Redistribution: Seen Vs Unseen

Reply to: Why Taxes are Bad by Miles Kimball

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I’m struggling with this! Let’s see if I’m getting the first part right…

1. According to Noah, there isn’t a correlation between taxes and work.
2. According to Noah, you argue that higher taxes make people feel poorer… which encourages them to work more. Therefore there is a correlation between taxes and work. 
3. According to Karl, you argue that when higher taxes provide more benefits… people are encouraged to work less. Therefore there is a correlation between taxes and work. 

So whether or not there is a correlation between taxes and work depends on 1. their size and 2. on how they are spent. When taxes are wasted (no benefit)… people feel poorer and work more. When taxes aren’t wasted (benefit)… people feel richer and work less. 

What about the statistics though? What does it mean that people work the same amount whether taxes are low (2000s) or high (1960s)? When taxes were high… people should have felt poorer… especially if the taxes were wasted. Therefore, people should have worked more (= 9 hours/day). If the high taxes weren’t wasted… then people wouldn’t have felt as poor… and they wouldn’t have worked as much…. (= 8 1/2 hours/day). However, people worked the same amount as when taxes were low. Therefore… uhhhhh… ouch, my brain. LOL… this reminds me of why I didn’t pursue econ at UCLA. 

Let me try and get back to more solid ground. You point out that GDP would drop if parents did something beneficial like spending more time raising their kids rather than working more. Doesn’t it matter though when the GDP is measured? Shouldn’t we see an increase in the next generation’s GDP as a result of all the extra tender loving care (TLC) that they received while growing up? If so, then the issue isn’t with the GDP… but when it’s measured. And if we don’t expect to see a future bump in GDP… then how could it really be argued that the extra TLC is truly beneficial? To be clear, my objective here really isn’t to defend GDP as a tool…. but to highlight Bastiat’s point…

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

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.

Here’s what you wrote in What is a Supply-Side Liberal?

In calling myself a liberal, I am saying that in addition to an attachment to the liberty, limited government, constitutionalism, and rule of law emphasized by Classical Liberalism, I hold to a view based on both classic Utilitarianism and contested elements of modern economic theory that, generally speaking, a dollar is much more valuable to a poor person than to a rich person, and that therefore, there is a serious benefit to redistribution that must be weighed against the serious distortions caused by the usual methods of redistribution.

I wholeheartedly agree that a dollar is much more valuable to a poor person than to a rich person. So it’s a given that redistribution would increase total utility. Yet, I’m entirely against redistribution.

With GDP I argued that the issue is when it’s measured… and it’s entirely the same thing with utility. I’m extremely confident that we’d see a sharp increase in total utility if we measured it immediately after redistribution. This is the first effect… which is seen and favorable. But what about the unseen? What about the subsequent effects? The subsequent effects would be disastrous because productivity would plummet. 

Imagine if, rather than redistributing money from rich to poor… we redistributed money from smart to stupid. Would you oppose or support such a redistribution? Would it make a difference if you knew, for a fact, that it would immediately result in a massive spike in total utility? Personally, I would strongly oppose such a redistribution even if the first effect was favorable. This is because the second effect would be a huge decrease in productivity… which would lead to an even greater decrease in utility.

Putting society’s scarce resources into the wrong hands could certainly result in an immediate increase in total utility (first effect = seen)… but it would most certainly decrease productivity (second effect = unseen)… which would soon result in a greater decrease in total utility. We’d suffer a net loss of utility. 

Let’s say that you and I are stranded on an island. Food is scarce. You have one packet of eggplant seeds. Is redistribution of those seeds a good thing? Should we focus entirely on who would be happier to have the seeds? Should we focus entirely on fairness and divide the seeds equally? Or should we focus entirely on productivity and determine who has a greener thumb? If your thumb was greener, then redistribution would decrease productivity. If my thumb was greener, then redistribution would increase productivity. Given that our goal is for food to be far more abundant… then clearly we should focus entirely on productivity.

Markets work because the focus isn’t on utility/fairness/equality… the focus is entirely on productivity (results/abundance). And because the focus is entirely on productivity… the outcome is a greater total amount of utility. 

Markets place scarce resources in the most capable hands. Taxes are bad when, and only when, they result in the redistribution of money/resources/influence from more capable hands to less capable hands. Unfortunately, this is guaranteed to occur with our current system. 

Right now we don’t have a market in the public sector. We have socialism in the public sector. Socialism fails because government planners fail to place scarce resources in the most capable hands. This is why I’m entirely against redistribution. If we created a market in the public sector by allowing people to choose where their taxes go (pragmatarianism FAQ)… then taxes would cease to be bad. Society’s scarce resources would no longer be placed in less capable hands. 

I should probably rewind a bit and emphasize that I’m definitely not saying that poor people are stupid. I’m saying that if you know people who are smart but poor… then you probably have a theory as to why they are poor… and your tax allocation decisions would communicate your theory to the rest of society. If your theory is that they were failed by the education system… or by a lack of employment opportunities… or by closed borders… then you’d allocate your taxes accordingly. Creating a market in the public sector would allow for a multitude of theories to be simultaneously tested… which would greatly decrease the time it takes to uncover the truth. 

The truth regarding markets is that people don’t choose to place their hard-earned money into random hands. If we’re going to make the effort and take the time to earn money… then we really don’t want to see our limited time/effort/money/life flushed down the toilet. This fundamentally basic concern gives consumers the maximum incentive to place their hard-earned cash in the most capable/productive hands. So it’s the biggest problem when the results of this powerfully productive process are overridden by government planners who have infinitely less incentive and information than society as a whole does. Massive amounts of money/resources/influence will be placed in less capable hands, productivity will plummet, and everybody will suffer as a result. Redistribution subverts the true will of the people and greatly diminishes their welfare. 

It’s true that I don’t have a very strong grasp on the distortionary aspects of how taxes are collected… but I’d be very surprised if this possible problem is anywhere as harmful as the problem of having socialism in the public sector. I’m pretty sure that socialism is just as defective for public goods as it is for private goods. Therefore the spending, rather than the taxing, should be our greatest concern. 

Selling Labor For $0 Dollars An Hour

Reply to: Living wage — coming to a city near you

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The real problem is that people can give their labor away for free. For example… how much of your labor went into this story of yours? Maybe five hours? Yet, here you are giving five hours of your life away for free. You’re not selling your labor for $15 dollars/hour… or $10 dollars/hour… or even $5 dollars an hour. You’re selling your labor for $0 dollars an hour. 

It’s illogical to argue that you should have the freedom to sell your labor for $0 dollars/hour… but that you shouldn’t have the freedom to sell your labor for any amount between $0.01 cents/hour and whatever the minimum wage is.

If we made it illegal for you to sell your labor for $0 dollars an hour… then people would better understand the true value of labor. And nobody would be able to exploit you. Like, if your friend wanted you to help her move… then she would have to pay you at least the minimum wage. 

Of course this would do away with unpaid internships. And volunteering. If a non-profit wanted you to help the homeless… then they would have to pay you at least the minimum wage. 

Is Medium a for-profit or non-profit? In any case, once it’s illegal for you to sell your labor for $0 dollars an hour… then Medium would have to pay you the minimum wage for your labor. 

Well… what if you wanted to pull the weeds in your garden? If you shouldn’t have the freedom to sell your labor to others for $0 dollars/hour… then why should you have the freedom to sell your labor to yourself for $0 dollars/hour? You really shouldn’t be an exception to the rule. Exploiting yourself is just as bad as exploiting others. Therefore, if there was any work around the house that needed doing… then you’d have to pay somebody else at least the minimum wage to do it. 

How much time have I spent writing this reply? Eh… close enough to an hour. We should keep track of all the hours that Medium has exploited us. Then, when it becomes illegal to sell/buy labor for $0 dollars/hour, we can sue Medium for back pay. 

