Disparity Between Individual Influence And Collective Opportunity Cost

My second favorite liberal, John Quiggin, is still working on his book about opportunity cost...  Intellectual property: Extract from Economics in Two Lessons (expanded and amended).

Eventually he's going to finish his book.  Then what?  Then I'll buy it.  Unless the opportunity cost is too high.  Right?  I'm assuming that he's not going to charge an arm and a leg for his book.

Am I going to be the only person in the entire world to purchase Quiggin's book?  Probably not.  We can imagine a bunch of people buying Quiggin's book.  We can imagine them considering the available information, weighing the alternative uses of their money and deciding that the opportunity cost isn't too high.

When a bunch of people take money out of their own pocket... and put it into Quiggin's pocket... then the distribution of influence will shift accordingly.  A bunch of people voluntarily and willingly give up a little influence... and Quiggin gains the influence that they were willing to give up.  Consumers exchange their influence for Quiggin's book.  Quiggin exchanges his book (his time and energy) for consumers' influence.  

Does this make sense?  Quiggin spends a lot of time/energy producing something that lots of people positively value and, as a result, lots of people reward him accordingly.  His reward is more influence over society's limited resources.

Can you see the parity?  Quiggin's influence roughly reflects consumers' valuations of his productivity.  When their valuation of his productivity increases... so will his influence.  This parity isn't perfect because in reality one price does not fit all.  And we should certainly endeavor to figure out how to eliminate any disparity that exists.  Why?  Because it should be intuitive that the smaller the disparity... the larger the benefit.  Conversely, the larger the disparity... the smaller the benefit.

Given that I plan on buying Quiggin's book... clearly I approve of a liberal writing a book about opportunity cost.  But, it's kinda something that his book isn't going to be relevant to something as economically basic, and fundamentally important, as a bunch of people buying his book.

The fact is that it's impossible for liberals to really dig into the basic relationship between influence and opportunity cost.  What is Quiggin going to argue?  He's going to argue that there's nothing problematic about massive disparities?  Which would mean what?  He would either be arguing that his book, and all books, should be entirely free... or he would be arguing that everybody should have to spend far more money than they truly want to on all books.  Authors should either have far less, or far more, influence than they truly deserve.

If Quiggin acknowledges that it is problematic when disparities exist... then he would essentially be attacking the fundamental premise of democratically elected leaders.  Right now there's a massive disparity between Obama's influence and the collective's valuation of his productivity.  And the same will be true for the next president just like it was true of the previous president.

Here I am writing my gazillionth blog entry.  And I haven't been paid a penny!  Because... absolutely nobody in the world values my productivity at all?  Or... because of the free-rider problem?  Clearly because of the free-rider problem!   The free-rider problem is a problem, and only a problem, because it results in disparities between influence and (valuations of) productivity.  Right now, because of the free-rider problem, I have less influence than I truly deserve.  Mandatory contributions are only beneficial when they decrease, rather than increase, disparities.  But the only way that mandatory contributions can decrease disparities is when they incorporate everybody's valuations.

Everybody in the world has some influence.  The goal should be to structure society in such a way that everybody's influence perfectly reflects how much their productivity is worth to other people.  Nobody should have more, or less, influence than they truly deserve.

Daniel Alpert vs QIRE

As I wrote back then, a five-year $1.2 trillion public investment program in transportation, energy, communications, and water infrastructure would create an additional 5.5 million jobs or more in each year of the program—directly, through the projects themselves, and indirectly, through the multiplier effect on other sectors of the economy. With the American Society of Civil Engineers telling us that our present infrastructure backlog is nearly $2.5 trillion, projects will not be hard to find. And neither will labor. Adding 5.5 million workers (assuming all were new/returning entrants to the labor force) would barely restore the labor force participation rate back to the levels of 2010, still well below levels prior to the recession. - Daniel Alpert, GLUT: The U.S. Economy and the American Worker in the Age of Oversupply

Daniel Alpert thinks that we have economic problems.  And I definitely agree.  However, Alpert's solution is.... more government spending.  I have absolutely no problem with government spending.  But I definitely have a problem with government spending that breaks QIRE.

What does Alpert think about QIRE?  Does he think it's a good rule?  If so, then why does think it's a good rule?  Does he think that there are positive consequences when it's followed?  Does he think that there are negative consequences when it's broken?  If so, then how does he propose to ensure that his solution doesn't result in QIRE being broken even more than it's already being broken?

The Democratic Definition Of "Love"

Comment on: Sovereignty Is Not Property by Adam Gurri

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I'm happy that your website is back. Free-riders are a always a problem because producers are never mind-readers. True or false?

I don't spend very much time worrying about the immigration debate. Maybe I'm undervaluing it though.

One time you told me this... "The point is that thinking about alternatives is not all, or even most, of what love is about."

I didn't reply... but I can't remember why. I'm an atheist but I grew up reading the bible... a lot. When I was a little kid I didn't understand why God rejected Cain's sacrifice. Now I understand that Cain's willingness to pay (WTP) was inadequate. Abel was willing to make a much larger sacrifice.

Later on in the Old Testament we saw the same theme when Abraham was willing to sacrifice his only son Isaac. And also in the New Testament... "For God so loved the world, that he gave his only begotten Son." As opposed to... "For God so loved the world, that he voted for it." I don't think that Christianity would have spread so far so fast with the democratic definition of "love".

We're definitely not mind-readers so it sure makes sense that God used his WTP to clearly communicate his love for us. But...... God also required us to use our WTP to clearly communicate our love for him. As if God isn't a mind-reader? Solomon seemed to believe otherwise, "for thou, even thou only, knowest the hearts of all the children of men."

You seemed to argue that this... "Should anyone who wants be allowed into your home?"... is not a valid argument because of democracy. Does this mean that it would suddenly become a valid argument if we did happen to replace voting with spending?

