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

Artificial Barriers To Entry: Humanity's Berlin Wall

Reply to: How (Not) To Be a Capitalist

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You argue that nobody is better off when they trade with Martin Shkreli… but you also argue that plenty of people choose to trade with him (which is why he’s raking in the profits). 

The first time that you traded with Shkreli he ripped you off. Shame on him. But if you traded with him a second time… then shame on you. If you continued to trade with him… then here are a couple of very different conclusions…

1. you’re irrational
2. you’re benefiting

Are you irrational? If so, then you really shouldn’t be blaming Shkreli. Are you benefiting? If so, then you really should be thanking Shkreli. 

Markets wouldn’t work so well if most people continued to make trades that weren’t beneficial. The fact of the matter is that consumers want to maximize their profit just as much as producers do. The only difference is that we can’t see or measure the amount of profit that consumers derive from a trade. But, because market trades are entirely voluntary, when consumers continue to make the same trades…. we can reasonably guess that they are profiting from doing so. It’s an entirely different story when consumers don’t have the freedom to exit. In the absence of consumer choice, the only thing that we can reasonably guess is that producers have little, if any, incentive to benefit consumers. Destroying the direct connection between payment and performance has logically detrimental consequences. 

Even though your economic analysis is logically flawed… you’re right that there’s a problem. Rent-seeking is certainly a part of it. The thing is… your definition of rent-seeking is incredibly wrong. Rent-seeking really is not when people charge what the market will bear. Where did you get the idea that it was? Being able to price gouge is the reward that people receive for correctly foreseeing future conditions. We really want people to have the maximum incentive to be in the most valuable place at the most valuable time. If there are a lot of people drowning and only one lifeguard… then it’s a really bad idea to reduce the incentive for other people to become lifeguards. Evidently you didn’t learn in econ 101 that incentives matter. You should try and get a refund. 

Rent-seeking is actually when people use the government to cheat. The minimum wage is the result of rent-seeking. It’s rent seeking when unions use the government to block competition. Just like it’s rent-seeking when corporations use the government to block competition. 

Forcing drug companies to comply with extensive government regulations is a huge part of the reason that drugs are so expensive. Costly compliance creates a very high barrier to entry… and a very high barrier to entry means a lot less competition… and a lot less competition means higher prices, smaller quantities and lower qualities. Drug companies want compliance to be costly… and voters want to be protected from defective drugs. So, unfortunately, it’s a win-win situation for congress to create the maximum amount of red-tape possible. 

Therefore, the real problem is democracy. Voters think that they are getting a free lunch when they vote for politicians who promise to ensure drug safety. Instead of getting a free lunch, voters simply make drugs a lot more expensive. Saving one life really isn’t such a great deal when it costs 1000s of lives. 

People vote to make it a lot harder to become a lifeguard and then they turn around and complain that so many people are drowning. 

The solution is to allow taxpayers to choose where their taxes go (pragmatarianism). When taxpayers consider the opportunity costs of drug safety compliance… they will decide that they have much more beneficial trades to make with the government. Big pharma will cry big tears when the barrier to entry is knocked down just like the Berlin Wall was. Once the barrier is down… competition will skyrocket and this will ensure an abundance of affordable and effective drugs. 

Drug companies will still want to cut corners… but a fully functioning market with maximum competition will quickly and severely punish any companies that cost, rather than save, lives. 

Regulations are just rules… and rules are necessary. This doesn’t mean though that all rules are equally necessary. The only way to ensure that rules truly create the most benefit for society is to create a market in the public sector. Are you going to voluntarily spend your hard-earned money on rules that harm you? Not if you’re rational. Generally speaking… rational people have more money to spend than irrational people. This is because being in the right place at the right time is more profitable than being in the wrong place at the wrong time. Thank goodness! So if you’re rational… then chances are good that you’re going to have more influence…. which you’ll use to support the most beneficial rules. If circumstances change and a rule becomes less beneficial… then you’ll have the freedom to quickly use your taxes to communicate to the rest of society that the rule has become less necessary. 

It’s important to understand that benefit is entirely in the eye of the beholder. Just like it’s important to understand that incentives matter. Just like it’s important to understand that every allocation requires the sacrifice of alternative allocations.

So is it beneficial for you to reply to my reply? I have absolutely no idea. But if you do reply…. assuming that nobody forced you to do so… and assuming that you’re reasonably rational… then I’ll logically conclude that any benefit that you foresaw must have been large enough to incentivize you to spend your time sharing your thoughts on my thoughts on your thoughts.

