity cost.

With this in mind... it should be readily apparent that the redistribution of Quiggin's wealth to Brett would diminish my difference and the difference of everybody else who's going to purchase Quiggin's book.  There would most definitely be a net loss of difference.  Which would mean less progress.

Eh, of course I don't know for a fact that this specific loss of difference would result in less progress!  Nobody can possibly know!  Nobody has a crystal ball!  Hence the value of difference.  We cover more ground when people are free to buy, or not buy, Quiggin's book when it comes out.  And by covering more ground we learn more and make more progress.

So it's not that any given different path will certainly be correct.  It's that the freedom to go down different paths is how we maximize discoveries and hedge our bets as a society.  Perhaps Quiggin is correct that spending more money on infrastructure is the right path to take.  But nobody can know this with enough certainty to prevent people from choosing different paths.  Every stagnation/recession/depression that we suffer from is caused by the widespread belief that part-time slavery doesn't have any adverse consequences.  There will always be adverse consequences when too many eggs are placed in too few baskets.

Here are some relevant passages...


Regarding slavery as a continuum...

When, as among the ancients, the slave-market could only be supplied by captives either taken in war, or kidnapped from thinly scattered tribes on the remote confines of the known world, it was generally more profitable to keep up the number by breeding, which necessitates a far better treatment of them; and for this reason, joined with several others, the condition of slaves, notwithstanding occasional enormities, was probably much less bad in the ancient world, than in the colonies of modern nations. The Helots are usually cited as the type of the most hideous form of personal slavery, but with how little truth appears from the fact that they were regularly armed (though not with the panoply of the hoplite) and formed an integral part of the military strength of the State. They were doubtless an inferior and degraded caste, but their slavery seems to have been one of the least onerous varieties of serfdom. Slavery appears in far more frightful colours among the Romans, during the period in which the Roman aristocracy was gorging itself with the plunder of a newly-conquered world. The Romans were a cruel people, and the worthless nobles sported with the lives of their myriads of slaves with the same reckless prodigality with which they squandered any other part of their ill-acquired possessions. Yet, slavery is divested of one of its worst features when it is compatible with hope; enfranchisement was easy and common: enfranchised slaves obtained at once the full rights of citizens, and instances were frequent of their acquiring not only riches, but latterly even honours. By the progress of milder legislation under the Emperors, much of the protection of law was thrown round the slave, he became capable of possessing property, and the evil altogether assumed a considerably gentler aspect. Until, however, slavery assumes the mitigated form of villenage, in which not only the slaves have property and legal rights, but their obligations are more or less limited by usage, and they partly labour for their own benefit; their condition is seldom such as to produce a rapid growth either of population or of production. - J.S. Mill, Principles of Political Economy with some of their Applications to Social Philosophy

Regarding taxation as slavery....

Taxation of earnings from labor is on a par with forced labor. Some persons find this claim obviously true: taking the earnings of n hours labor is like taking n hours from the person; it is like forcing the person to work n hours for another’s purpose. Others find the claim absurd. But even these, if they object to forced labor, would oppose forcing unemployed hippies to work for the benefit of the needy. And they would also object to forcing each person to work five extra hours each week for the benefit of the needy.  But a system that takes five hours' wages in taxes does not seem to them like one that forces someone to work five hours since it offers the person forced a wider range of choice in  activities than does taxation in kind with the particular labor specified.   (But we can imagine a gradation of systems of forced labor, from one that specifies a particular activity, to one that gives a choice among two activities, to ... ; and so on up.)  Furthermore, people envisage a system with something like a proportional tax on everything above the amount necessary for basic needs. Some think this does not force someone to work extra hours, since there is no fixed number of extra hours he is forced to work, and since he can avoid the tax entirely by earning only enough to cover his basic needs. This is a very uncharacteristic view of forcing for those who also think people are forced to do something whenever the alternatives they face are considerably worse. However, neither view is correct.  The fact that others intentionally intervene, in violation of a side constraint against aggression, to threaten force to limit the alternatives, in this case to paying taxes or (presumably the worse alternative) bare subsistence, makes the taxation system one of forced labor and distinguishes it from other cases of limited choices which are not forcings.

The man who chooses to work longer to gain an income more than sufficient for his basic needs prefers some extra goods or services to the leisure and activities he could perform during the possible nonworking hours; whereas the man who chooses not to work the extra time prefers the leisure activities to the extra goods or services he could acquire by working more. Given this, if it would be illegitimate for a tax system to seize some of a man’s leisure (forced labor) for the purpose of serving the needy, how can it be legitimate for a tax system to seize some of a man’s goods for that purpose? Why should we treat the man whose happiness requires certain material goods or services differently from the man whose preferences and desires make such goods unnecessary for his happiness? Why should the man who prefers seeing a movie (and who has to earn money for a ticket) be open to the required call to aid the needy, while the person who prefers looking at a sunset (and hence need earn no extra money) is not? Indeed, isn’t it surprising that redistributionists choose to ignore the man whose pleasures are so easily attainable without extra labor, while adding yet another burden to the poor unfortunate who must work for his pleasures? If anything, one would have expected the reverse. Why is the person with the nonmaterial or nonconsumption desire allowed to proceed unimpeded to his most favored feasible alternative, whereas the man whose pleasures or desires involve material things and who must work for extra money (thereby serving whomever considers his activities valuable enough to pay him) is constrained in what he can realize?  - Robert Nozick, Anarchy, State, and Utopia

Regarding the value of difference...