Recently I made a fun argument on a forum full of liberals. I argued that, because of the free-rider problem, everybody should be forced to spend X% of their income on digital goods. But... we would be able to choose which digital goods we spent our "daxes" on. How cool would it be to have a "digital sector"? For sure I would spend some of my daxes on your website! Yet, as the poll demonstrates, the idea was really unpopular. It was a fun argument though because every argument that the liberals made against a digital sector was equally applicable to the public sector. It was magical. Voila! All of a sudden a bunch of liberals were deeply concerned with the forced-rider problem. But I'm pretty sure that I wouldn't spend my daxes on digital goods that I didn't value... would you?


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Comment on Keynesianism in Democracy by Jason Briggeman

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Neither this entry nor your entry on bullshit in economics textbooks...

https://sweettalkconversation.com/2016/03/09/on-bullshit-in-economics-textbooks/

... includes any acknowledgement of "Tabarrok's Rule": actions speak louder than words.  Your solution to bullshit in economic textbooks was.... ironically... a cheap-talk survey.

In this entry you're considering Buchanan and Wagner... which is wonderful.  But you're not quite acknowledging or appreciating "Buchanan's Rule": using a resource one way means sacrificing the other ways that it could also be used.

Because of Buchanan's Rule... we need Tabarrok's rule in order to ensure that we don't massively violate "Quiggin's Rule": society's limited resources should be put to more, rather than less, valuable uses.

The logical, but extremely detrimental, consequence of massively violating Quiggin's Rule is the major misallocation of society's limited resources.  Keynesianism tries to solve recessions/depressions by violating Quiggin's Rule even more.

If you're interested in learning more...

http://forum.nationstates.net/viewtopic.php?f=20&t=369166

Corey Robin vs John Stuart Mill

Corey Robin:

The poorer they are, says Vox’s Dylan Matthews, the more likely millennials are to support a government-guaranteed living wage, the redistribution of wealth, and an expanded safety net. - Corey Robin, 90% of what goes on at The New Yorker can be explained by Vulgar Marxism

J.S. Mill:

It is also important, that the assembly which votes the taxes, either general or local, should be elected exclusively by those who pay something towards the taxes imposed. Those who pay no taxes, disposing by their votes of other people's money, have every motive to be lavish, and none to economize. As far as money matters are concerned, any power of voting possessed by them is a violation of the fundamental principle of free government; a severance of the power of control, from the interest in its beneficial exercise. It amounts to allowing them to put their hands into other people's pockets, for any purpose which they think fit to call a public one; which in some of the great towns of the United States is known to have produced a scale of local taxation onerous beyond example, and wholly borne by the wealthier classes. That representation should be coextensive with taxation, not stopping short of it, but also not going beyond it, is in accordance with the theory of British institutions. But to reconcile this, as a condition annexed to the representation, with universality, it is essential, as it is on many other accounts desirable, that taxation, in a visible shape, should descend to the poorest class. In this country, and in most others, there is probably no labouring family which does not contribute to the indirect taxes, by the purchase of tea, coffee, sugar, not to mention narcotics or stimulants. But this mode of defraying a share of the public expenses is hardly felt: the payer, unless a person of education and reflection, does not identify his interest with a low scale of public expenditure, as closely as when money for its support is demanded directly from himself; and even supposing him to do so, he would doubtless take care that, however lavish an expenditure he might, by his vote, assist in imposing upon the government, it should not be defrayed by any additional taxes on the articles which he himself consumes. It would be better that a direct tax, in the simple form of a capitation, should be levied on every grown person in the community; or that every such person should be admitted an elector, on allowing himself to be rated extra ordinem to the assessed taxes; or that a small annual payment, rising and falling with the gross expenditure of the country, should be required from every registered elector; that so every one might feel that the money which he assisted in voting was partly his own, and that he was interested in keeping down its amount.   

However this may be, I regard it as required by first principles, that the receipt of parish relief should be a peremptory disqualification for the franchise. He who cannot by his labour suffice for his own support, has no claim to the privilege of helping himself to the money of others. By becoming dependent on the remaining members of the community for actual subsistence, he abdicates his claim to equal rights with them in other respects. Those to whom he is indebted for the continuance of his very existence, may justly claim the exclusive management of those common concerns, to which he now brings nothing, or less than he takes away. As a condition of the franchise, a term should be fixed, say five years previous to the registry, during which the applicant's name has not been on the parish books as a recipient of relief. To be an uncertificated bankrupt, or to have taken the benefit of the Insolvent Act, should disqualify for the franchise until the person has paid his debts, or at least proved that he is not now, and has not for some long period been, dependent on eleemosynary support. Non-payment of taxes, when so long persisted in that it cannot have arisen from inadvertence, should disqualify while it lasts. - J.S. Mill, Considerations on Representative Government 

Are modern "liberals" ever going to address the fact that the free-rider problem, which is the very point of taxation, is just as much a problem when it comes to democracy?

See also:

• Ryan Cooper - Ryan Cooper vs Economics
• Matt Bruenig - Matt Bruenig vs Poverty
• Paul Krugman - Minimum Wage Vicious Cycle
• Miles Kimball - The Truth About Infrastructure Projects?
• Mike Konczal - The Reality Of Compulsory Taxation
• Scott Alexander - Scott Alexander Is On Patreon!
• Raymond Fisman - Raymond Fisman - Education vs Markets
• Jeff Madrick - Jeff Madrick vs The Invisible Hand
• Ha-Joon Chang - Chanidget - Prospering Because/Despite Socialism
• George Monbiot - The Ingenious Gentleman George Monbiot

Overvaluing Frank The Artichoke Farmer's Productivity?

Reply to reply: Are you confident in congress's competence?

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You are making erroneous conclusions because you do not think through the economic impact that follows, when low-end salaries are enhanced. And which is not at all the same consequence when high-end salaries are increased - whereupon people simply bank their additional salaries (or speculate with the money), which does nothing intrinsically to enhance the economy. - Lafayette

Let's say that I'm hungry.  I go to the farmer's market where I find Frank the farmer selling artichokes.  Which is great because I really love artichokes!  What do you think happens next?  Do you think I simply hand Frank my money in exchange for his artichokes?  Of course not.  First I look at the prices... and if the prices seem reasonable... then I carefully inspect the artichokes.  If I'm happy with the quality of the artichokes... I pick out the best ones and put my money into Frank's hand.  