A Surplus Of One-Armed Workers

Comment on: A minimum wage fable

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Homestar Runner kinda ruined this fable for me because the first thing that came to my mind was that a one-armed worker would have the heart of a champion.

Unlike scottd... I have absolutely no problem with fables.  I'm all about making economic concepts infinitely more accessible.  But I'm not quite sure if your fable really illuminates the problem.

When kids are in school they have to decide whether they want one or two arms.  It requires a lot more effort to acquire two arms.   The question is... is it worth the effort?  A minimum wage makes it less worth the effort to acquire two arms.

The same is true of adults with only one arm.  Why bother making the effort to acquire a second arm if having only one arm can provide an adequately comfortable existence?

And then there are the one-armed workers in Mexico.  Is it worth it for them to risk their lives crossing the border?  The higher wages that one-armed workers are paid in America gives the impression that the US is suffering from a shortage of one-armed workers.  But if the US was truly suffering from a shortage of one-armed workers... then why would it be necessary to mandate higher wages?

As anybody who has complained about price-gouging should know... shortages mean higher prices... not lower prices.   If we were truly suffering from a shortage of one-armed workers... then people would be clamoring for there to be a ceiling on wages paid to one-armed workers.

When labor advocates argue for higher minimum wages for one-armed workers they are arguing that the natural wages would be way too low.  But by arguing that natural wages would be way too low... the labor advocates are inadvertently acknowledging that the US actually has too many one-armed workers.  But the only reason that the US is suffering from a surplus of one-armed workers is because government intervention has prevented the natural wage from doing its fundamentally important job of accurately and clearly communicating that the US already has more than enough one-armed workers.

If we eliminated minimum wages... then the low natural wages would have two logical consequences...

1. Kids would have more incentive to acquire two arms.  Adults with one arm would also have more incentive to acquire a second arm.  One-armed workers would also have more incentive to go to other countries.  One-armed workers in other countries would have less incentive to come to the US.

2. Existing business owners would have more incentive to hire one-armed workers.  The higher profits that the business owners earned would provide entrepreneurs with more incentive to start businesses that employed one-armed workers.

The supply and demand responses to the decrease in the wages paid to one-armed workers would quickly solve the problem of America's surplus of one-armed workers.

What really needs to be illuminated is how market prices help ensure, via incentives, that surpluses and shortages are only temporary in nature.  If liberals understood the point of prices and incentives then they would understand the problem with arbitrarily changing them.  They would understand that their good-intentioned interventions invariably have very negative consequences.

Personally, in order to help make the point of market signals more accessible... I've tried using the bat signal (value signals), Garbage In, Garbage Out (GIGO) and accurate vs inaccurate treasure maps.

Ideally there should be a short and entertaining animated video on market signals that even kids could easily understand.  As far as I know such a video doesn't already exist!  Talk about market failure!  

Ideally there would be some organization dedicated to things like say, for example... expanding liberty, increasing individual opportunity and strengthening free enterprise.  Creating a short animated video dedicated to illustrating the point of market signals would be right up the alley of this purely hypothetical institution!

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I couldn't help but wonder what the story line might be for a short animated video about market signals.  The bat signal would probably be entertaining... but I'm guessing that it's proprietary.

What about the treasure map idea?  A kid finds a treasure map... and then... what?  And then some sneaky creature somehow alters the treasure map?

For some reason the Noid came to mind.  Do you remember the Noid?





When I googled for the Noid I discovered what happened to him... How Domino's Pizza Lost Its Mascot.  It's a darkly humorous story.

The Noid as an example doesn't exactly work for the animated video because he's intentionally malicious.  Liberals aren't intentionally malicious.  They simply fail to understand the problem with arbitrarily changing market signals.

But I do enjoy the thought of the video having some good-intentioned creature called the "Krug".  Any resemblance to any real person... or Nobel economist... would be entirely coincidental!  heh

Why would the Krug change the location of the treasure on the map?  Maybe because the "X" on the map is too far away?   Krug is a little vague on how treasure maps work.  So he somehow moves the "X" on the map somewhere closer to where the kid lives.  The kid somehow doesn't realize that the "X" on the map has been moved and wastes an entire day digging holes in the wrong location.

Anyways... there's room for improvement... to say the least.

See also:  Workers: Beggars or Choosers?

Magical Moral Mushrooms

Reply to: Minimum Wage Arguments: Job Loss

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Your income wouldn’t be so tight if Medium paid you to write stories. Right now Medium is paying you $0.00 dollars an hour for your labor. Medium is exploiting the heck out of you. But here you are complaining that Starbucks is only paying people a measly $7.25 dollars an hour for their labor. 

What is it, exactly, about Starbucks paying people some money for their labor… that impregnates you with the idea that Starbucks has the moral obligation to pay people more money for their labor? 

Your income is tight so I suppose that you can’t afford to pay me $7.25/hour to write stories. But I’m sure that you can afford to pay me $0.01/year to write stories. And if you do so… well… thanks! Even though it’s a microscopically marginal improvement in my income… it’s still an improvement. 

Here’s where the moral magic happens. As soon as you pay me $0.01/year to write stories then voila! Immaculate conception! You’re pregnant with the idea that you have a moral obligation to pay me more. Doing some good obligates you to do more good. It’s a moral virtuous cycle. Or a moral slippery slope? Kinda like how it’s morally impossible to eat just one chip. 

Don’t you think it’s a little…ummm… iffy… to bundle doing some good with doing more good? Like, if giving a homeless guy a dollar morally obligated you to give him three more dollars… then wouldn’t you think twice about giving him a dollar in the first place? If spending one day a month picking up litter at your local park morally obligated you to spend one day a week removing graffiti… then wouldn’t you think twice about picking up litter at your local park?

Doing some good isn’t good enough? 

If you help one person by giving them a job… then you have a moral obligation to help three more people by giving them jobs. If you help one person by paying them $7.25/hour… then you have a moral obligation to help them by paying them $15.25/hour. 

If you help one person by baking them a cake… then you have a moral obligation to bake cakes for three more people. If you help one person by baking them a small cake… then you have a moral obligation to bake them a big cake. 

And life becomes more wonderful when these magical moral obligations become magical legal obligations.  

Guy, you’re not rational. You’ve overdosed on magical moral mushrooms. If you stopped tripping then, assuming your brain wasn’t entirely fried, you’d realize that legally obligating business owners to do more good is as monumentally moronic as it would be to legally obligate donors and volunteers to do more good. 

Maximizing Demand For Labor By Minimizing Barriers To Entry

Reply to: What Does America Really Want?

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Average citizens are the real job creators, it’s high time we started to take responsibility and demand change.

Average citizens are not job creators. And that’s the problem. To be perfectly blunt, you are the reason why average citizens are not job creators.

In order for average citizens to become job creators… it has to be stupid easy and profitable to start a business and employ people. But nearly everything you support as a liberal makes it harder and less profitable to start a business. Basically, you firmly support the construction of high barriers to entry.

Because barriers to entry are so high, it’s nearly impossible for average citizens to test out their business ideas. Everybody has at least one business idea. Everybody is capable of finding room for improvement. But most of these improvements aren’t made because average citizens are daunted and thwarted by the high barriers to entry. 

Now here’s the key part. High barriers to entry have logically detrimental consequences. These detrimental consequences are the very reason that you support constructing higher barriers to entry. But by supporting higher barriers to entry… you simply make the problem even worse. So we get stuck in a very vicious cycle.

The higher the barriers to entry… the fewer the employers. When the barriers to entry are high enough… there are far fewer employers. And when there are far fewer employers… there’s far less competition for labor. And when there’s far less competition for labor… labor will be poorly rewarded (beggars can’t be choosers). You think it’s a problem that labor is poorly rewarded… but unfortunately for everybody, you think that the solution is to make the barriers to entry even higher… which only makes the problem even worse.  

Maximizing the demand for labor is truly the best way to help workers. But in order to maximize the demand for labor, the barriers to entry have to be minimized. Doing so will make it easier and more profitable for average citizens to become employers. Maximizing the quantity of employers will maximize the demand for labor. 