I have suggested a different model and metaphor. The world is not a single machine. It is a complex, interactive ecology in which diversity -- biological, personal, cultural and religious -- is of the essence. Any proposed reduction of that diversity through the many forms of fundamentalism that exist today -- market, scientific or religious -- would result in a diminution of the rich texture of our shared life, a potentially disastrous narrowing of the horizons of possibility. Nature, and humanly constructed societies, economies and polities, are systems of ordered complexity. That is what makes them creative and unpredictable. Any attempt to impose on them an artificial uniformity in the name of a single culture or faith, represents a tragic misunderstanding of what it takes for a system to flourish. Because we are different, we each have something unique to contribute, and every contribution counts. A primordial instinct going back to humanity's tribal past makes us see difference as a threat. That instinct is massively dysfunctional in an age in which our several destinies are interlinked. Oddly enough, it is the market -- the least overtly spiritual of concepts -- that delivers a profoundly spiritual message: that it is through exchange that difference becomes a blessing, not a curse. When difference leads to war, both sides lose. When it leads to mutual enrichment, both sides gain. - Rabbi Jonathan Sacks, The Dignity of Difference 

Preventing Human Extinction

Comment on: Why Doomsday Prepping Needs Better PR: The New Extinction Mitigation Economy

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I love growing plants. Southern California, where I live, is a great place to grow a wide variety of plants outdoors year around. Well… it’s usually a great place. A few years back it actually got cold enough to freeze. After a few days, when the full extent of the cold damage was abundantly apparent, I realized that one of my orchids… Cattleya Portia… was a total goner. It had been happily growing on a lemon tree… but then the cold killed it completely. Surprisingly, just a few feet away on the same lemon tree, was an orchid that was entirely untouched by the freeze. What made it surprising was that it was a division of the same exact Cattleya Portia that had frozen to death just a few feet away. The two orchids were identical in every way… they were both even growing on the same tree… the only difference was their location on the tree.

This confirmed, yet again, a lesson that I had learned a long time ago… don’t keep all your eggs in one basket. Right now humans are all in the same basket… Earth. It might seem like a relatively safe and big basket… but no basket is ever safe enough to put all your eggs in it.  

So the priority, in terms of preventing human extinction, should be putting humans into as many different baskets as possible…. space stations, the moon, mars and so on. 

The problem is that people can’t choose where their taxes go. At first glance it might appear to be an absurd idea to allow everybody to decide for themselves which government organizations (GOs) they give their taxes to. But preventing people from deciding for themselves is the same thing as putting too many eggs in one basket. 

Let’s say that I convince you that getting enough humans off the planet should be our number one priority in terms of preventing extinction. Can you adjust your tax allocation accordingly? Can you go to the NASA website and give them more of your tax dollars? Nope. Neither can I. Neither can anybody else…. except for an extremely small group of government planners… congress.

Centralization blocks human diversity. This is a problem because our natural diversity naturally leads us to put our eggs in different baskets. Our natural diversity is our greatest protection against extinction. Yet our government is structured to block nearly all of our natural diversity. Therefore, the government is the greatest threat to our survival. 

This doesn’t mean that we have to get rid of the government. It simply means that taxpayers should be free to choose where their taxes go. People will put their eggs (taxes) in different baskets… and they will appreciate the importance of having their eggs in different baskets… and they will appreciate the importance of having humans in different baskets. 

So we hedge our bets and greatly increase our chances of survival by allowing people to choose where their taxes go. To learn more… here’s the pragmatarianism FAQ.

I didn’t just attach Cattleya Portia to my lemon tree. I also attached some divisions to my Cedar tree… none of which were killed by the cold. Here’s a photo of Cattleya Portia blooming on my Cedar tree…

Opposite Of Mistake

Reply to reply: Words That Are Missing Perfect Opposites?

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You're really starting to stretch the definition of a mistake, Xero. - Karsus

According to a quick google search...

mistake = an action or judgment that is misguided or wrong.

"Wrong" certainly has a perfect opposite... "right". And we've all acted or made judgements that were right... but there isn't a single word for this concept.

______ = an action or judgement that is correctly guided or right

what about...

eutake = an action or judgement that is euguided or right


Let's say that you decide to go for a hike. Why? Because the available evidence leads you to believe that it would be a eutake to go for a hike! So there you are in Queensland on a hike. It's a warm, humid, windy and sunny day and you're really happy to be out in nature. You're very confident that you made a eutake. Around a bend in the trail you spot some bulldozers in the distance. Bulldozers?! Yikes! That's the last thing that you want to discover when you're out in nature. A sign reveals that this large wonderful area of open woodland all around you is going to be replaced with rows and rows of houses. From your perspective... the government is making a big mistake. It's making a decision that will destroy, rather than create, value for you. As you sadly look around and silently lament the cruel fate of all this precious nature... you spot what appears to be an orchid growing on a tree. Upon closer inspection you confirm that it is indeed an orchid.