This is where you, the well-intentioned liberal economist, step in.  Before Frank can put the $3 dollars that I gave him into his pocket... you take $1 dollar out of Frank's hand.  Except, since I'm the one who just gave him that money... you essentially took the money out of my hand.  What do you do with the $1 dollar that you took out of my hand?  You put it in the hands of Frank's employees.

The thing is... the money that I gave Frank was my valuation of his productivity.  But, evidently, you're certain that I overvalued Frank's productivity.  Not only are you certain that I overvalued Frank's productivity... but you're also certain that I undervalued his employees' productivity.

I overvalued Frank's productivity?  I undervalued his employees' productivity?

First... who in the world are you to say that I've overvalued Frank's productivity?  Are you my son?  Are you my father?  Are you my brother?  Are you my best friend?  Are you my lover?  Are you the customer waiting behind me?  Of course not!  You're some random economist who doesn't even know me or Frank.  Yet, despite the fact that you don't know me or Frank... you're stupidly certain that I overvalued his productivity.

Second... I didn't even valuate the productivity of Frank's employees.  Why in the world would I valuate their productivity?  I'm not their boss... Frank is!  He's the one who employs them.  I don't employ them.  I don't even know them.  I have absolutely no idea whether they are the most productive workers in the world or the least productive workers in the world.  Given that I'm entirely clueless about the productivity of Frank's employees... it would be utterly nonsensical and completely detrimental for me to even try and valuate their productivity.  Yet... you're stupidly certain that I undervalued Frank's employees.

This isn't what you're telling me of course.  What you're telling me is that I'm not thinking things through.  From your perspective... the money that you took from my hands and put into the hands of Frank's employees will be quickly spent.  How will it be spent?  It doesn't matter.  It doesn't matter if the money isn't spent on producing a greater abundance of artichokes... what matters is that the money will be spent on something.  Which is a good thing because any and all spending will "enhance" the economy.  As if the reason that the sluggish economy needs stimulation has absolutely nothing to do with your mindless meddling and everything to do with inadequate demand.

When you read the Bible story about the prodigal son... does it make you happy or sad when he quickly squanders his inheritance?

Does it make you happy or sad that Esau sold his inheritance to Jacob for a bowl of soup?

Does it make you happy or sad when lottery winners quickly squander their new found wealth?

Does it make you happy or sad when natural disasters force people to spend their savings in order to rebuild their lives?

Does it make you happy or sad when you forget to back-up your work and a disaster forces you to start all over again?

Does Adam Smith make you happy or sad?

Capitals are increased by parsimony, and diminished by prodigality and misconduct. - Adam Smith, Wealth of Nations

Does Ludwig von Mises make you happy or sad?

Now one of the main functions of profits is to shift the control of capital to those who know how to employ it in the best possible way for the satisfaction of the public. The more profits a man earns, the greater his wealth consequently becomes, the more influential does he become in the conduct of business affairs. Profit and loss are the instruments by means of which the consumers pass the direction of production activities into the hands of those who are best fit to serve them. Whatever is undertaken to curtail or to confiscate profits impairs this function. The result of such measures is to loosen the grip the consumers hold over the course of production. The economic machine becomes, from the point of view of the people, less efficient and less responsive. - Ludwig von Mises, Planning for Freedom

Does Ludwig Lachmann make you happy or sad?

Moreover, what is a resource today may cease to be one tomorrow, while what is a valueless object today may become valuable tomorrow. The resource status of material objects is therefore always problematical and depends to some extent on foresight. An object constitutes wealth only if it is a source of an income stream. The value of the object to the owner, actual or potential, reflects at any moment its expected income-yielding capacity. This, in its turn, will depend on the uses to which the object can be turned. The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use which confers it. Not ownership but use of resources is the source of income and wealth. — Ludwig Lachmann, The Market Economy and the Distribution of Wealth

Does J.B. Say make you happy or sad?

Taxes upon transfer, besides the mischief of pressing upon capital, are a clog to the circulation of property. But, has the public any interest in its free circulation? So long as the object is in existence, is it not as well placed in one hand as in another? Certainly not. The public has a perpetual interest in the utmost possible freedom of its circulation; because by that means it is most likely to get into the hands of those, that can make the most of it. Why does one man sell his land? But because he thinks he can lay out the value to more advantage in some channel of productive industry. And why does another buy it? But because he wishes to invest a capital, that is lying idle, or less productively vested; or because he thinks it capable of improvement. The transfer tends to augment the national income, because it tends to augment the income of the two contracting parties. If they be deterred by the expenses of the transfer, those expenses will have prevented this probable increase of the national income. — J.B. Say, A Treatise on Political Economy

Miles Kimball vs Matt Bruenig

Miles Kimball (blog) and Matt Bruenig (blog) are both liberals.  A few days ago they had a twitter discussion that was worth sharing...

Context

Linda Tirado: I'll drop minimum wage endorsement if you drop tax/investment protections and disavow lobbyists. That'd be fair.
Miles Kimball: I lean toward requiring all lobbyist interactions with congresspeople or their staff be videotaped an posted publicly.
Tirado: that's a net good no matter what, and common ground. But minimum wage advocacy is the same pressure for favorable regulations.
Kimball: Not for favorable regulations--in this case no regulations. No regulations is the starting point, not a favor.
Tirado: that's as true of any regulation that has ever existed.
Kimball: Starting point for comparison should be no regulations except these rules: no stealing, threatening violence, or deception.

Context

Matt Bruenig: miles way of here, the actual baseline includes only one rule: don't touch another person's body.
Kimball: I don't see how you can possible get good results without a rule against theft. Certainly no welfare theorem.
Bruenig: "theft" is a meaningless concept without an agreed upon notion of who is entitled to what, not a helpful baseline
Bruenig: in fact, paying too low wages *is* theft
Kimball: I can see lack of a basic income as theft, but not low wages. Do you have a right for me to employ you?
Bruenig: Wage floors don't force anyone to employ anyone though. It's all voluntary.
Bruenig: That's the basic problem with all min wage args that are premised upon unfairness to the employer.
Bruenig: The employer is not required to pay minimum wages. It doesn't have to operate if it doesn't like the rules.