Do markets put resources into the best hands?

Reply to replies: "senseless human greed"

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You're system is far worse than the current because at least a poor person's vote is equal to a rich person's and thus there's at least constant pressure to meet the demands of the majority of people who need the most protection and help for the common good. - Lynx_Fox

You seem to think that people only spend their money in ways that will give them the maximum benefit for it, when if anything the vast majority of the population has shown time and time again that they will gladly blow money on stupid shit that has no potential benefit for their lives. - Falconer360

In a representative democracy, we elect governmental representatives to make good decisions for the welfare of all citizens - not popular decisions, or decisions that best profit GM or Monsanto. - billvon

That's right. And those other things will often be mythology, superstitions, not-in-my-backyard syndrome, short-sightedness, incredulity, unsupported gullible "factoids" or other things rather than empirically-based scientific views with a whole view to the common good that should decide allocation by representatives. - Lynx_Fox

Let's try and use all of this to construct an individual for us to consider and study...

Chris gladly blows his money on stupid shit. He inherited $50,000 dollars from his rich uncle. Rather than spend it on college... he spent it on a corvette. When his grandfather died... he inherited $20,000. Rather than using this money to start a business... he donated all of it to Joel Osteen. Chris loves Christ almost as much as he loves cars. Except he never reads the Bible... or perhaps he missed the story about the prodigal (wasteful) son. Just like he missed the story about the talents. Just like he missed the story about the protestant work ethic.

It stands to reason that Chris's value judgements are extremely impaired. There's one very important exception to this rule... democracy! Even though Chris consistently spends his money on the wrong things... he consistently spends his votes on the right representatives. He doesn't choose representatives that are just as wasteful as he is. Neither does he choose representatives who promise to take money from the rich and give it to him. Instead, he chooses representatives who will steer the country in the most valuable directions.

Chris is the modern day equivalent of Dr. Jekyll and Mr. Hyde. In the private sector... he's Mr. Hyde. He makes horrible decisions. But in the public sector... he's Dr. Jekyll... his value judgements are impeccable!

This story is so far from credible that it's kinda funny. It would make for an entertainingly absurd movie.

Markets work because stupid decisions (aka mistakes) decrease your influence (over how society's limited resources are used). Because a decision can't be that stupid if it increases your influence/power/control (in the long run).

Is the decision to rob a bank a stupid decision? Most reasonable people would argue that it is. Chances are good that you'll be caught or killed. Ending up in jail or dead really decreases your influence. But what if somebody robs a bank and gets away with it? Then clearly their decision wasn't that stupid.

Is the decision to drop out of school a stupid decision? Most reasonable people would argue that it is. Dropping out of school will decrease your chances of getting a good job. There's plenty of evidence that education level and income are positively correlated. But what if somebody drops out of school and starts an extremely successful business? Then clearly their decision to drop out of school wasn't that stupid.

If the intelligence of decisions is not strongly correlated with income/influence... then why bother endeavoring to make intelligent decisions? Why not randomly decide whether you go to, or stay in, school? Why not randomly decide whether you use condoms? Why not randomly decide whether you use drugs? Why bother seriously considering and contemplating the consequences of your actions?

You guys really need to get your stories straight. If markets don't truly reward alertness, effort, productivity, responsibility, competence, diligence, research, resourcefulness, ingenuity, hindsight, insight and foresight.... then yeah, there's no point in giving taxpayers the freedom to choose where their taxes go. But if markets truly fail to put society's limited resources into the best hands... then there's really no point in giving anybody the freedom to choose anything. If this is how you truly perceive reality... then prove it by starting a thread where you share your version of reality with others.

Value Signals

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Can anybody think of any others?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Read Smith again...

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations

Look at the illustration again...

Read Lange again...

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

Read Smith again...

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

Look at the illustration again...

Read Lange again...

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

Read Smith again...

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

Look at the illustration again...

Read Lange again...

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

Read Smith again...

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

Look at the illustration again...

Read Lange again...

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

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

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

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

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

Obamerate - To Destroy Individual Foresight

Individual foresight is the information that each person has regarding future events/circumstances/situations.  This information determines how we allocate our resources.  If we aren't free to allocate our resources then our individual foresight will be destroyed...useful information will be rendered useless.

My own individual foresight leads me to believe that we, as a society, will benefit from the creation of words that are dedicated to the communication of this concept.  So I've allocated my limited resources accordingly...