Have you actually ever seen any orchids growing on trees in Queensland? Would you be able to identify that an orchid growing on a tree was actually an orchid? Maybe not? Maybe? Let's say that you did recognize that it was an orchid... but you didn't realize that it was one of Australia's very best orchids... Dendrobium trilamellatum. Here's a good introduction...

This robust epiphyte thrives in habitats in which few other orchids can survive. It occurs from a little south of Cooktown to the islands of Torres Strait, southern New Guinea and the Top End of the Northern Territory. It is a species of the very seasonal and hot open melaleuca woodlands where the wet season usually starts in December with occasional storms building to heavy rain in January to March, followed by a dry season in which virtually no rain falls from June to November. The Yellow Antelope Orchid flowers in spring (July to November) and the flowers are attractive, long lasting and pleasantly scented. They are about three to four centimetres across. In cultivation this species does moderately well, but must be given a dry season and the medium must be well drained. - Bill Lavarack, Bruce Gray, Australian Tropical Orchids

Even though this awesome orchid can survive a long, harsh dry season... it sure can't survive a bulldozer. So the wind definitely didn't make a eutake when it carried the tiny tiny tiny seed to this tree in this doomed patch of woodland.

Orchids have the smallest seeds in the world. Unlike other plant "parents"... orchid "parents" don't pack any lunch (endosperm) for their seeds. In order to germinate... the seeds have to land on a tree that has a suitable type of microscopic fungus. The fungus will penetrate the tiny seed... and when it does so... the seed will utilize the supplied nutrients in order to germinate. The orchid doesn't kill the fungus though... the fungus actually takes up residence in the orchid's roots. It's a symbiotic relationship because... once the orchid starts photosynthesizing... it will trade different nutrients with the fungus. Plus, the orchid roots help the fungus colonize the tree... and I'm guessing that the thick, succulent roots can help the fungus survive particularly harsh dry seasons.

Having the tiniest seeds in the world provides orchids with a few advantages. First... an orchid can pack a lot of seeds into one seed pod. A lot. Like, literally a million seeds. This greatly increases its chances of success. Second... the wind can transport the seeds a considerable distance. This also increases its chances of success. Given that the orchid family is arguably the most successful family on the planet... it certainly made a eutake when it sacrificed seed nutrients (endosperm) for greater seed quantity and dispersal distance.

In the case of the specific Dendrobium that's right in front of you though... the wind didn't make a eutake... it made a mistake. It transported the seed to the wrong tree. And now the orchid is going to die. Unless you rescue it! From my perspective... you'd be making a huge eutake if you rescued it! But if you didn't have all this information that I've just shared with you... then chances are good that you'd make a huge mistake instead. You'd leave the Dendrobium trilamellatum on the tree... the government would kill it... and the world would be marginally less diverse. Plus, imagine that this one particular individual Dendrobium was marginally more drought tolerant. If, because of climate change, the future is a marginally drier place... and the additional dryness kills off all the other orchids... then this one individual Dendrobium could have helped repopulate the entire planet with epiphytic orchids. So it would be a monumentally huge eutake to rescue it and an equally huge mistake not to rescue it.

If you did happen to make the huge eutake of rescuing the orchid... then what? Then you could divide the orchid in half and send one half to me in Southern California! I'd attach my half of the orchid to my tree here in Los Angeles and you would attach your half of the orchid to your tree in Brisbane. This would be an extremely good hedge. Of course... it would be an infinitely better hedge if we could send half the orchid to a colony on Mars. Then, if a huge asteroid hit the Earth, we wouldn't lose this awesome species entirely. Unfortunately... we don't have a colony on Mars. So the other side of the world is as safe as it gets.

So what do you think? Did I convince you to send me any doomed Dendrobium trilamellatums that you might happen to find while hiking? Oooops. That's not what I meant to ask! What I meant to ask was... did I convince you that it would help if we had a single word that conveyed the concept of an "action or judgement that is correctly guided or right"?

Hedge Granularity vs Fiscal Stimulus (Scott Sumner)

In a recent entry... Scott Sumner - Keynesian Imperialist... I failed to adequately explain the problem with fiscal stimulus.   Sumner was kind enough to offer some new material for me to work with... Macroeconomics in small economies.

Here's how he starts off...

Like many American economists, I've learned macroeconomics from an American perspective. But America is a very unusual country. For instance, US RGDP growth has averaged about 3% for the past 120 years, if not more. Most business cycles are fairly small, partly reflecting the fact that our economy is well diversified. If Nevada is in recession, Massachusetts may be growing, or vice versa.

At first glance this doesn't seem unreasonable.  We have around 50 states... and each state helps us hedge our bets... so as a country we're pretty safe.