According to Kimball... the lack of basic income is theft.  Which means that he has an obligation to pay you.  But then he immediately argues that he doesn't have an obligation to employ you.  Eh?  What?  

According to Bruenig... a wage floor is acceptable because employing people is voluntary.  If a wage floor is acceptable and beneficial... then what about a donation floor?  Donations are certainly voluntary.  So would it be beneficial to prevent people from making donations that are under $100 dollars?  

Kimball is obligated to donate money to you... and Bruenig is obligated to ensure that Kimball's donation to you is large enough.  

I can imagine Bruenig following Kimball around.  Kimball spots a homeless person and feels obligated to give him a dollar.  Bruenig quickly obligates Kimball to give the homeless person at least $100 dollars. 

See also: 

Matt Bruenig vs Poverty

Ryan Cooper vs Economics

Liberals Hate Mexicans More Than Donald Trump Does

Imagine that you're the Joker.  Obviously you want to kill Batman.  So what do you do?  One deviously simple plan would be to commandeer the bat signal.  Then, when Batman responds to it, you kill him.

What if Batman was an entrepreneur?  Then you would use the signal that displays the highest profit...

What if Batman was a worker?  Then you'd use the signal which displayed the highest wage.

What if Batman was a poor worker?  Then you'd use the signal which displayed the highest minimum wage.

What if Batman was a poor worker in Mexico?  Then you'd use the signal which displayed the highest minimum wage... and, rather than having to kill him yourself, you'd use the border to kill him for you.

Liberals want to increase the minimum wage (which will attract more Mexicans)...

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. - Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

... but they also want to make it more difficult to cross the border (which will kill more Mexicans)...

In the United States, for example, the AFL-CIO has traditionally taken a very tough stance in favour of restrictive immigration laws and border control measures aimed at stemming illegal immigration into the country from Mexico. — Michael J Hiscox, Global Political Economy

We all know that Donald Trump is also a fan of making it more deadly to cross the border.  But, unlike liberals, he's fine with the minimum wage where it is...

Trump is one of the few Republicans in the 2016 field who isn't skeptical of the usefulness of a federal minimum wage, but he doesn't think it should be increased from the current rate of $7.25 an hour. - Heather Long, So what exactly is Donald Trump's economic policy?

Clearly Trump hates Mexicans... but liberals hate Mexicans even more.

Just in case you didn't visit the Wikipedia entry on Migrant deaths that I linked to...

If your Spanish is a little rusty it says, "Caution! Do not expose your life to the elements. It's not worth it!"

The sign says one thing, but the minimum wage says another thing.


Some relevant passages....

“What concerns me are provisions in the bill that would bring low-wage workers into this country in order to depress the already declining wages of American workers,” Sanders said in May 2007. “With poverty increasing and the middle-class shrinking, we must not force American workers into even more economic distress.” - Seung Min Kim, Bernie Sanders and immigration? It’s complicated

In 1921 and 1924, Congress passed legislation that effectively shut down immigration into the US. Although much of the motivation behind these laws was to exclude ‘dangerous aliens’ such as Italian anarchists and Eastern European socialists, the broader effect was to reduce the labour surplus. Worker wages grew rapidly. - Peter Turchin, Return of the oppressed 

You know what youth unemployment is in the United States of America today? If you're a white high school graduate, it's 33 percent, Hispanic 36 percent, African American 51 percent. You think we should open the borders and bring in a lot of low-wage workers, or do you think maybe we should try to get jobs for those kids? - Bernie Sanders, Interview With Ezra Klein

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10 percent. Inflation had made the minimum-wage law, passed ten years earlier, irrelevant.  

But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage, to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20 percent in the past 50 years and has ranged as high as over 50 percent. - Thomas Sowell, Minimum-Wage Laws: Ruinous ‘Compassion’  

Legislative attempts to raise wages, limitation of competition in the labour market, taxes or restrictions on machinery, and on improvements of all kinds tending to dispense with any of the existing labour - even, perhaps, protection of the home producer against foreign industry - are very natural (I do not venture to say whether probable) results of a feeling of class interest in a governing majority of manual labourers. - J.S. Mill, Considerations on Representative Government

Even worse, this regulation will interact with the migrant flow from Latin America, to produce another set of unanticipated side effects. In some developing countries there is a huge army of unemployed who go to the cities, hoping to get one of the few high wage jobs available in the "formal" sector of the economy. With a $15 minimum wage, migrants will come from Mexico until the disutility of waiting for a good job just balances the expected utility of landing one of those good jobs. You'll have lots more angry, frustrated young Mexican illegal immigrants, with lots of time on their hands. - Scott Sumner, How bad government policies make us meaner

If the American automobile worker, railroadman or compositor says equality, he means expropriating the holders of shares and bonds for his own benefit. He does not consider sharing with the unskilled workers who earn less. At best, he thinks of equality of all American citizens. It never occurs to him that the peoples of Latin America, Asia, and Africa may interpret the postulate of equality as world equality and not as national equality. 

The political labor movement as well as the labor union movement flamboyantly advertise their internationalism. But this internationalism is a mere rhetorical gesture without any substantial meaning. In every country in which average wage rates are higher than in any other area, the unions advocate insurmountable immigration barriers in order to prevent foreign "comrades" and "brothers" from competing with their own members. Compared with the anti-immigration laws of the European nations, the immigration legislation of the American republics is mild indeed because it permits the immigration of a limited number of people. No such normal quotas are provided in most of the European laws. - Ludwig von Mises, Planning for Freedom

See also: Workers: Beggars or Choosers?

Workers: Beggars or Choosers?

My comment on John Cochrane's blog entry: Summers and the nature of policy advice

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I remember way back in the day... when I was in the army infantry... my buddies and I would sit around discussing how easy it was for ugly army chicks to hook up with good looking army dudes. It wasn't because the ugly chicks were particularly charming... nope... it was simply because of supply and demand. I have no idea what the actual ratio was... but it sure seemed like there was at least 100 guys for every girl. Guys were a dime a dozen. And, as the saying goes, beggars can't be choosers. Ladies had the upper hand... they could quickly and easily replace guys on the slightest whim.