When the competition for labor is maximized…then any worker that isn’t happy with their compensation or working conditions will easily be able to find a better opportunity. Or… they’ll easily be able to start their own profitable business… which will increase the supply of better opportunities (builderism).

Everybody substantially benefits when there’s an abundance of open doors. So please do everybody a favor and think things through. Regulations meant to protect and benefit workers might sound good… but is more red tape truly going to open more doors? The average citizen doesn’t have a law degree… so do you really want to make a law degree a necessary requirement for successfully starting a business and employing people? 

Let me break it down for you. If it’s stupid easy for the average citizen to successfully start and operate a profitable business then there’s no point in minimum wages, unions and countless regulations meant to protect and benefit workers. Because if any worker isn’t happy enough… then they can simply and easily just start their own business. 

So which one is it? Is it stupid easy to start a profitable business? Or… do we need the government to protect and benefit workers? Because it really can’t be both. 

If you want to maintain that it’s necessary for the government to protect/benefit workers… then you’re admitting that it’s too difficult for the average citizen to start a profitable business. But how can any economy truly thrive when, as a result of government intervention, it’s too difficult for most people to start a profitable business? How can workers substantially benefit when there’s a scarcity of open doors? How can below average citizens substantially benefit when the demand for their labor is minimized by maximally high barriers to entry? 

On the off-chance you’re actually interested in learning more…

The Inefficient Allocation Of Labor
Maximizing Opportunities By Clarifying Demand Diversity

Thoroughly Fondling The Elephant

Reply to thread... Epiphytes and Economics

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Well spotted. I now see there are plenty of references to "pragmatarianism" on the web, but they all link back to our friend Xero. Seems to be someone who has read too much Ayn Rand:grin:. - exchemist

Heh. There are more substantial points in this thread, and in other threads, that I'd like to respond to but... this one got a chuckle out of me. Ayn Rand is my BFF?

If you search my blog... "Ayn Rand" site:pragmatarianism.blogspot.com ... it might look like she's my go to gal... but in reality there are only a couple results where she's actually mentioned in the entry itself. The rest of the results show up because her name is included in my tag cloud/catastrophe/cacophony.

Not sure if you've seen this thread yet... LQ vs IQ?... but in the OP I mention the fact that my second linvoid occurred when I replaced my belief in libertarianism with my belief in pragmatarianism.

This linvoid didn't occur because I only read material which confirmed my belief in libertarianism. Nope. It occurred because I read material which challenged my belief in libertarianism. And not just a little material, but a mountain of material.

The material I read challenged my firm belief that we need some, but not much, government. In other words, I read anarcho-capitalist material. So why aren't I an anarcho-capitalist? It's because I also read material which challenged my belief that the free-rider problem is only relevant/applicable to defense, police and courts. In other words, I also read liberal material.

I simultaneously challenged my belief from completely opposite directions. And my belief, which was certainly quite strong, did not survive the challenge. It was not a pleasant experience. It was very disconcerting.

But I didn't become a liberal or an anarcho-capitalist. You know why? It's because the best arguments on both sides of my original position were really good. I couldn't ignore the best liberal arguments in order to become an anarcho-capitalist and I couldn't ignore the best anarcho-capitalist arguments in order to become a liberal.

So... I took the best arguments from both sides and put them together! Voila... pragmatarianism!

Now here you are saying that my problem is that I've read too much Ayn Rand! It's pretty priceless. My "problem" is that I've read too many of the best thinkers on both sides of Ayn Rand!

The fact that you don't recognize that pragmatarianism consists of the best arguments from both sides of the debate clearly reveals that you're not familiar with the best arguments on the other side of your position. And unfortunately, given how few pragmatarians there are, you're the rule rather than the exception.

If you haven't shown any interest in truly understanding your previous opponents' positions... then should I expect you to behave any differently now? Prolly not.

We're all blind men feeling different parts of an elephant and coming to different conclusions. What makes me exceptional is that I've been willing to feel other people's parts of the elephant. As a result, my grasp of reality... my picture... is far more accurate. This means that my conclusion is far better than the conclusion of anybody who hasn't been willing to more thoroughly fondle the elephant.

But this isn't about me "winning" the elephant fondling contest. It's about me figuring out how to convey the immense problem of our government not accurately reflecting the reality of the very best economic arguments. On the flip side, it's about me figuring out how to convey the immense benefit of conforming our government to accurately reflect the reality of the very best economic arguments.

Unfortunately, understanding and conveying are two very different things. I'm pretty sure that my skills at conveying aren't that great. Then again, they would have to be super great in order for me to successfully persuade people that it's a fact that both sides of the debate/battle have really excellent arguments. The arguments on both sides are so good that neither side will ever win... and even if one side did happen to win... we'd all lose as a result of disregarding, rather than incorporating, the losing side's excellent arguments.

Well... since I'm here I might as well take my millionth shot at conveying. The very best argument on the liberal side is the free-rider problem. It's really true that people want the most bang for their buck! So yeah, it's completely reasonable to strongly suspect that, in the absence of coercion, public goods might be inadequately supplied. Where it gets all kinds of wonderful is that the very best argument on the market side is that it's really true that people want the most bang for their buck! So yeah, it's completely reasonable to strongly suspect that, in the absence of consumer choice, public goods will be terribly supplied. When we take these two arguments and put them together... the result is pragmatarianism. We'll still have taxes... but people will be able to choose where they go.

The best liberal argument (the free-rider problem) is based on the best market argument (the fact that people want the most bang for their buck). The foundation of the best liberal argument is completely solid. And because its foundation is the best market argument... this means that the best market argument is solid as well. As a result, we're stuck between a rock and a hard place. In order to escape this predicament... we have to move laterally. We need some good ole epiphytic thinking!

Allowing people to choose where their taxes go is entirely consistent with, and supported by, the best arguments on both sides of the debate.

Perhaps it might be suspected that I'm highlighting a weaker argument on the liberal side in order to strengthen the position of pragmatarianism. Feel free to come up with a defense of government that has been cited more times than Paul Samuelson's Pure Theory of Public Expenditure.

Furthermore state spending is essential if you want a society that supports all its citizens through the rule of law and the avoidance of destitution. Assumptions of omniscience do not come into it at all - invoking such a thing is a straw man argument. - exchemist

Yeah, because it really would be fundamentally absurd if an assumption of omniscience was actually relevant. How crazy would it be if such an assumption was the only thing that prevented taxpayers from choosing where their taxes go? Really crazy right?

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See also: The Assumption Of Omniscience And Benevolence

Why I Love Your Freedom

This is my critique of the best critique of libertarianism... Why I Hate Your Freedom.  If you know of a better critique of libertarianism then please share it in a comment.

If this is your first visit to my blog, then I should probably mention that I'm not a libertarian.  I used to be a libertarian but then I accepted the fact that libertarianism is logically absurd.  Around the same time I also realized that pragmatarianism is better than anarcho-capitalism.  Pragmatarianism (tax choice) is basically the belief that taxpayers should be free to choose where their taxes go.  To learn more, check out the FAQ and the key concepts (work in progress).

So why am I critiquing a critique of libertarianism?  Well... I'm not critiquing the entire critique... just the parts that are really wrong.  Plus, I'm a sucker for structured critiques.  Even a little structure does it for me... Mr's Critique of Pragmatarianism.  This means that "Why I Hate Your Freedom" is virtually irresistible.  Part of the attraction for me is that most of my posts lack structure.  By responding to a structured critique I can mooch some structure.  I'm a structure mooch.

For magic's sake I'm going to refer to the author of "Why I Hate Your Freedom" as "Hot Chip".