But at second glance... each state is a collection of counties... and each county is a collection of businesses... so why should we be seeing any cycles?

Sumner is essentially arguing that the country is diversified... but the states are not...

1st tier (country) = diverse
2nd tier (state) = uniform

Nevada only supplies gambling... and Florida only supplies oranges.  If there's a bad freeze in Florida... the entire economy is still ok because Nevada's gambling adequately offsets the loss of Florida's oranges.

Here's some confirmation...

If all the booms and busts of recent years have taught states anything, Muro said, it’s that it is dangerous to rely too much on one industry for economic growth—especially if that industry is as volatile as real estate or oil. After the last time oil prices crashed, in 1986, bringing the Texas economy down with them, the state government made a point to broaden its economy into other areas. In the wake of the recent recession, the governor’s office and others claimed that Texas has successfully expanded into industries outside of the oil sector—especially the kinds of newer, fast-growing ones, such as tech, that have made places like Silicon Valley so successful. The Internet scene in Austin was particularly celebrated. “Texas has made a concerted long-term effort to build a broadly diversified economy that allows job creators from a wide variety of sectors and industries to thrive here,” Lucy Nashed, a press secretary for Perry, told me. She said that “will allow the state economy to weather the inevitable ups and downs of the economic cycle better than less diversified economies.” But, Muro noted, “The question is, given what is happening in oil and gas, how far along has that diversification proceeded in Texas?” - Vauhini Vara, How California Bested Texas

Clearly it's possible for any entity... from individuals to states to countries to the world... to be inadequately diversified.  Back to Sumner...

Other economies don't seem to adhere as closely to a stable trend line. Japan did very poorly in the 1940s, then raced ahead for decades, and has seen little growth since the early 1990s. Even smaller economies such as Latvia, Estonia, Iceland and Greece have seen spectacular booms followed by huge busts.

Ok.  These smaller countries are inadequately diversified.  Therefore, the solution should be to increase their diversification.  Right?  Well...

America would be able to support a public debt equal to 100% of GDP. But unlike Krugman, I believe the Greek situation in 2007 was "wildly irresponsible." Greece needed to run budget surpluses during the boom years, so that it would have the resources to do fiscal stimulus during a depression. Instead they ran a very large budget deficit during the boom period.

Eh?  The solution isn't to increase diversification?  The solution is fiscal stimulus?  Here's more of the same...

I would certainly not believe a 10% over capacity estimate for the US economy in 2007, but I don't find it all that implausible for Greece. Suppose your economy is sucking in lots of foreign workers for a real estate boom. The boom ends and the foreign workers leave. Now your "natural rate of output" is lower, as you have less labor. The outflow of Mexican labor after 2007 was not enough to cause a big drop in the US natural rate, but in a smaller economy like Greece, or Nevada, or Dubai, that sort of shock to capacity output could be much more significant. 

In the 1999-2000 boom the US government did run a budget surplus, and I believe Krugman supported that policy. He once suggested that President Bush made a mistake by cutting taxes and putting us back into a structural deficit. I'd argue the same applies to Greece (and Iceland, Estonia, etc.). Countries with those sorts of wild swings between boom and bust need to run surpluses during the good years. Because Greece did not do so, it is now forced to beg for loans from others. Its creditors know that it is unlikely to be able to repay those loans, and not surprisingly are reluctant to grant even more loans without some pretty strict conditions attached.

Sumner starts off his blog entry by saying that America doesn't have wild swings because we are adequately diversified.  But here he's saying that countries with wild swings need fiscal stimulus.

I find it hard to believe that Sumner is under the impression that Greece is too small to diversify.  Perhaps he's implicitly assuming that diversification isn't, for whatever reasons, tenable?

My hero is Deng Xiaoping... so I'm definitely a huge fan of practical/marginal improvements.  Allowing taxpayers to allocate 1% of their taxes?  Awesome!  A tiny step in the right direction is still a step in the right direction.

Hedging, however, is based on the premise that steps can be in the wrong direction.  Pragmatarianism is a step in the right direction because it increases the quantity of steps and directions.

There's a subtle but important distinction that needs to be made.  The heart of the issue really isn't to increase diversification.  People are already diverse.  Sure we could be more diverse as a species... but the real issue is that our natural diversity is blocked by top down control of the economy... aka "conceit".

Here's what Adam Smith wrote over 200 years ago...

If bankers are restrained from issuing any circulating bank notes, or notes payable to the bearer, for less than a certain sum, and if they are subjected to the obligation of an immediate and unconditional payment of such bank notes as soon as presented, their trade may, with safety to the public, be rendered in all other respects perfectly free. The late multiplication of banking companies in both parts of the United Kingdom, an event by which many people have been much alarmed, instead of diminishing, increases the security of the public. It obliges all of them to be more circumspect in their conduct, and, by not extending their currency beyond its due proportion to their cash, to guard themselves against those malicious runs which the rivalship of so many competitors is always ready to bring upon them. It restrains the circulation of each particular company within a narrower circle, and reduces their circulating notes to a smaller number. By dividing the whole circulation into a greater number of parts, the failure of any one company, an accident which, in the course of things, must sometimes happen, becomes of less consequence to the public. This free competition, too, obliges all bankers to be more liberal in their dealings with their customers, lest their rivals should carry them away. In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so. - Adam Smith, Wealth of Nations

And here's what Jeffrey Friedman wrote a few years ago...