Can you imagine if Larry Summers had been there? "Hey!  I have an idea!  The army should make it harder for women to join!"  Even the dumbest guy in the entire army would have instantly recognized just how massively moronic Summers' idea was.

Maybe the problem is formalism?  Summers didn't join the army infantry right after high school. Instead, he went to some university... got a PhD... and now he uses so much technical jargon that regular folks aren't able to instantly recognize just how massively moronic his ideas are. I wouldn't be surprised if he was related to Paul Samuelson.

Eh, Samuelson did get the free-rider problem right. And it's not like we can get rid of technical jargon... "that one problem where people have an incentive to lie about how much they value things like national defense and it results in the wrong amount of defense being supplied."  Well... since I'm here... if you get a chance I'd appreciate a second opinion on my argument that the free-rider problem is equally applicable to democracy.

Getting back on topic... Scott Sumner recently wrote this paragraph about employers having the upper hand...

Regardless of how you feel about monetary policy, it's clear that if employers feel they have a "captive audience" of workers, who are terrified of losing their jobs, it would be easier for the employer to crack the whip and drive the employees to work extremely hard. One advantage of a healthy job market is that workers have more power to negotiate pleasant working conditions.

To reinforce my comparison...

[Justice Anthony Kennedy] ignores the fact that polygamy imposes real costs, by reducing the number of marriageable women. Suppose a society contains 100 men and 100 women, but the five wealthiest men have a total of 50 wives. That leaves 95 men to compete for only 50 marriageable women. - Richard Posner, Supreme Court Breakfast Table

Heh... half the ladies be gold diggers?  Posner's been listening to too much Kanye West. Anyways, if we did legalize polygamy... and Posner's estimate turned out to be correct... then Summers' bright idea would be to make it harder for American guys to marry foreign ladies.  "Hey!  Let's send all the foreign ladies to Mars!"

You say that Summers is a smart guy... but he wants to help workers by building up, rather than tearing down, barriers to entry. He wants there to be more workers and less employers.  He prefers barrierism over builderism.  How is that smart? Not only is it bad for workers... but it's also bad for consumers. It also increases instability/volatility. The economy has more eggs in fewer baskets.


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Out of curiosity... I searched Google for the title that I chose for this entry... Workers: Beggars or Choosers?   Here's a snippet from one of the results...

Labour advocates say there are no publicly traded manufacturers in China that get this yet. Some will eventually figure it out. Until they do, companies like Yum! Brands Inc, which invests in employee development at its KFC and Pizza Hut fast-food restaurants, offer a better alternative. - Alexandra Harney, China's migrant workers: from beggars to choosers

This made me chuckle when I read it.  Isn't it funny that labor advocates are the most qualified to run businesses... yet they rarely do so... which is why we need labor advocates!


See also:

• Minimum Wage Vicious Cycle
• Knowing The Real Disparities In Profitability
• The Inefficient Allocation of Labor
• Maximizing Opportunities By Clarifying Demand Diversity
• Maximizing Demand For Labor By Minimizing Barriers To Entry
• Consumers Are The Conductors Of Commerce
• Minimum Wages vs Minimum Employees
• Is there a shortage of unskilled labor?
• A Surplus Of One-Armed Workers
• Liberals Hate Mexicans More Than Donald Trump Does

Ryan Cooper vs Economics

The other day I noticed a nice spike in my blog's web traffic.  Google wasn't extremely helpful though because this is the URL that it credited for the traffic bump... http://t.co/drVQJUUabW.  If you clicked on that link you'd discover that it takes you to this blog entry of mine... Matt Bruenig vs Poverty.  A while back, thanks to my second favorite liberal, I finally figured out that the "t.co" type of abbreviated URLs are actually from twitter.  So I went on twitter and searched for "pragmatarianism" and voila!

this is extremely weird http://t.co/drVQJUUabW

— ryan, cooper (@ryanlcooper) August 22, 2015

Heh.  I solved that mystery!  But...I stumbled upon two new mysteries.  Who is Ryan Cooper?  And what, exactly, did he think was so "extremely weird" about my blog entry?

The first mystery was easy enough to solve.  Ryan Cooper is a writer for The Week.  Have you heard of The Week before?  I hadn't.  Turns out that it's a very liberal magazine.

As a quick aside... when I say "liberal" I feel the tiniest twinge of guilt because I think of Daniel Klein's sincere entreaties for people to stop using the word "liberal" to refer to government lovers.  Klein even has a couple websites dedicated to the cause... Lost Language and Liberalism Unrelinquished.  It's for sure that "liberal" is a nice word... and it's too bad that the other side stole it... but we're the side of builders/entrepreneurs.  And builders aren't supposed to cry over split milk. If Klein isn't happy with the word "libertarian" then he should channel his inner wordsmith and create a better word.  Because... there's always room for improvement.

Solving the mystery of Cooper's identity was easy enough... but only he can truly solve the mystery of why he thinks that my blog entry is extremely weird.  All I can do is guess.  But I certainly do enjoy a good guessing game.

As a real writer... Cooper probably doesn't choose his words randomly... so why did he choose the word "weird" rather than "wrong"?  And it's not like he used up his allotment of characters... so he could have written... "this is extremely weird and wrong..."  

A big part of the mystery is that my blog entry was a bundle of thoughts...

1. I love Australians
2. Ranking my favorite liberals
3. Looking for a fourth favorite liberal
4. The value of clarifying demand

Does Cooper think it's extremely weird that I love Australians?  Heh.  Maybe Cooper doesn't particularly love Australians or any other group of people?  He loves everybody equally?  Is that even possible?  If I had to guess... I'd guess that Cooper doesn't think it's extremely weird that I *heart* Australians.