Hot Chip is one of my favorite bands.  My favorite song of theirs is "Let Me Be Him".  The song sounds wonderful but the lyrics in the beginning are not my cup of tea... "All this freedom we get, oh / it's not all its cracked up to be".   As I love to sing along... every time I listen to it I'm presented with a dilemma.  Should I sing something that I fundamentally disagree with?  I usually do end up singing along and feeling a little guilty about it.  As if I'm kinda betraying my cause.

It's fun to pretend that Hot Chip wrote "Why I Hate Your Freedom".  So that's exactly what I'm going to do.

Oh Hot Chip, your music is wonderful but your grasp of economics not so much.  Where would I be without your freedom?   Let's see if I can improve your economics as much as you've improved my ears.

1. Externalities
2. Coordination Problems
3. Irrational Choices
4. Lack of Information
5. Just Desserts and Social Mobility
6. Taxation
7. Competence of Government

1. Externalities

Hot Chip is correct that externalities do exist... but he offers no plausible way to accurately measure their benefit or harm.  How can resources be efficiently allocated without this information?

We can think of the efficient allocation of resources as an arrow hitting the bullseye.  If somebody argues that resources are being inefficiently allocated then they are saying that the arrow is not hitting the bullseye.  But in order for them to know that this is true they obviously have to know where the target is.  

In economics, the target is the preferences of consumers and the arrow is the supply of goods and services.  The closer the supply is to the preferences of consumers... the more efficient the allocation of resources.  Whenever you buy something you essentially say to the producer, "hey man nice shot!"  When you buy a watermelon you let the farmer know that he's efficiently allocating resources.  When you bought the Harry Potter books and watched the movies you let J.K. Rowling know that she's efficiently allocating resources.  Producers try and guess where the target is and consumers reward the producers with the best guesses.  Better guesses mean more rewards and those with more rewards logically have more influence over how society's limited resources are allocated.

With command economies (aka socialism aka our public sector)... producers also try and guess where the target is.  The fundamental and deal breaking difference is that consumers are not given the opportunity to reward the best guesses.  If Hot Chip believes that this feedback mechanism is overrated... then how can this be true for pollution but not true for watermelons?  How can government planners know where the target is for pollution but not know where the target is for watermelons?   This idea of partial omniscience is the same exact logical absurdity that libertarianism suffers from.

When the government tackles pollution... it doesn't do so in vacuum.  It's the most basic law of economics that any resources that are used to try and correct pollution have to be taken from other uses.  The only way that the government can possibly ensure that this new allocation of resources will maximize society's benefit is by knowing 1. how much benefit is gained from this new allocation and 2. how much benefit is lost by shifting these resources away from all their previous uses.  If the government is going to shift the arrow then it should shift it closer to, rather than further from, the target.  

For example...if the government starts to pay Terence Tao a lot of money to tackle pollution, then any time he spends tackling pollution can't also be spent tackling rocket science or whatever.  This is absolutely fine if, and only if, society derives more value from having Tao's intelligence applied to pollution rather than to rocket science.  

In other words... if, as a result of government intervention, more people would reach into their pockets and say, "Hey Terence Tao nice shot man!" ... then the government intervention was justified.  Reallocating Terence Tao helped move the arrow closer to the target.  As a society we gained more from applying his intelligence to pollution than we would have gained if his intelligence had continued to be applied to rocket science.  But if consumers aren't given the opportunity to reach into their own pockets, then how in the world can we possibly know whether government intervention is ever truly justified?  In the absence of actual consumer verification government success is simply a theory.  

If I was a libertarian, then I'd say that, based on the track record of command economies... a bird in the hand is worth far more than two in the bush.  The actual preferences of consumers really should not be subordinate to the unverified guesses of a small group of impersonal shoppers.  We shouldn't sacrifice market success for government "success".  But I'm not a libertarian... I'm a pragmatarian.  I'm willing to accept that it's entirely possible that more people truly would say "Hey Terence Tao nice shot man!" as a result of government intervention.  It's easy enough to test this theory... all we have to do is allow taxpayers to choose where their taxes go.  This will allow us to see whether the guesses of government producers are as good as Hot Chip thinks they are.  

2. Coordination Problems

Let's imagine that Rothbard pushed a button that instantly eliminated every single government.  Well... wouldn't there be a coordination problem providing defense?  It's only a problem if you assume that there wouldn't be a coordination problem providing offense.  If you want to make this assumption then what's your theory?  That offensive people are better than peaceful people at overcoming coordination problems?  

It's weird to imagine that the US would have a coordination problem in terms of defense but Canada wouldn't have a coordination problem in terms of offense.  "Those darn coordinated Canadians!  How in the world did they overcome their coordination problem!??  What?  They started a Meetup group to plan their invasion?  How come we didn't think to start a Meetup group for national defense!??"  Would it be more or less weird if the situation was reversed?

What group of people would you consider to be the most offensive?

History is littered with examples of situations where it would have been immensely better if some government hadn't solved a coordination "problem".  In fact, if we're going to err, it should be painfully obvious that it's considerably safer to err on the side of less, rather than more, government coordination.  As far as government coordination is concerned, humanity's gain has been dwarfed by its loss.  Doubting this requires being entirely ignorant of the fact that human variety and diversity is by far our greatest resource... it's the source of all progress.  If I was a libertarian then this is what I would argue.  But again, I'm not a libertarian.

As a pragmatarian, my argument regarding externalities is just as applicable to government efforts to solve coordination problems.  Just imagine what the Egyptians taxpayers would have said.  Maybe something like, "Hey Pharaoh, nice shot man!  Thanks for solving this coordination problem!  Now we'll be able to eat the pyramids when there's a famine.  Oh wait.  But at least we'll be able to trade the pyramids for food during a famine.  Oh wait."

Progress depends on difference.  Coordination that reduces difference will invariably hinder progress.

For a real life example of a coordination problem and the pragmatarian solution please see... Rescuing Robin Hanson From Unmet Demand.

2.5: How do coordination problems justify labor unions and other labor regulation?

Hot Chip argues that we need labor unions and labor regulations in order for workers and owners to have equal bargaining power.  

But why is their bargaining power unequal in the first place?  According to Hot Chip, it's because the owner can easily replace a worker but a worker can't easily replace his job.  

It really doesn't sound like there's a shortage of workers.  In fact, it sounds like workers are a dime a dozen.  Isn't it kinda strange that there's always a surplus of labor?   How could there be a chronic surplus of labor?  It's pretty simple economics that surpluses drive down prices and lower prices increase demand.  

If labor is so cheap then why aren't there droves of greedy capitalists opening factories in order to exploit this profit-making opportunity?  Oh wait... Builderism.  

For sure let's improve the bargaining position of workers... but let's do so in a way that benefits everybody.  This involves identifying exactly why there isn't a surplus of jobs.  Maybe in the process we'll learn that it isn't necessarily the easiest thing to start a company.  Because if it was, then rather than suffering from a chronic shortage of jobs, workers would "suffer" from a chronic surplus of awesome options.  That's actually a pretty decent goal to aim for.  If anybody is truly interested in reaching it then it would behoove them to study where better options come from.  

3. Irrational Choices

Let's consult my go to poet...

In the Desert
by Stephen Crane

In the desert
I saw a creature, naked, bestial,
Who, squatting upon the ground,
Held his heart in his hands,
And ate of it.
I said, “Is it good, friend?”
“It is bitter—bitter,” he answered;

“But I like it
“Because it is bitter,
“And because it is my heart.”

We can stretch a bit and say that the creature is being productive... for sure it's doing something... but its productivity really isn't relevant to my preferences.  Is its productivity relevant to your preferences?  Are you going to say, "Hey creature, nice shot man!" and give it a lot of your hard-earned money?  Probably... not.  As a result, this limits how much influence/power/control this irrational creature has to mold society.

Markets work because we all have the freedom to doubt the business model.  It's the epitome of inclusive valuation... which, for lack of a better term, I refer to as "earner valuation".  Earner valuation, which functions as a fail safe device, stands in stark contrast to our government's system of extremely exclusive valuation.  The logical consequence of earner valuation is that it prevents too many resources from ending up in irrational hands.  The people who earned the money have the strongest possible incentive to try and ensure that the reward for their labor isn't flushed down the toilet.  Minimizing the amount of resources that are wasted maximizes the amount of value that's created.