Clearly the regulators were predicting that steering banks’ leverage into highly rated MBS would be prudent. This prediction proved disastrously wrong, but the Recourse Rule heavily tilted the field toward banks that went along with the regulators’ prediction. Heterogeneous behavior among competing enterprises normally spreads society’s bets among the different predictions (about profit and loss) made by various capitalists. Thus, the herd mentality is a danger under capitalism, as under every other system. Yet regulation produces the equivalent of a herd mentality by force of law. The whole point of regulation is to homogenize capitalists’ behavior in a direction the regulators predict will be prudent or otherwise desirable. If the regulators are wrong, the result is a system-wide failure. “Systemic risk regulation” may be a contradiction in terms. 

Neither capitalists nor regulators can use crystal balls to avoid making bad bets. That highly rated mortgage-backed securities would be prudent turned out to be a very bad bet. But we all suffered because this bet was imposed by financial regulators on the whole system. - Jeffrey Friedman, What Caused the Collapse?: An Exchange

... and here's what Joseph Stiglitz wrote...

Centralization is like putting all of one's eggs in one basket: just as we now recognize the greater advantages of portfolio diversification in allocating one's wealth, so, too, there are great advantages of diversification in allocating decision making powers. We need only dwell a few minutes on the evils wrought in this century as a result of the concentration of power in the hands of a few individuals. - Joseph Stiglitz, The Invisible Hand and Modern Welfare Economics

... compare it to what James Gwartney wrote...

A recent survey by the Federal Reserve Board indicated the wealthiest 2 percent of American households own 28 percent of the nation’s physical property. At first glance, this appears to be enormous power in the hands of a few people. However, reflection should cause one to question this view. This wealth, enormous as it is, is in the hands of 1.6 million house­holds, representing diverse political, religious, ethnic, and personal interests. Unless it is used to provide services to others in exchange for income, the wealth of these property owners will shrink. Compare the power of these wealthy households with the power of 536 elected federal office holders. This latter group, comprising just .0000025 percent of our population, determines how one-quarter of our national output is allocated. They tax approximately one-fifth of our national income away from earners and allocate it to nonearners. They set the dollar value of the social security benefits received by thirty-six million Americans. The regulatory power under the jurisdiction of the 536 individuals holds a life or death grip on the economic health of literally millions of businesses. In contrast with private owners, members of Congress have the power to take property, a portion of your earnings for example, without your consent. One could go on and on, but the point is clear. When government ownership is substituted for private property, enormous power over the lives of others is bestowed upon a small handful of political figures. One of the major virtues of private property is its ability to check the excessive concentration of economic power in the hands of the few. Widespread ownership of property is the enemy of tyranny and abusive use of power. This proposition is just as true today as it was a couple of hundred years ago. - James Gwartney, Private Property, Freedom and the West

Back on the topic of frozen oranges...

Farming is inherently risky. Weather, insects and disease, over which you have limited control or none at all, can wipe you out. One of the ways farmers manage risk is to plant variety. Okay, powdery mildew got your strawberries, but the broccoli’s going gangbusters. For farmers, crops that are given guaranteed protection from both losses and price drops are lower-risk propositions. - Brian Stauffer, Farm bill: Why don’t taxpayers subsidize the foods that are better for us?

Back to Adam Smith...

When a great company, or even a great merchant, has twenty or thirty ships at sea, they may, as it were, insure one another. The premium saved upon them all, may more than compensate such losses as they are likely to meet with in the common course of chances. - Adam Smith, Wealth of Nations

Yeah, we're going to need a larger megaphone.

Let's review...

Sumner is saying that fiscal stimulus is necessary because some countries aren't diversified.  I'm saying that if fiscal stimulus is ever necessary... then the solution really isn't fiscal stimulus.  The solution is to decrease government centralization/control.  This will allow inherent diversity to naturally flourish... which will eternally eliminate the need for fiscal stimulus.

Pragmatarianism is the best way to decrease government centralization.  Taxes will still be there... the difference is that a much greater diversity of people will choose where they go.  Hedging bets is just as important in the public sector as it is in the private sector.

Economics, Evolution and Epiphytes

My recent post on my other blog contains quite a bit of explicit economic content... Herclivation (a theory that considers the possibility of facilitating the adaptive radiation of epiphytic orchids via translocation and/or hybridization).  And by "explicit" I mean that I debunk John Nash's theory that we all prefer blondes equally.

Is it possible for somebody to be fascinated by economics but bored by evolution or vice versa?  Do economists have a better grasp of evolution than biologists have of economics?  That would be a fun study.  Consider these two examples...