Obamerate (verb): to destroy a person's individual foresight
Obamertine (noun): anything used to obamerate people

Grammatical usage is the same as...

Decapitate (verb): to cut off a person's head
Guillotine (noun): a device used to decapitate people

Example usage of "obamerate"...

By shifting massive amounts of society's limited resources to the construction of the pyramids...the pharaohs obamerated the people.  The consequence was that millions starved during famines because they could neither eat the pyramids nor trade them for food.  If the people had not been obamerated...then massive amounts of valuable products would have been created and sold/traded for food during times of famine.

Some examples of obamertines: genocide, slavery, taxation, theft, concentration camps and minimum wages

Why Barack Obama?

Barack Obama

The Recovery Act and subsequent jobs measures also contained a large number of provisions that were aimed at strengthening long-term growth. In designing the Act, the Administration believed that it was not just the quantity of the fiscal support that mattered, but the quality of it as well. In this sense, the Administration took to heart a lesson that has been pointed out by many but can be traced back as early as the 19th century to a French writer and politician named Frederic Bastiat. Bastiat (1848) wrote of a shopkeeper’s careless son who broke a window in the storefront. When a crowd of onlookers gathered to inspect the damage, Bastiat took objection to the discussion that ensued: “But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, ‘Stop there!’”

For this reason, the Recovery Act was designed not just to provide an immediate, short-term boost to the economy, but also to make investments that would enhance the economy’s productivity and overall capacity even after the direct spending authorized by the Act had phased out. The Act’s investments in expanding broadband infrastructure and laying the groundwork for high-speed rail, to take two examples, are a far cry from the broken window in Bastiat’s parable because they do so much more than simply restore things to how they once were. Rather, these types of investments will raise the economy’s potential output for years to come, from a rural school that can now offer its students and teachers high-speed Internet access, to a business that has a new option to transport its goods more quickly.

As shown in Table 8, the Recovery Act included $300 billion of these types of investments in areas such as clean energy, health information technology, roads, and worker skills and training.  Figure 12 suggests that the timing of these investments was relatively more spread out than some of the Act's other measures, consistent with the longer-term focus of these projects. - White House, The Economic Impact Of The American Recovery and Reinvestment Act Five Years Later

Frederic Bastiat

But there is something else that is not seen. It is that the fifty millions spent by the state can no longer be spent as they would have been by the taxpayers. From all the benefits attributed to public spending we must deduct all the harm caused by preventing private spending—at least if we are not to go so far as to say that James Goodfellow would have done nothing with the five-franc pieces he had fairly earned and that the tax took away from him; an absurd assertion, for if he went to the trouble of earning them, it was because he hoped to have the satisfaction of using them. He would have had his garden fenced and can no longer do so; this is what is not seen. He would have had his field marled and can no longer do so: this is what is not seen. He would have added to his tools and can no longer do so: this is what is not seen. He would be better fed, better clothed; he would have had his sons better educated; he would have increased the dowry of his daughter, and he can no longer do so: this is what is not seen. He would have joined a mutual-aid society and can no longer do so: this is what is not seen. On the one hand, the satisfactions that have been taken away from him and the means of action that have been destroyed in his hands; on the other hand, the work of the ditch digger, the carpenter, the blacksmith, the tailor, and the schoolmaster of his village which he would have encouraged and which is now nonexistent: this is still what is not seen. - Frederic Bastiat, The Seen vs the Unseen

Bastiat championed the protection of individual foresight...

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.

Clearly the destruction of individual foresight was anathema to Bastiat...which is why it's extremely twisted for Obama to use Bastiat to try and support replacing individual foresight with governmental foresight.  This alone is sufficient for Obama to symbolize the destruction of individual foresight.

Given how important individual foresight is...I sincerely hope that the use of these new words will catch on.  As a reference point...

"Obamerate": six search results...0 relevant uses
"Obamertine": zero search results

The more we use these words, the more likely it is that individual foresight will be protected rather than destroyed.

Along these lines...

Reply to: Demand Clarity Would Eliminate Corporate Welfare

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It's even worse than that. You're just covering benign ignorance; people who mean well but just don't have enough data to make the informed choice. You just barely touched on hostile ignorance. - Sdaeriji

If you allocate your resources without enough information to make an informed choice...are you going to gain resources or lose resources? You're making the criticism that taxpayers leap without looking...but it really does not follow. If you're an entrepreneur and you go to the bank for a loan to start a business...is the bank likely to lend you the money without asking any questions? Can you guess what sort of questions the loan officer might ask you? Do you think loan officers who loan without looking will keep their jobs for long?