If Hot Chip wants to argue... "irrationality... therefore government"... then how does he get around the problem with giving Mr. Creature a vote on who we elect to decide whether we go to war?  The majority's irrational... therefore democracy?

That's a problem...

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

The solution is simple...

The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. The seasons during which the ability of private people to accumulate was somewhat impaired would occur more rarely, and be of shorter continuance. Those, on the contrary, during which the ability was in the highest vigour would be of much longer duration than they can well be under the system of funding. - Adam Smith, Wealth of Nations

We don't have to get rid of democracy... we just have to give people the opportunity to put their money where their votes are.  This will shift influence back to the people who earned it.  How did they earn it?  By putting society's limited resources to their most "rational" uses.  Their use of society's limited resources made so much sense that other people were willing to bet on it with their own money.

Right now our current system is completely irrational.  In the private sector we shop around in order to give more influence to the most rationally productive people... but then we immediately turn around and use our votes to severely slash the influence that we just gave to them.  "Hey man nice shot!  I really benefited from your use of society's limited resources!  Haha, just kidding, your shot wasn't that great!  I clearly overestimated the amount of benefit that I derive from your use of society's limited resources!"  If anybody is seriously interested in rationality... then they have to sit down and figure out whether or not they truly want people's influence over society's limited resources to accurately reflect their productivity's rationality.

To learn more...

• Evaluating Mistakes on an X Y Graph
• Markets: 3V Network - Vet, Validate, Vouch
• Is A Procreation License Consistent With Libertarianism?
• What Do Coywolves, Mr. Nobody, Plants And Fungi All Have In Common?

4. Lack of Information

How many volumes could be filled with what Hot Chip doesn't know?  How many volumes could be filled with what he does know?

As I've already explained, when it comes to the efficient allocation of resources... the most fundamentally important information is where the target is.  Our public sector is a command economy and like all command economies... it lacks this essential information.  Without this essential information, whatever information the government does have is of unknown relevance.  It might be relevant... it might not be.  If it's not relevant then it's not a problem if citizens lack it.

Imagine if there was a button that was kinda like Rothbard's button.  But, rather than eliminating all governments in one fell swoop, it would transform them into pragmatarian governments.  Personally, I wouldn't push this button.  Why not?  It's because I really appreciate that the persuasion process is priceless.  Let's say though that somebody did push it.  If there wasn't a single person that spent any of their taxes on defense... then it would reveal that none of the massive amount of information that governments currently have regarding defense is truly relevant.  The reason they had all this irrelevant information was because they lacked the most fundamentally relevant information.... the location of the target.

Hopefully it should be clear that I'm not saying that defense information is superfluous.  My point is that, in the absence of earner valuation, there's no way to know whether its relevant.  This means that it's an epic absurdity to cite a lack of information to justify government intervention.

Say you're driving your grandpa to the store and he cites your failure to use your turn signal as justification for letting him drive.  Is your grandfather being absurd?  Not unless you somehow forget the fact that last week he plowed his car into a crowd of people.

The lack of information as a justification for one system rather than the other is so far on the side of markets that it's not even funny.

Markets win this round hands down.  But why stop with winning?

If you read, or even looked at, Hot Chip's critique of libertarianism then perhaps you might agree with me that the irony is lost on him.  In other words, he sure shared a heck of a lot of information.  He thinks that libertarians are making a mistake so he spent a lot of time endeavoring to share his information with them and anybody else who read his critique.  I think Hot Chip is mistakenly sharing some wrong information so I'm spending a lot of time endeavoring to share my information with him and anybody else who reads this.

Information follows from our freedom to make mistakes.  Take away our freedom and the logical consequence is rational ignorance.  If we want to make it worthwhile for people to seek and share information... then they must have the freedom to choose the wrong thing.  The possibility of choosing the wrong thing provides a strong incentive to be informed.  Incentives truly matter.  It really has to pay, in some way, to inform yourself and others.

Even though I think that Hot Chip has some faulty information... it's the epitome of throwing the baby out with the bath water to use this as the basis for narrowing the scope of his freedom.  Markets aren't wonderful because everybody has perfect knowledge... they are wonderful because they integrate all the knowledge that people do have.  Before we make any spending decision we reflexively tap into the immense amount of information that we've acquired over time.  Because this is what we've always done, and we really have nothing to compare it to, it's a given that we take this process, and the amount of information that's considered, for granted.

Hot Chip ends up concluding that rational ignorance justifies government intervention.  The reality is that government intervention is the cause of rational ignorance.  If voters could feel the complete burden of the regulations that they were willing to vote for... then this would encourage them to seriously consider the opportunity costs.  It's this serious consideration/calculation that facilitates the flow of information.

Let me try and summarize the key points.  If information isn't relevant to the preferences of consumers then it's superfluous.  Because the government lacks information regarding the location of the target, there's no way to know whether any of its information is truly relevant.  Even if some of the government's information does happen to be relevant... in the absence of choice there's little incentive for consumers to make the effort to acquire it.

5. Just Desserts and Social Mobility

Again... Builderism.

6. Taxation

Well...clearly I don't think that taxes are the root of the problem.

7. Competence of Government

7.1: Government never does anything right.

His counter argument is a picture of an astronaut dancing on the moon.  To use his term... this is the epitome of a "naive" economist.  If he doesn't know where the target is, then how in the world can he say that any shot is good?  In the absence of consumer feedback then anything that the government does... no matter how wasteful or heinous... could count as a theoretical success.

7.1.1: Okay, fine. But that's a special case where, given an infinite budget, they were able to accomplish something that private industry had no incentive to try. And to their credit, they did pull it off, but do you have any examples of government succeeding at anything more practical?

Eradicating smallpox and polio globally, and cholera and malaria from their endemic areas in the US. Inventing the computer, mouse, digital camera, and email. Building the information superhighway and the regular superhighway. Delivering clean, practically-free water and cheap on-the-grid electricity across an entire continent. Forcing integration and leading the struggle for civil rights. Setting up the Global Positioning System. Ensuring accurate disaster forecasts for hurricanes, volcanos, and tidal waves. Zero life-savings-destroying bank runs in eighty years. Inventing nuclear power and the game theory necessary to avoid destroying the world with it.

More of the same.  If Hot Chip knows with freedom restricting certainty exactly where the target is... then he should nominate himself to be the ultimate arbitrator of government shots and private shots.  This would make consumer choice entirely redundant.

Liberal economists have not, as yet, been able to refute my argument.  In fact, they choose to bravely run away rather than stand their ground and publicly debate me...

Here's my challenge to John Quiggin... The Inadequacy of the Opportunity Cost Concept... and here's my challenge to Miles Kimball... The Truth About Infrastructure Projects?

Well... Hot Chip's critique goes on but my main argument applies to the rest that's relevant.

Now, if Hot Chip reads this then, if he's like most people, he's going to struggle to understand how he would benefit from giving people freedom in the public sector.  But if he doesn't understand how he would benefit from people's freedom in the public sector... then it also follows that he doesn't understand how he does benefit from people's freedom in the private sector.  Essentially, if he's like most people, then he doesn't understand how he benefits from other people's freedom.

As a pragmatarian... what drives my fervor for freedom?  Is it just so that I can give all my taxes to the EPA?  That would certainly be nice.  But the primary compulsion here really isn't the immediate gain in benefit that would follow from my freedom to reward the EPA for "theoretically" doing something that really matches my preferences.  And I say "theoretically" because I've spent more time studying economics than I've spent studying the efficacy of the EPA.  No matter how informed I become on the EPA's efficacy... I don't have the freedom to allocate my taxes accordingly.   More importantly... neither do you.  This nearly eliminates the possible return on my investment in knowledge.  Clearly the overall system is a much bigger fish to fry.