It is sufficient if all firms are slightly different so that in the new environmental situation those who have their fixed internal conditions closer to the new, but unknown, optimum position now have a greater probability of survival and growth.  They will grow relative to other firms and become the prevailing type, since survival conditions may push the observed characteristics of the set of survivors toward the unknowable optimum by either (1) repeated trials or (2) survival of more of those who happened to be near the optimum - determined ex post.  If these new conditions last "very long," the dominant firms will be different ones from those which prevailed or would have prevailed under other conditions. - Armen Alchian, Uncertainty, Evolution, and Economic Theory

Economists employ tools that can also be used to analyze the growth and body form of organisms in terms of evolution and ecology.  According to this approach, plants resemble factories because they also acquire raw materials, in this case CO2, water, light and essential ions, to fabricate value-added 'products', specifically progeny.  Like any enterprise using the same materials that other factories require to manufacture the same products, co-occurring plants compete.  Just how severely they interfere with one another depends in large part on the distinctness of the strategies used to obtain mutually required resources. - David Benzing,  Bromeliaceae: Profile of an Adaptive Radiation

These examples are kind of like different varieties of economic imperialism.  For an example of economic imperialism check out this blog entry...Can Economics Explain Human Sacrifice?

Is there a biological equivalent of economic imperialism?  Or maybe there aren't any biologists that have used the tools of biology to analyze topics in different fields?  I guess I wouldn't be surprised if biology and related fields weren't lucky enough to have their own version of Gary Becker.   Well...what about this...biological imperialism?  Does that count as an example of the biological equivalent of economic imperialism?

The stupid Wikipedia entry for economic imperialism doesn't even mention "opportunity cost"...

A corollary of maximization is that on the margin, there are always tradeoffs.  The notion that there is no free lunch is central to economics.  The simple, but crucial concept of opportunity cost lies behind much of the ability of economics to extend into other areas.  Sometimes the tradeoffs are subtle.  Prices and costs are not necessarily parameters that are observed in market data, but they affect behavior nonetheless.  Other social sciences do not place the same weight on explicit recognition of the tension between costs and benefits, which reduces the ability of these fields to grapple systematically with social phenomena.  Thinking about tradeoffs gives rise to related thoughts on substitutability.  Economists place emphasis on choice.  Things are not technologically determined.  This is true for consumers and producers alike.  There is no fixed number of jobs.  Firms can trade off between employing labor and capital and workers can choose between labor and leisure. - Edward Lazear, Economic Imperialism  

As I've mentioned before elsewhere, the opportunity cost of the minute size of the wind-disseminated orchid seeds is that they lack the nutrients that they need to germinate on their own.  They depend on certain types of fungus to supply them with adequate nutrients.  On one hand, there's no guarantee that the fungus is going to be present wherever the orchid seeds land.  But on the other hand, the seeds are so light that they can really "extend into other areas".  Evidently sacrificing the weight of nutrients for greater dispersal distance is not a bad trade-off for orchids...given that they are the most successful plant family.

I think, perhaps, generally speaking...the problem solvers (scientists, economists, etc.) who are able to borrow and effectively use tools from other fields will make a lot more progress than problem solvers who only use their own tools.

Banned From Bad Philosophy

Post in Bad Philosophy subreddit: Pragmatarianism

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One of my blog entries ended up here...which I discovered via my blog's traffic statistics.

So some of you have already had a taste of my philosophy.  How about a full serving?  Will it give you indigestion?  Maybe it will give you those cramps from holding in your farts?  Like when you're on a plane...or on a first date.

Imagine Earth's first date with aliens.  My philosophy predicts that the aliens wouldn't date rape us.  I call shenanigans when I watch movies where the aliens enslave/eat us and steal our resources.

The fact of the matter is that organisms don't crawl from the muck one day and build an intergalactic cruiser the next.  Progress occurs when better uses of limited resources are discovered.  And the rate of progress depends on the degree of deviation from the norm.  The less uniformity in thought/action...the faster the rate of progress.

The simplest way to think about it is an Easter Egg hunt.  If you tied all the kids together...they would cover less ground...which means that less Easter Eggs would be found.  Plus, tying them all together increases the amount of harm done if one of them accidentally steps on a landmine.  If every member of a species lives near a volcano...then the entire species could be wiped out if the volcano erupts.

In order to maximize the rate of progress...a species has to hedge its bets by diversifying both its location and its actions.  This is a universal truth...it's not just particular to our planet.

The more progress a species makes...the more likely it is to discover this universal truth.  In other words, more enlightenment makes it more likely that the source of enlightenment will be seen.  By the time a species is capable of building an intergalactic cruiser it would be impossible for them to have failed to make this discovery about discovery.

Here on Earth...taxpayers can't choose where their taxes go.  People aren't free to decide which government organizations they trade with.  Our diversity of perspectives is the source of our progress...yet we fail to apply it to the public sector.  So as a society we still aren't sufficiently enlightened.  We still don't see the problem with blocking deep input.  Society shoots itself in the foot which greatly hinders progress.

What do you think?  Is pragmatarianism bad philosophy?  Does it give you indigestion?  Am I in the right place?

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This post resulted in my banishment.