So does Cooper think it extremely weird that I *heart* some liberals more than other liberals?  How's this any different from *hearting* some nationalities more than other nationalities?  I'm sure that Cooper doesn't *heart* all liberals equally.  But perhaps he thinks it's extremely weird that I'm completely transparent with my *heart* rankings?  Heh.  If the Bible gets anything right it's the part about not hiding your light under a bushel.

Perhaps Cooper thinks it's extremely weird that I'm looking for a liberal to *heart* in fourth place?  Let's review my *heart* rankings of liberals!

1st Place - John Holbo!  Primarily because of this... Crooked Timber Liberals Do Not Advocate Selling Votes.  I enjoyed our rather extensive public discussion/debate/disagreement.

2nd Place - John Quiggin!  Primarily because he's Australian!  Secondly because he's writing a book about opportunity cost!  For some more insight... John Quiggin And David Boaz Fusion Food For Thought.  Thirdly because of this...

Quiggin's implied rule of economics http://t.co/K0lz6iEtYM

— JohnQuiggin (@JohnQuiggin) January 11, 2015

3rd Place - Noah Smith!  Smith and I go way back.  Here's an overview of our history... Noah Smith's Critique of Pragmatarianism

4th Place - ???

5th Place - ???


There are definitely a few different factors that determine my *heart* rankings of liberals... but the main factor is the quantity/quality of public interaction.

As an aside... I think it would be a lot funner if Daniel Klein tried to take back the word "intercourse".  Take it back from who though?!  Whose fault is it that "intercourse" is now synonymous with "sexual intercourse"?

The absence of liberals in 4th and 5th place doesn't reflect a lack of public interaction.  For the tip of my public interaction iceberg please see... Unglamorous but Important Things.  I've had lots of public interactions with liberals... but precious few of the interactions were quality enough to warrant any of the liberals being placed in my top 5 *heart* ranking.

In the case of Matt Bruenig... all he had to do to become my 4th favorite liberal was simply publicly address the points that I brought up.  Bruenig is intelligent enough so the quality of his response probably wouldn't have been an issue.  But unfortunately, he showed absolutely no interest in publicly addressing my points!  And he's not alone in this boat...

• Paul Krugman - Minimum Wage Vicious Cycle
• Miles Kimball - The Truth About Infrastructure Projects?
• Mike Konczal - The Reality Of Compulsory Taxation
• Scott Alexander - Scott Alexander Is On Patreon!
• Raymond Fisman - Raymond Fisman - Education vs Markets
• Jeff Madrick - Jeff Madrick vs The Invisible Hand
• Ha-Joon Chang - Chanidget - Prospering Because/Despite Socialism
• George Monbiot - The Ingenious Gentleman George Monbiot

I'm sure that I'm forgetting a few liberals.  Admittedly, none of my... errr... "wooing attempts"...  were probably the most suave approaches to soliciting public interaction.  But my point is that my 4th and 5th spots don't remain unoccupied for lack of effort.

Does my struggle to find liberals to love strike Ryan Cooper as extremely weird?  Heh.  It's not my fault that there isn't already an app for this!  Talk about market failure!

Now, I really don't want to come off as desperate... but Ryan Cooper is looking kinda good!  He's a liberal... and his articles are intelligent enough... and he's already linked to my blog!  Linking to my blog definitely put him in my top 10 *heart* ranking... well if I had one.  Should I have one?  Isn't that just being greedy?  Do I really have enough *heart* for 10 liberals?  Probably... not.

It is tempting to make Cooper my fifth favorite liberal.  What other more or less prominent liberals have linked to my blog?  Just Quiggin!?  Even if Cooper's link wasn't exactly a ringing endorsement... his tweet was still a link!  Thanks Cooper!  So yeah, heck with it, Cooper is my fifth favorite liberal.  It will be kinda awkward not having a fourth favorite liberal but it's not like I can't handle some awkwardness... and plus... hopefully it will only be a temporary predicament.  Cooper can easily grab the fourth spot simply by responding to some of my substantial points.

Which brings us to our fourth and final suspect in the case of the mystery of the extremely weird blog entry... clarifying demand!  Clarifying demand was the the gist of my blog entry.  It's the gist of most of my blog entries.  Does Cooper think that clarifying demand is extremely weird?

Clarifying demand is simply when people use their own money to communicate their preferences.  For example... Cooper goes to Whole Foods, grabs a shopping cart, looks at his list, locates the items, puts them into his shopping cart, waits in line to check out, whips out his wallet and pays for the things that he wants.  This is how he clarifies his demand for groceries.  Does he think that this process is extremely weird?

I think that the alternative would be extremely weird!  Cooper sits at home, Whole Foods delivers some groceries to him, he pays for them... and somehow, without having to clarify his demand, the groceries he paid for are exactly the ones that he would have put into his shopping cart.  Voila!?  Abracadabra!?  As if Whole Foods was able to read his mind.  Somehow Whole Foods knew that he had a mean craving for artichokes.  That's some spooky shit for sure.  It's extremely weird to believe that any producer is omniscient.

If clarifying demand makes sense when it comes to food... then wouldn't it also make sense for everything else that we could possibly want?  I sure think so.  And so far... very few prominent liberals have even attempted to explain what's so weird about clarifying the demand for everything.  They are fine clarifying the demand for some things... but who knows where and why they draw the line?!

Let's consider one of Cooper's "blog entries"... Rand Paul compared taxation to slavery — and betrayed the emptiness of his political philosophy.

Firstly... I should probably point out that I'm really not a libertarian.  Unlike Rand Paul... I don't believe that the government is omniscient when it comes to the demand for defense/offense or anything else.  This is a hugely important distinction.  It's so important that I had to invent a new label for it... "pragmatarian".  I'm a pragmatarian.  I believe that taxpayers should be free to choose where their taxes go.  In other words... clarifying the demand for public goods is just as important as clarifying the demand for private goods.  Here's the FAQ.