My fervor for freedom isn't driven by the benefit that I'd gain from my own freedom... it's driven by the benefit that I'd gain from other people's freedom.

Throughout this entry I've compared the efficient allocation of resources to an arrow that hits the bullseye.  It's a useful heuristic but in reality there's always room for improvement.  If we created a market in the public sector then millions of consumers would have an incentive to shop around for better shots and producers would have an incentive to make better shots.  The logical consequence is that shots would improve at a much faster rate.  How could they not?  

Is A Procreation License Consistent With Libertarianism?

In case you missed it, here's the basic argument of my previous blog entry (What Do Coywolves, Mr. Nobody, Plants And Fungi All Have In Common?)...

1. Every living organism has the inherent biological imperative to choose the most valuable option (MVO)
2. Humans have far more processing power (cognitive abilities) than any other animals
3. Allowing people to choose where their taxes go would have extremely logical and beneficial consequences.

Towards the end of the blog entry I shared this picture...

This picture inspired me to address the topic of a procreation license.  It's an interesting enough topic to warrant its own blog entry.  Plus, it has plenty of positive externalities.  So here we are.

Pragmatarianism is/vs Neoreaction

Posted this over at the Dark Enlightenment subreddit.

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Kinda new to the whole neoreaction concept.  But I'm well versed in economics (pragmatarianism)...and thought I'd share some feedback on the bullet points on the right side of this page (commonly held ideas).

1. Secular progressivism is the direct memetic descendent of Puritan Calvinism. Words and concepts such as orthodoxy, heresy, heretics (that’s us), dogma, blasphemy, witch hunts, inquisitions etc. very aptly describe progressivism. Therefore, modern progressive culture is often simply referred to as “the Cathedral”. There is no conspiracy implied.

What is written is flowery nonsense.  People are liberals because they fail to understand how and why markets work.  Most of you fail to understand how and why markets work.  It's easy to prove...watch.  Do you support pragmatarianism?  The less you support pragmatarianism...the less you understand how and why markets work.

2. Neoreactionaries accept human biological diversity. Individual humans and human groups differ in ability, psychological disposition, intelligence, and many other traits for genetic reasons. Genetics can explain 50% or more of the differences in lifetime outcomes within and between human groups. Other factors play only a minor role.

I accept HBD.  But so what?  If you understand how and why markets work then you understand that saying anything about HBD is barking up the really wrong tree.  The right tree is helping people understand how and why markets work.

3. Recognition of HBD necessitates the rejection of egalitarianism, one of the core dogmas of progressives. In reality, every person experiences first hand that not all men or women are created equal. Disparities result from innate differences. It is therefore easier to believe in Leprechauns than to believe in egalitarianism.

Yes I recognize HBD and yes I reject egalitarianism.  But attacking redistribution from the perspective of HBD is ridiculously roundabout.  It's like walking all the way around the world to move one step back.   Redistribution is nonsensical because if you respect the value judgements of consumers then you won't try and correct the resulting distribution of wealth.  If you feel the need to correct the distribution of wealth then it's because you believe that the value judgements of consumers are impaired.  If you think the value judgments of consumers are impaired then you really shouldn't want them to have more dollar votes.

4. Hierarchies are not bad. They are a natural consequence of innate differences in human populations and are necessary for societies to function properly. Stratified outcomes are not enough by themselves to prove discrimination or a failure of "social justice". In so far as social justice exists, it is simply justice.

Kinda more of the same.  Obviously some people receive more dollar votes than other people.  Is it because of HBD?  Saying that it is just reveals your own economic ignorance.  Some people receive more dollar votes than other people simply because some people do better things with society's limited resources.  Centralization (kings, emperors, congress) allows few people to define "better" while decentralization allows everybody to use their own dollar votes to define "better".

5. Traditional cultural norms and values did not come about by accident. They are non-ideological social adaptations that provide good solutions to complex social problems. Civilizations separated by vast amounts of time and geography often independently converged on very similar values such as monogamous marriage. The reason for this convergence is that cultures that implemented these values had a competitive advantage over their neighbors and became civilizations. Cultures that did not implement them failed and are no longer remembered.

Really?  Seriously guy?  Yes, and correlation implies causation.  "Ok, let's throw virgins in volcanoes because the volcano didn't erupt when a virgin accidentally fell in."  "Let's have kings because they have divine authority."  "Let's continue giving our taxes to 500 government planners (congress) because this really provides us with a comparative advantage."  Progress is a matter of chipping away at the ignorance that's weighing us down.

6. Most modern conservatives are really just last century’s progressives. Many ideas commonly held by “conservatives” today were progressive (sometimes radically so) in the past.

There's mainstream economics and mainline economics.  You would already know this if you've been barking up the right tree.

7. Neoreactionaries acknowledge the legitimate flaws inherent to Democratic systems. The darkly enlightened are “Predisposed, in any case, to perceive the politically awakened masses as a howling irrational mob, it conceives the dynamics of democratization as fundamentally degenerative: systematically consolidating and exacerbating private vices, resentments, and deficiencies until they reach the level of collective criminality and comprehensive social corruption.”

Yes, there's a definite flaw.  Voting doesn't reveal values...it reveals opinions.  You can't use opinions to put resources to their most valuable uses.  If you want resources to be put to their most valuable uses (efficiently allocated)...then you need spending (dollar voting) to reveal values.  We should all agree that actions (dollar voting) speak louder than words (ballot voting).  The thing is...this really isn't what was said.  You said "flaw"...but rather than go on to clearly describe the flaw...you just used more flowery nonsense to reveal that you aren't quite sure what the flaw actually is.  There's nothing "irrational" about voting for a free lunch.  People just incorrectly perceive that the free lunch is more valuable than the unseen opportunity cost.  And you're doing absolutely nothing to correct their misperception.  We have to help people understand that lunches only gain in value when consumers can clearly see the costs and choose accordingly.  Consumer choice is what truly incentivizes producers to reduce costs (provide more value).

8. A system of No voice-free exit in large hyper-federalist states or small independent city states is the optimal political arrangement. This roughly copies the model of Singapore where there is little political voice, but massive economic freedom and high levels of prosperity. In such a system, city-states would be in constant competition for minds and business. These states risk losing economically valuable citizens and businesses if poorly run because they can easily relocate, thus creating an incentive to remain economically and socially free.

Again, just more economic ignorance.

You guys are kind of on the right track...but you're being distracted by speech which is really heavy on style and super light on substance.

The only thing wrong with government is that we have no idea what the demand is for public goods.  We can easily fix this problem by creating a market in the public sector.  If this solution doesn't really appeal to you...then you need to give up the momentary pleasure of style for the future benefit of substance...the preference revelation problem.

For sure I don't write pretty...but I'm actually familiar with the arguments of economists.  Not just Nobel Prize winning market economists...but Nobel Prize winning liberal economists as well.

John Holbo's Critique of Libertarianism

For those of you who haven't been following along at home...John Holbo is a liberal philosopher over at the Crooked Timber website.  He's kind of a tricky guy...but in a fun way.  For example...he tricked me into believing that he supported allowing people to sell their votes.  It turned out that he really didn't support the idea...but I enjoyed our discussion nonetheless...especially when he shared his critique of pragmatarianism.

Holbo's most recent trick was to pretend that he was a Bleeding Heart Libertarian (BHL)...I’m a bleeding-heart libertarian!  He didn't trick me this time though because I had already read on the BHL website that he was planning on doing a guest post.  Learning that he was scheduled to write a guest post was the highlight of my day.  Not trying to take credit here...but a while back I had encouraged him to write a post on the BHL project.  Unfortunately, I can't really say it was the highlight of my day when I finally got a chance to read it.

Did he go in there with guns blazing?  Yes...very yes.  Holbo was spraying snarky bullets everywhere.  Fortunately, he stuck around to respond to many of the comments and the subsequent discussion was far more constructive.  You can read more of the discussion on Jacob Levy's really admirable response...Further to Holbo.