Given that I was banned from bad philosophy...does it mean that pragmatarianism is good philosophy?  Or maybe it's not bad enough?  Perhaps I should have tried harder to make it badder.  Sometimes I wonder if intentionally bad is the new good.  Actually the large bulk of wondering occurred after I watched Sharknado.
 
My post only received 5 comments.  None of them were very substantial.  For some reason this leads me to doubt the group's value judgements regarding philosophy.

Crowdsourcing Linguistic Improvements

Calling all wordsmiths!  There's a new subreddit...Linvoid...dedicated to solving people's word problems.  

Here's how it works...

1. A "client" posts their word problem  
2. The crowd suggests better/new words
3. The crowd upvotes the best solutions
4. The winner gets a million dollars

I'm just kidding about the last one.  Too bad huh?

The conceptual foundation is that there's always room for improvement.  This is true whether we're talking about biology...or economics...or politics...or linguistics.

Let's take biology for example...specifically...orchids.  The orchid family is definitely my favorite plant family.  It's fascinating for several reasons...here are a few of them...

1. Orchids are the largest plant family.  There are around 30,000 different species.  
2. Orchids have more species of epiphytes than any other family.  In other words...most orchids grow on trees. 
3. A single seed pod can contain a million seeds.  That's a lot of seeds!  The seeds, which are like dust, are disseminated by the wind.  
4. In order to germinate...orchid seeds have developed a symbiotic relationship with microscopic fungus. 

Each seed is a unique combination of traits.  A unique combination of traits is a unique strategy.  So one orchid seed pod can contain a million different strategies.  This greatly increases the orchid's chances of success.

Now on to economics...

When a great company, or even a great merchant, has twenty or thirty ships at sea, they may, as it were, insure one another. The premium saved upon them all, may more than compensate such losses as they are likely to meet with in the common course of chances. - Adam Smith, Wealth of Nations

Now on to space exploration...

Luckily, tens of thousands of pioneers wouldn't have to be housed all in one starship. Spreading people out among multiple ships also spreads out the risk. Modular ships could dock together for trade and social gatherings, but travel separately so that disaster for one wouldn't spell disaster for all, says Smith. 

When 10,000 people are housed in one starship, there's a potential for a giant catastrophe to wipe out almost everyone onboard. But when 10,000 people are spread out over five ships of 2000 apiece, the damage is limited. - Sarah Fecht, How Many People Does It Take to Colonize Another Star System?

Now on to political parties (religion)...

The interested and active zeal of religious teachers can be dangerous and troublesome only where there is either but one sect tolerated in the society, or where the whole of a large society is divided into two or three great sects; the teachers of each acting by concert, and under a regular discipline and subordination. But that zeal must be altogether innocent where the society is divided into two or three hundred, or perhaps into as many thousand small sects, of which no one could be considerable enough to disturb the public tranquility. - Adam Smith, Wealth of Nations

Now back to economics...

It is sufficient if all firms are slightly different so that in the new environmental situation those who have their fixed internal conditions closer to the new, but unknown, optimum position now have a greater probability of survival and growth.  They will grow relative to other firms and become the prevailing type, since survival conditions may push the observed characteristics of the set of survivors toward the unknowable optimum by either (1) repeated trials or (2) survival of more of those who happened to be near the optimum - determined ex post.  If these new conditions last "very long," the dominant firms will be different ones from those which prevailed or would have prevailed under other conditions. - Armen Alchian, Uncertainty, Evolution, and Economic Theory

Now back to orchids...

One would think that man could find enough variation in the orchid family, as it occurs in nature, to more than satiate his taste for variety.  Yet man's appetite for variety is never appeased.  He has produced over two times as many hybrids, in the past 100 years that he has been engaged in orchid breeding, as nature has created species in her eons of evolutionary effort. - Calaway H. Dodson, Robert J. Gillespie, The Botany of Orchids

Now back to economics...

More heads are occupied in inventing the most proper machinery for executing the work of each, and it is, therefore, more likely to be invented. - Adam Smith, Wealth of Nations

Do we need more varieties of orchids?  Do we need more varieties of words?

Should there be an orchid that can grow on trees in New York?  Should there be a word for organisms that can tolerate a wide range of temperatures?  We already have the latter..."eurythermal"...but not the former.

Is "eurythermal" better than "temperature tolerant"?   Is one word always better than two?  Is efficiency as important for linguistics as it is for epiphytes and economics?  Should we want to the most bang for our buck...the most magic for our moment...the most epiphany for our epiphyte...and the most wow for our word?

The more unique a term is...the more relevant the search results.  A perfect example is fhqwhgads.  On one hand...you really don't have to use quotes when you Google for fhqwhgads.  But on the other hand, good luck trying to remember how to spell it.  

It's easy enough to remember how to spell "hedge"...but a Google search will provide two very different results.  Adding the word "bets" will help eliminate shrubbery related results.

You can also search for the expression..."don't put all your eggs in one basket".  But simply searching for "eggs basket" will serve you a surplus of superfluous shrubbery.