Secondly... I don't see anything extremely weird about Cooper's entry/article.  It's pretty standard liberalism.  It's wrong... but it's not weird.  He concludes his critique by saying of taxation and brutal slavery, "Only a moral idiot would think to make such an equivalence."  Taxation and brutal slavery aren't equivalent?  Does this mean that taxation and gentle slavery are equivalent?  I'm pretty sure that slavery is a continuum of brutality.  If we tie the morality of slavery to the degree of brutality... it gets kinda morally iffy.  As if slavery isn't so bad if brutality is removed from the equation.  Well... yeah?  But... therefore?  Gentle slavery is morally permissible?

Pragmatarianism is so wonderful because there's no moral ambiguity... it's purely consequential.  The focus is entirely on results... progress, prosperity, abundance and so on.  Results depend entirely on clarifying demand.  More demand clarity means more progress.  Taxation and slavery are equivalent in the sense that they both prevent demand from being clarified.  Of course, it's important to note that taxation itself doesn't prevent demand from being clarified.  Demand isn't obscured when taxes are collected... it's obscured when elected representatives decide how the money is spent.  Unless of course we assume that representatives are omniscient... or that voting accurately communicates preferences.

Which brings us to the heart of this potential debate!  The issue that no liberal dares to address!  So by bringing it up I'm probably guaranteeing that Cooper won't publicly respond to this. Shucks.

Here it is:  the free-rider problem isn't just a critique of the private provision of public goods... it's also a critique of democracy.

This throws liberals for an existential loop.  When it comes to the free-rider problem... liberals are very accustomed to wielding it as a weapon.  Liberals use the free-rider problem to try and clobber libertarians.  Well... liberals who know what they are talking about.  For the most part, libertarians try their hardest to downplay the size of the free-rider problem.  If you ask 100 libertarians who aren't entirely ignorant... 99 will tell you that the free-rider problem is only a problem when it comes to "real" public goods...defense, courts and police.

Because libertarians try their hardest to downplay the size and extent of the free-rider problem... they can't very well use it to attack liberals.  Nope.  But again... I'm not a libertarian.  I'm a pragmatarian.  I perceive that the free-rider problem is a truly big and extensive problem.  It doesn't just apply to the private provision of public goods... it also applies to democracy.

I attack liberals with their very best weapon.  And they are absolutely defenseless.  What are they going to say?  The free-rider problem is big enough to warrant taxation... but it's not big enough to warrant severely limiting democracy?

If Cooper *hearts* something it's definitely democracy (his emphasis)...

That's why the democratic basis of any socialist project is absolutely indispensable — an electoral movement to legitimately win power based on the traditional political mechanisms of labor and community organization. - Ryan Cooper, Bernie Sanders is right: It's time for democratic socialism

The question is... does Cooper *heart* democracy enough to throw Paul Samuelson under the bus?  Out of curiosity I searched Google for "Ryan Cooper" and "Paul Samuelson" and didn't find any relevant results.  I had a bit more luck searching for "Ryan Cooper" and free-rider...

Getting insurance will be part of living in a decent society where everyone chips in when they can afford it, and free-riding is frowned upon — and over time, young people will come to see this as part of being a responsible citizen. - Ryan Cooper, Why millennials will come around on Obamacare

The free-rider problem is applicable to Obamacare... but it's not applicable to democracy?  What if Obamacare only exists because the free-rider problem is applicable to democracy?

I wasn't able to find any other relevant passage by Cooper on the free-rider problem.  Then again, I didn't search that hard.

In 1954... the Nobel liberal economist Paul Samuelson published the best (most widely cited) economic defense of government... The Pure Theory of Public Expenditure...

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. - Paul Samuelson, The Pure Theory of Public Expenditure

In the private sector... people have a clear incentive to pretend to have less interest in a public good than they truly have... "No... I don't value cancer research that much..."   So it's a given that the private sector will undersupply public goods.  Hence the need for taxation.

With democracy on the other hand... most voters have the incentive to pretend to have more interest in a public good than they truly have.  This is because around half of the country doesn't pay income taxes.  And among the people who do pay income taxes, the burden is very unevenly distributed (progressive taxation).  The logical conclusion is that democracy, which Cooper loves, is untrustworthy... it will send false signals.

Cooper can argue that false signals aren't a real problem.  But he wouldn't just be throwing Samuelson under the bus... he'd also be throwing the best economic argument for taxation under the bus as well.

In his paper... Samuelson never even mentioned democracy.  Instead, he simply assumed that government planners are omniscient.  They magically and mysteriously pull our preferences out of a hat.  Voila!  Abracadabra!  Clearly Samuelson didn't really believe that planners are omniscient.  He did, however, perceive that the preference revelation problem was a minor detail.  As a result... he got a few other minor details kinda wrong...

The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive. - Paul Samuelson, Economics

What's our public sector?  It's a socialist command economy + democracy (false signals) = thriving.  That's the epitome of bad math.

Maybe Cooper will want to argue that democracy's false signals aren't that bad because there's little harm in fleecing the rich to oversupply things like welfare, healthcare and education.  He might want to consider the following...


1776...

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. — Adam Smith, Wealth of Nations

1835...

Again, it may be objected that the poor are never invested with the sole power of making the laws; but I reply, that wherever universal suffrage has been established the majority of the community unquestionably exercises the legislative authority; and if it be proved that the poor always constitute the majority, it may be added, with perfect truth, that in the countries in which they possess the elective franchise they possess the sole power of making laws. But it is certain that in all the nations of the world the greater number has always consisted of those persons who hold no property, or of those whose property is insufficient to exempt them from the necessity of working in order to procure an easy subsistence. Universal suffrage does therefore, in point of fact, invest the poor with the government of society. - Alexis de Tocqueville, Democracy in America

1846...

The last point for consideration is the supposed disposition of the people to interfere with the rights of property.  So essential does it appear to me, to the cause of good government, that the rights of property should be held sacred, that I would agree to deprive those of the elective franchise against whom it could justly be alleged that they consider it their interest to invade them. - David Ricardo, Observations on Parliamentary Reform

1861...