Despite the snark, I gotta give Holbo props for jumping into the lion's den...so to speak.  But the fact that he was invited to write a guest post in the first place...reflects extremely well on the BHL project.  And honestly...I would be willing to bet $20 that the Crooked Timber blog would not invite Peter Boettke, Steven Horwitz, Gary Chartier, Andrew J. Cohen, or Jessica Flanigan to write a guest post there.  This came to mind when I read this comment in response to Holbo's post on the Crooked Timber website...

While I agree with the cheering here, it was a great minefield over there. I kinda agree with the commenter there that says something about guests pooping on our doorstep. So… I am looking forward to the upcoming Libertarian guests here on CrookedTimber. - seth

Ok, so enough back story...and onto my response to Holbo's critique.  I'm not going to pull any punches...it was light on specifics and heavy on paranoia.  This makes it a bit difficult to respond to.  So I've just been gathering a bunch of passages from here and there...and I honestly kind of doubted that I'd really ever organize them and it would just end up as one of my many unpublished drafts.   

Today though, a liberal shared this comment in response to a post of mine...

We know what causes recessions (at least big ones). The income gap produces a small class of very wealthy people who engage in high risk nonproductive "investing", also called bubbles, leading to inevitable collapse, especially if there is little regulation.
See Reich's "Aftershock". It goes into detail - head of joaquin

My response used pretty much the same passages that I had gathered for Holbo.  So the content is the same but my style and tone would be different.  Before I copy and paste my response though...here are a few comments from Holbo that were somewhat specific...

That's an excellent way to put it. Libertarianism as device for locking in your gains. Like regulatory capture. Nice. - John Holbo

Hume22, there are really two separate issues here: one, being consistent in my hermeneutics of suspicion; two, being consistent about justice. Frankly, I'm better at one than two. You can question my motives all you like. I can take it! But I tend to be a hypocrite regarding the high bar of justice. Like most American liberals, I worry more about the American middle-class than about impoverished Africans. It's hard for me to justify that. (I could say something about 'politics is the art of the possible' but that wouldn't fool you, would it? Didn't think so.) - John Holbo

So here's my response.  What I personally say isn't as important as the sources themselves.  Hopefully Holbo will take the opportunity to read each of them thoroughly...Lachmann's essay is especially great for understanding how markets redistribute wealth, Mitchell's paper is the best in terms of understanding regulatory capture and Krugman's article is outstanding for understanding the race to the top.

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We take 10 steps forward...and then one step back...and you use that one step back as an excuse for government intervention. Does the government prevent us from taking one step back? Sure...but it also prevents us from taking 10 steps forward. That's not a recipe for progress.

... 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

How do you become wealthy?

In other words, people will start buying something in large numbers if it solves a big problem for them. But most first-world problems—needing an easier way to record your favorite TV programs or keep track of what’s in your fridge—just aren’t that pressing. In developing countries, on the other hand, technology can transform lives. - Christopher Mims, How a $20 tablet from India could blindside PC makers, educate billions and transform computing as we know it

You're blaming the wealthy for the income gap here in America but you tragically fail to understand that they are narrowing the gap between America and developing countries...

These improvements have not taken place because well-meaning people in the West have done anything to help--foreign aid, never large, has lately shrunk to virtually nothing. Nor is it the result of the benign policies of national governments, which are as callous and corrupt as ever. It is the indirect and unintended result of the actions of soulless multinationals and rapacious local entrepreneurs, whose only concern was to take advantage of the profit opportunities offered by cheap labor. It is not an edifying spectacle; but no matter how base the motives of those involved, the result has been to move hundreds of millions of people from abject poverty to something still awful but nonetheless significantly better. - Paul Krugman, In Praise of Cheap Labor

Rising wages in emerging markets and higher shipping costs are also closing the cost gap between developing markets and the United States. - Scott Malone and Ernest Scheyder, Outsourcing Losing Its Allure As China Costs Soar

Do you think Americans are the only ones who benefit from American innovation? The world benefits from American innovation just like we will benefit from the world's innovations. And you'll be able to thank the greedy capitalist pigs. Except...who these people are is constantly changing...

These economic facts have certain social consequences. As the critics of the market economy nowadays prefer to take their stand on “social” grounds, it may be not inappropriate here to elucidate the true social results of the market process. We have already spoken of it as a leveling process. More aptly, we may now describe these results as an instance of what Pareto called “the circulation of elites.” Wealth is unlikely to stay for long in the same hands. It passes from hand to hand as unforeseen change confers value, now on this, now on that specific resource, engendering capital gains and losses. The owners of wealth, we might say with Schumpeter, are like the guests at a hotel or the passengers in a train: They are always there but are never for long the same people. - Lachmann, The Market Economy and the Distribution of Wealth

As protected firms become less innovative, a country’s overall economic growth may suffer. This is because, as Schumpeter emphasized nearly a century ago, economic growth thrives on “creative destruction.” In a healthy economy, new firms constantly arise to challenge older, less-innovative behemoths. - Matthew Mitchell, The Pathology of Privilege: The Economic Consequences of Government Favoritism

But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law - let anyone who can show me a case in which it is not fulfilled! - Nietzsche

The problem is that you're not thinking things through...

But matters are not that simple, and the moral lines are not that clear. In fact, let me make a counter-accusation: The lofty moral tone of the opponents of globalization is possible only because they have chosen not to think their position through. While fat-cat capitalists might benefit from globalization, the biggest beneficiaries are, yes, Third World workers. - Paul Krugman, In Praise of Cheap Labor

If you think things through then you'll understand that any step back in the private sector can be offset by 10 steps forward in the public sector. How? Simply by allowing taxpayers to use their own taxes to reward the government organizations that are doing new and better things with society's limited resources.

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Let me add a few more things...

In Krugman's article he begins by talking about people scavenging on garbage heaps.  Here's a photo I took in Afghanistan of a mother and her son on such a garbage heap...

...which ties into...

Women employed in factories are the only women in the labouring rank of life whose position is not that of slaves and drudges; precisely because they cannot easily be compelled to work and earn wages in factories against their will. For improving the condition of women, it should, in the contrary, be an object to give them the readiest access to independent industrial employment, instead of closing, either entirely or partially, that which is already open to them. - J.S. Mill  

The basic idea is that an entrepreneur could set up a factory in Kandahar and offer the Afghan mother one new option.  If her new option, working in a factory, is better than her currently best option, scavenging, then it stands to reason that she would choose to work in the factory.  

As well might it be said, that of two trees, sprung from the same stock one cannot be taller than another but from greater vigor in the original seedling.  Is nothing to be attributed to soil, nothing to climate, nothing to difference of exposure - has no storm swept over the one and not the other, no lightning scathed it, no beast browsed on it, no insects preyed on it, no passing stranger stripped off its leaves or its bark?  If the trees grew near together, may not the one which, by whatever accident, grew up first, have retarded the other's development by its shade?  Human beings are subject to an infinitely greater variety of accidents and external influences than trees, and have infinitely more operation in impairing the growth of one another; since those who begin by being strongest, have almost always hitherto used their strength to keep the others weak.- J.S. Mill, The Negro Question

Much of Holbo's paranoia surrounded racism...but a sound understanding of how markets work...the idea of solving problems and offering people better options...dispels any basis for such concern...

The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another. – Milton Friedman

Let's imagine that a person who was racist against everybody but Canadians discovered a cure for cancer.  Therefore, he would only employ Canadians and only sell the cure to Canadians.  It does sound less than ideal...but however you spin it...it's still progress.  The Canadians who are employed were given a better option and the Canadians with cancer had a big problem solved.  And yes, I know that Canadians aren't a race of people.