Searching for "diversify" is probably the most efficient approach.  But is it possible to create a better word?  Is it possible to create a better orchid?  Of course!  There's always room for improvement.

Look around...do you see orchids growing on any trees?  Language has just as much room for improvement as the trees around you.  Now there's a place dedicated to finding and making linguistic improvements... Linvoid.  If we want to have a bounty of better words tomorrow...we'll have to throw a lot of words at today.  So start disseminating new words like an orchid disseminates seeds.

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Discussion on Reddit: Can orchids provide a new model for language? Space exploration says yes!

The Danger of Homogeneous Activity in the Public Sector

My response to PrometheeFeu from our discussion over on Daniel Kuehn's blog entry...A Quick Thought on Voting...

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Scenario 1, I send money to the EPA. Scenario 2, I do not send money to the EPA. What is different between the two scenarios? Nothing of consequence.

Scenario 1, you buy asparagus.  Scenario 2, you do not buy asparagus.  What is different between the two scenarios?  Nothing of consequence.  Nothing of consequence?  Somebody prevented you from buying asparagus...and you would consider it to be inconsequential?  I thought you liked asparagus?  What if they did the same thing to me and everybody else who wanted to buy asparagus?  The little consequences would add up to the big consequence that the demand for asparagus would not determine the supply of asparagus.  Therefore, there would be a significant disparity between supply and demand.

My whole tax bill could not pay an extra secretary at the EPA, much less significant regulatory activity.

Just like your entire income could not pay for a new field of asparagus.  Or maybe it could?  Could you really eat that much asparagus though?  What about the opportunity cost?

So your scheme suffers from the same weakness as voting: your incentive is not to reveal your policy preferences.

But here's what you wrote earlier.

If a socialist came to me and argued that my purchases don't count because my single purchase can't possibly affect the price level, I would not respond that I have a duty to keep markets working. I would point out that I wanted chicken and asparagus for dinner and that's why I went to buy them and that's why my true preferences were aggregated.

Why would buying asparagus and chicken be any different from donating to the Red Cross or the World Wildlife Fund or paying taxes to the EPA or the Dept of Education?  You either want more of those things...or you don't.  The supply of those things is either determined by demand...or it isn't.  If it isn't determined by demand...then clearly there's going to be a disparity between supply and demand which represents a misallocation of scarce resources.  We'd be getting too much of one thing and not enough of another.  Without consumer's opportunity cost decisions the allocation would not even be close to being Pareto Optimal.

I support giving tax-payers having the freedom to choose which government organizations they give their taxes to because it is more morally correct and it would make me feel good to not send money to certain programs.

We currently allow 538 congresspeople to spend 1/4 of our nation's revenue which comes out to roughly $3.5 trillion dollars...yet you support applying market principles to the public sector for moral reasons?  Well...it's kinda hard to complain when most people don't support the idea for any reasons.

But surely there have to be some significant economic consequences for allowing 538 congresspeople to spend 1/4 of our nation's revenue?  As far as I can tell it's the primary cause of recessions/depressions.

On the individual level you will experience a severe recession/depression if you gamble your home on a failed business idea...right?  You misallocated a significant portion of your limited resources.  That's why most entrepreneurs pitch their ideas to venture capitalists.  And what do venture capitalists do?  They hedge their "bets".  Every decision to spend your money/time is a gamble...which is why VCs don't put all their eggs in one basket.  They spread their capital over numerous start-ups.  If they are good at picking winners then they'll increase their capital.  But they certainly don't ultimately determine whether a start-up is a winner or loser...we do.  We use our wallets to indicate whether a VC's allocation was a misallocation or a profitable allocation.

If heterogeneous activity makes sense on a smaller scale...then it should make even more sense on a larger scale.  And every single socialist experiment provides empirical evidence that this is the case.  If heterogeneous activity makes sense for a small amount of resources...and it makes sense for an entire nation's resources...then please explain why it doesn't indicate that there's a clear and present danger to allowing 538 congresspeople to allocate 1/4 of our nation's revenue among government organizations.  It would be one thing if taxpayers were able to choose exactly which congressperson they gave their taxes to...and that congressperson would have sole discretion how they spent "their" taxes in the public sector...but all 538 congresspeople have to agree on how 1/4 of our nation's revenue is spent.  Spending activity doesn't get more homogeneous than that.  

If there truly are winners in the public sector...which we can only guess at...then the tax allocation decisions of 150 million taxpayers who all want more for less will reveal exactly who the winners are.  These public sector winners will help offset any possible shortage of private sector winners.  This will help hedge our bets against recessions/depressions.  If, on the other hand, it turns out that there are very few winners in the public sector...and assuming the losers fail to adapt...then the scope of government will shrink...the tax rate will decrease accordingly...and resources will be freed-up for winners in the private sector.

Giving people the freedom to choose how they spend their money guarantees heterogeneous activity because we have extremely diverse interests, values, tastes, preferences, concerns, hopes and dreams.  Our diversity is our greatest strength...which is why failing to apply this fundamental fact to the public sector is our Achilles Heel.