There will be enough of a free rider problem with people who have good intentions just badly guess on how much everyone else is contributing to a given program without considering that there will be enough people who consciously choose to not care whether other programs get sufficient funding and just elect to contribute their entire amount to beaver mating call research or something to drastically effect department budgets. Local projects will be awash in over-funding as everyone cares more about fixing the old Main St. bridge rather than launching a new aircraft carrier. - Sdaeriji

Taxpayers are the people you voluntarily give your money to. Why do you voluntarily give your money to them? Is it completely random? Do you randomly distribute your money...and time? Are you randomly spending your time in this thread?

And then there's the problem with active indifference. There will be a not-insubstantial amount of people who simply forget or refuse to designate how their taxes should be spent. Assuming the government will still take their money, there will have to be decisions made about how to allocate those funds.

Because, realistically, they will. People who owe on their tax filings wait until April 15 to file so they can hold onto the money as long as possible. Why wouldn't everyone do that in your scenario? - Sdaeriji

Congress would still be there. If you didn't want to shop for yourself then you could just give your money to congress. Why would anybody take the time and make the effort to shop for themselves? It would have to be worth it for them to do so.

If you have a personal shopper in the private sector...then how "wrong" would your personal shopper's spending decisions have to be before you decided it was more beneficial to shop for yourself?

It would really really really behoove us to figure out how many taxpayers would take the time and make the effort to shop for themselves in the public sector. If congresspeople are spending our taxes close enough to our preferences...then most people will not see the benefit of bothering to shop for themselves. If many or most people do see the benefit of bothering to shop for themselves then it stands to reason that congresspeople are not spending our taxes close enough to our preferences. That's a problem...unless you believe that the spending decisions of congresspeople are far superior to our own. If that's what you believe then you should strongly advocate for the elimination of all markets.

There is literally no way an intelligent person could consider this idea for more than a few minutes and conclude it is a good idea. - Sdaeriji

Hah, I had to add this one to the tax choice facebook page.

Is it about intelligence?

Can somebody be intelligent and not appreciate the implications of fallibilism? It's one thing to put all of your eggs in one basket...but it's another thing entirely to force society to put all of its eggs in one basket.

Let's build a pyramid? That's putting a lot of eggs in one basket. When there's a famine...you can't trade a pyramid for food.

Centralism is folly...it's hubris...it's conceit...perhaps there's some degree of intelligence. But there's not enough intelligence to realize the value of not destroying the individual foresight of so many other people who also strongly desire prosperity.

I'm one of the very few people on this forum who clearly sees the prosperity that pragmatarianism would create. Maybe my vision is wrong...but you have to have a high degree of conceit to force me to allocate my resources to your vision rather than to my own. You have to be really certain that I'm wrong. But what if I'm right?

Can you really be that intelligent if you fail to grasp the stupidity of absolute certainty? Like Noah in the bible...I have enough certainty to board my own boat...but I don't have enough certainty to force you to join me. It's really not intelligence if you force me to board your boat.

Just like it's really not intelligent to tie all the kids together for an Easter Egg hunt. It might seem intelligent if you know exactly where the Easter Eggs are. But in life nobody can know exactly where the Easter Eggs are located. That's why we cover more ground and find more Easter Eggs when the kids are free to go in their own directions. When you tie all the kids together...or limit the amount of kids that can look for Easter Eggs...then you decrease the chances of finding Easter Eggs and you increase the damage should one of them step on a landmine.

How much intelligence does it take to realize just how limited your perspective truly is?

If we can't persuade the public that it's desirable to do these things, then we have no right to impose them even if we had the power to do it. - Milton Friedman, Milton Friedman on Libertarianism

On the one hand, I regard the basic human value that underlies my own beliefs as tolerance, based on humility. I have no right to coerce someone else because I cannot be sure that I am right and he is wrong. - Milton Friedman, Milton Friedman on Libertarianism and Humility

There is a basic philosophical explanation, which begins with the fact that the number of possible theories of any given phenomenon is enormous, if not infinite. Of these, all but one are false. So given just the information that T is a theory, the probability that T is correct is approximately zero. However, naive thinkers have often failed to realize this, because the theories that a typical human being can think of to explain a given phenomenon (and that will seem plausible to that person) are typically very few in number. It is not that we consider the truth and reject it; in the overwhelming majority of cases, when we first start thinking about how to explain some phenomenon, the truth is not even among the options considered. The ancient Greeks, for example, did not reject quantum mechanics; they just did not and could not have considered it. - Michael Huemer, In Praise of Passivity

The government, by engaging in coercive taxation...steals the resources from a myriad of different visions...and allocates them to a far smaller quantity of visions. It's conceit. It's a recipe for failure.