The basic idea is that we can't say that John Holbo has an obligation to solve any problems...big or small...and he doesn't have an obligation to offer the Afghan mother a better option.  Really understanding that we don't have these obligations is key to appreciating it when entrepreneurs (in the broadest sense of the word) actually do solve problems...for any amount of people...and offer any amount of people better options.

The question is...how many Canadians with cancer would engage in ethical consumerism and boycott the company?

Even if right now some dude said 'I'm going to say a bunch of racist stuff but afterwards I'll give you a biscuit' I’d be like that’s a weird deal but I'll take it. Because I hate racism...but I love a good biscuit. - Aziz Ansari

Libertarian Pudding Tastes Good!!

All pictures are not worth a thousand words.  Take, for example, these tax choice pictures that I created using MS PowerPoint...

It's two versions of the same picture.  Which one do you like better?  Yeah yeah...I won't give up my day job!  If anybody thinks they can illustrate the concept better than I did...well...they are probably right.  But, I'd definitely like to see some proof!  Because, after all, the proof is in the pudding.  Feel free to post these images around and modify them however you like.

For a while now I've thought about trying to illustrate this concept...but what finally motivated me to do so was this epic debate between liberals and libertarians... Does The Libertarian Movement Embody The Worst of Human Traits?

As usual...the debate centered around the proper scope of government.  Why invest so much time and energy into debating the proper scope of government?  I get that liberals might want to argue over the proper scope of government...but what excuse do libertarians have?  It seems pretty clear that the large majority of libertarians do not understand that if an individual or a committee can truly know the proper scope of government then socialism is a viable concept.

Why isn't socialism a viable concept? Because it's impossible for a king...or a committee...to determine the optimal level of funding for an organization.  This is because funding can only be determined by demand. And what is demand? Demand is the aggregate of priorities.  For some reason people think that voting reveals their priorities.  The truth of the matter is that priorities can only be revealed when people spend their own time/money.

Therefore, in order to determine the proper scope of government (taste the pudding) we should just allow taxpayers to directly allocate their taxes...aka pragmatarianism.  For example, at anytime throughout the year you could visit the Environmental Protection Agency (EPA) website and submit a payment. The EPA would then notify the IRS that you had submitted a payment.

Consider tax choice from the perspective of Frédéric Bastiat...

It is quite true that often, nearly always if you will, the government official renders an equivalent service to James Goodfellow. In this case there is no loss on either side; there is only an exchange. Therefore, my argument is not in any way concerned with useful functions. I say this: If you wish to create a government office, prove its usefulness. Demonstrate that to James Goodfellow it is worth the equivalent of what it costs him by virtue of the services it renders him. - What Is Seen and What is Unseen

A useful function for one person might be a useless function for another person.  Which is why it's useless to debate the proper scope of government.  

One thing that libertarians tend to ask is how the tax rate would be determined.  Congress would still determine the tax rate but it seems reasonable to say that the tax rate would reflect the scope of government.  If taxpayers only decided to fund congress, the IRS and Dept of Defense...then it wouldn't make any sense for congress to set the tax rate at 50% or 75% or 100%.  So...the tax allocation decisions of millions and millions of utility maximing taxpayers would determine the scope of government...and the scope of government would determine the tax rate.  The more things the government does...the greater the justification for raising taxes.  The less things the government does...the greater the justification for lowering taxes.

This is all painfully obvious to me...but, unfortunately, I fail miserably at conveying this concept to others.  For example...consider this exchange that I had with a libertarian...

Xerographica

I didn't ask about lowering taxes...so your answer isn't quite clear. Let's try this another way. If you had to choose between A) allowing taxpayers to directly allocate their taxes and B) your form of libertarianism...then which would you choose?

RabidAlpaca

What kind of a stupid question is that? "Would you like my way, or yours?" Clearly I would prefer my way, where the tax rate is as low as possible, only high enough to fund the necessary services for the government to protect our natural rights. My original answer was perfectly clear as to how I stand.

If there are options as to where to allocate your taxes, as you suggest, then there is absolutely no reason that whatever the options are can't be accomplished by the free market. The government should only be there for common goals, such as national defense, the police, the fire department, and the judicial system, just as I stated before.

Xerographica

Naw, it wasn't a stupid question...you just failed to predict the follow up question. Which is...why wouldn't my way reveal the truth of your way? You say that the private sector is BETTER at accomplishing everything except for national defense, the fire dept and the judicial system...so why wouldn't the tax allocation decisions of 150 million self-interested, utility maximizing taxpayers (aka consumers) reflect the truth of your assessment? Why would they pay the government to do something that the private sector is CLEARLY better at doing?

If you truly understand how scarce resources are efficiently allocated...then you'd understand that my way is the "put your money where your mouth is" version of your way.

RabidAlpaca 

I see exactly what you're getting at, but it doesn't make any sense as to how it pertains to what I'm saying.

I see people keeping more of their paycheck as a way to best allocate funds, through the free market. People will spend money on what is dear to them. You seem to support some bastardized version where we all pay the substantial taxes into the government that we do now, but somehow directly vote as what to spend it on. This is not only inefficient, but also makes zero sense.

As to what Turtledude was replying to you:

"The state is the great fiction by which everybody seeks to live at the expense of everybody else." ~ Frederic Bastiat

Xerographica

I don't understand your response at all. You say that the private sector is clearly better at supplying cheese whiz. My response was to ask you why taxpayers would choose to spend any of their taxes on government cheese whiz. What's inefficient about this system? Do you think Bastiat would disprove? Why would he? In this system you would only be able to spend your own, individual taxes.

Why worry about the tax rate? The tax rate merely reflects exactly how many things the government does. In other words...the tax rate reflects the scope of government. If nobody purchases government cheese whiz...then the government would no longer supply cheese whiz. This would narrow the scope of government and the tax rate would decrease accordingly.

RabidAlpaca

I've answered you at least 3 times, in clear and plain english, and you continue to not understand. You seem to be trying to convince me of something, but doing a poor job of actually formulating it. There are certain government services, like the ones I mentioned, that are not optional, because they support every single citizen (for the fourth time: national defense, police and fire departments, and the justice system) This would require an extremely minimal tax rate. Everything else can be handled by the free market, to include cheese whiz. I've stated more than once that I don't like or understand the need for your a-la-carte tax system, and that's the last time I'll say it.

Xerographica

So...rather than allowing 150 million taxpayers to determine the proper scope of government...you'd prefer it if everybody just trusted that your perspective was correct. We are all just blind men touching different parts of an elephant...except for you. You're the only person that can see.

The problem is thus in no way solved if we can show that all the facts, if they were known to a single mind (as we hypothetically assume them to be given to the observing economist), would uniquely determine the solution; instead we must show how a solution is produced by the interactions of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world. - Friedrich Hayek, The Use of Knowledge in Society

Evidently Hayek didn't know how exceptional you are. That makes sense though...because, like the rest of us blind people, he only had partial knowledge.

RabidAlpaca

Your'e an idiot if you think F. A. Hayek didn't support a free market, that was his baby. He argued very strongly against government control of the economy. I believe in a republic, not a democracy. "Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote." ~ Ben Franklin

In a democracy the majority can vote to take the rights from the minority. In a republic, everyone is protected equally under the law.

It's not my perspective, I'm a constitutionalist, it's the perspective of our forefathers, and what this country was founded on.

Xerographica

Oh, it's not your perspective...it's the perspective of a committee of government planners. Well...if a committee of government planners can truly know the proper scope of government then I don't know what possible objections you might have with socialism.

Of course I know that Hayek was a champion of free-markets. Do you think I just pulled that passage out of thin air? Hayek's partial knowledge concept and Bastiat's opportunity cost concept are the two economic justifications for allowing taxpayers to directly allocate their taxes.

According to Einstein...I'd have to be insane to try and promote the same type of libertarianism that has been promoted for the past couple hundred years. Nope...count me out...you go ahead. A while back I figured out that the same exact thing could be achieved by applying market principles to the public sector. Well...assuming that libertarians correctly guessed the proper scope of government.