Pragmatarianism would allow so many different people to shape the government to reflect what's common to, but absent from, their visions.

Like a bunch of people have different recipes in mind. Even though the recipes are all different...there's some overlap in required ingredients. What are the required ingredients that are not adequately supplied by the private sector? It's easy enough to find out...and it would behoove us to find out. Because the vast majority of the dishes that we find so delicious are not our own creations. We will immensely benefit when so many other people can use their tax dollars to indicate what the government needs to supply more of.

As shown in Table 8, the Recovery Act included $300 billion of these types of investments in areas such as clean energy, health information technology, roads, and worker skills and training. Figure 12 suggests that the timing of these investments was relatively more spread out than some of the Act's other measures, consistent with the longer-term focus of these projects. - White House, The Economic Impact Of The American Recovery and Reinvestment Act Five Years Later

Are these truly the ingredients that are most commonly missing from most recipes? If so, then like I've said so many times before, then we really do not need a market. We just need the government, in all its superior wisdom, to supply the dishes that will provide us with the most nourishment.

But the reality was so clearly pointed out so long ago...

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. - Adam Smith, The Wealth of Nations

Folly...presumption...conceit...hubris...these are the things you embrace when you oppose pragmatarianism.

You're capable of correcting your mistakes...and so is society. Hopefully it will happen sooner rather than later.

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HT: Scott Sumner - Bastiat just rolled over in his grave

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.

Dispersed Costs and Concentrated Benefits

My comment over at Troy Camplin's blog entry on Traffic, Economics, and Constructal Law ended up exceeding the maximum quantity of characters allowed for a comment.  Rather than making the effort to try and say more with less words...I'm just going to post my comment here...

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"I still continue to see the cost-benefit pattern of traffic as more closely resembling democracy than the market."

On the freeway you have the freedom to act according to your individual foresight/insight.  The same could hardly be said about the public sector.  If I foresee a problem with Iran then I don't have the freedom to shift my own taxes to the Dept of Defense.  If I foresee a problem with global warming then I don't have the freedom to shift my own taxes to the EPA.

On the freeway if I foresee a problem with a drunk driver...then I...and everybody else...have the freedom to switch lanes in order to try and give the drunk driver as wide a berth as possible.  We also have the freedom to report them to the police...and many people will do so... because the very large majority of us want to get home as quickly but safely as possible.

The freeway gives us the freedom to use our means to try and achieve our diverse ends...the same could hardly be said of the government.  On the freeway...I have the freedom to put my car where my individual foresight/insight says it should go.  In the public sector...I do not have the freedom to put my taxes where my individual foresight/insight says they should go.

The market works because people have the freedom to put their own money where their mouths/minds/hearts are.  The people with the most accurate individual foresight/insight will benefit the most people.  As a direct result...they will have the most resources to allocate.  They earned the resources at their disposal by benefiting others.  In our society these people are taxpayers.

The public sector fails because it takes a large portion of the resources from 150 million of our most resourceful/insightful citizens and allows these resources to be spent by 538 congresspeople with significantly less resourcefulness/foresight.  If 538 people truly had the insight/foresight/resourcefulness to earn more than $3.5 trillion dollars then they wouldn't have to resort to taking this money from taxpayers.  Taxpayers, who would have to pay taxes anyways, would simply see the benefit in giving all their taxes to congress.  

Mises' "human action" describes behavior on a freeway...

We call contentment or satisfaction that state of a human being which does not and cannot result in any action. Acting man is eager to substitute a more satisfactory state of affairs for a less satisfactory. His mind imagines conditions which suit him better, and his action aims at bringing about this desired state. The incentive that impels a man to act is always some uneasiness. A man perfectly content with the state of his affairs would have no incentive to change things. He would have neither wishes nor desires; he would be perfectly happy. He would not act; he would simply live free from care.

...and it definitely does not describe our ability to act in the public sector.  What describes our public sector is the mass destruction of individual foresight/insight...

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. - Bastiat, Justice and Fraternity

How cars are distributed on a freeway is the result of the incorporation of each person's individual foresight/insight.  The same cannot be said about how taxes are distributed in the public sector.  And we already know the result...

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