It is also important, that the assembly which votes the taxes, either general or local, should be elected exclusively by those who pay something towards the taxes imposed. Those who pay no taxes, disposing by their votes of other people's money, have every motive to be lavish, and none to economize. As far as money matters are concerned, any power of voting possessed by them is a violation of the fundamental principle of free government; a severance of the power of control, from the interest in its beneficial exercise. It amounts to allowing them to put their hands into other people's pockets, for any purpose which they think fit to call a public one; which in some of the great towns of the United States is known to have produced a scale of local taxation onerous beyond example, and wholly borne by the wealthier classes. That representation should be coextensive with taxation, not stopping short of it, but also not going beyond it, is in accordance with the theory of British institutions. But to reconcile this, as a condition annexed to the representation, with universality, it is essential, as it is on many other accounts desirable, that taxation, in a visible shape, should descend to the poorest class. In this country, and in most others, there is probably no labouring family which does not contribute to the indirect taxes, by the purchase of tea, coffee, sugar, not to mention narcotics or stimulants. But this mode of defraying a share of the public expenses is hardly felt: the payer, unless a person of education and reflection, does not identify his interest with a low scale of public expenditure, as closely as when money for its support is demanded directly from himself; and even supposing him to do so, he would doubtless take care that, however lavish an expenditure he might, by his vote, assist in imposing upon the government, it should not be defrayed by any additional taxes on the articles which he himself consumes. It would be better that a direct tax, in the simple form of a capitation, should be levied on every grown person in the community; or that every such person should be admitted an elector, on allowing himself to be rated extra ordinem to the assessed taxes; or that a small annual payment, rising and falling with the gross expenditure of the country, should be required from every registered elector; that so every one might feel that the money which he assisted in voting was partly his own, and that he was interested in keeping down its amount.  

However this may be, I regard it as required by first principles, that the receipt of parish relief should be a peremptory disqualification for the franchise. He who cannot by his labour suffice for his own support, has no claim to the privilege of helping himself to the money of others. By becoming dependent on the remaining members of the community for actual subsistence, he abdicates his claim to equal rights with them in other respects. Those to whom he is indebted for the continuance of his very existence, may justly claim the exclusive management of those common concerns, to which he now brings nothing, or less than he takes away. As a condition of the franchise, a term should be fixed, say five years previous to the registry, during which the applicant's name has not been on the parish books as a recipient of relief. To be an uncertificated bankrupt, or to have taken the benefit of the Insolvent Act, should disqualify for the franchise until the person has paid his debts, or at least proved that he is not now, and has not for some long period been, dependent on eleemosynary support. Non-payment of taxes, when so long persisted in that it cannot have arisen from inadvertence, should disqualify while it lasts. - J.S. Mill, Considerations on Representative Government

1896...

If once the lower classes are definitely in possession of the power to legislate and tax, there will certainly be a danger that they may behave no more unselfishly than those classes which have so far been in power. In other words, there will be danger that the lower classes in power may impose the bulk of all taxes on the rich and may at the same time be so reckless and extravagant in approving public expenditures to which they themselves contribute but little that the nation’s mobile capital may soon be squandered fruitlessly. This may well break the lever of progress. — Knut Wicksell, A New Principle of Just Taxation

1933 (regarding)...

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. — Loren Lomasky, Geoffrey Brennan Democracy and Decision

After 9/11... plenty of people shouted for war.  Why not?  It's not like the money would come out of their pockets.

When it comes to the private provision of public goods... the free-rider problem means that war would be undersupplied.  When it comes to democracy... the free-rider problem means that war will be oversupplied.  Is it worth having welfare, healthcare and education oversupplied if it means that war will also be oversupplied?

The free-rider problem is a real problem because we really don't want public goods to be undersupplied or oversupplied.  Society thrives when all goods are optimally supplied.  And the only way to ensure that all goods are optimally supplied is by clarifying demand.

Let's summarize!

Why did Cooper think my blog entry was extremely weird?  Was it because I *heart* Australians?  Because I *heart* rank my favorite liberals?  Because I'm looking for another liberal to *heart*?  Or... because I believe that clarifying demand is so extremely important?

Cooper's a liberal!  And he's intelligent!  And he linked to my blog!  So I made him my fifth favorite liberal. w00t!!!  If he has any interest in becoming my fourth favorite liberal all he has to do is publicly share his thoughts on whether or not the free-rider problem is applicable to democracy.  Or... he could publicly share his thoughts on clarifying demand.  Or... he could publicly share his thoughts on taxpayers being free to choose where their taxes go.

While I sincerely hope that Cooper will publicly respond to my arguments... it won't be a total loss if he doesn't.  I'll simply add him to my list of liberals who chose to bravely run away.  The longer the list... the shorter their credibility.

John Quiggin And David Boaz Fusion Food For Thought

John Quiggin and David Boaz recently shared some tasty thoughts.  Initially my plan was to respond to their thoughts in separate blog entries.  But then Tyler Cowen shared this link... The development of Mexican-Chinese fusion food.  It sure sounds delicious!  If fusion food can work... then why not give fusion food for thought a try?

So welcome to my experimental kitchen!  Imagine there's a table that has different ingredients on it.  Some ingredients are from Quiggin and others are from Boaz.  Our conceptual culinary challenge is to select the best ingredients and figure out how to combine them in order to create the most delicious and nutritious brain food ever.

Here are some of Quiggin's ingredients... Locke’s Theory of Just Expropriation and Kelo v. City of New London and here are some of Boaz's ingredients... We should get to decide how the government spends our taxes.

For those of you who didn't hear it the first or second time that I shouted it from the rooftops... Quiggin is writing the sequel to the libertarian bible... Henry Hazlitt's Economics in One Lesson.  Hazlitt's book is largely based on Frédéric Bastiat's exceptionally wonderful essay What Is Seen and What Is Not Seen.  And Bastiat's essay is so wonderful because it's all about opportunity cost.

There's a terrifically tantalizing twist though.  Quiggin isn't a libertarian!  He's a liberal!  What?  A liberal is writing the sequel to the libertarian bible?  Yes!  And it's all kinds of wonderful because he's actually addressing/acknowledging/analyzing one of the strongest libertarian arguments.  As opposed to say, for example, the liberal Matt Bruenig who vigorously attacks Rothbard's weakest argument and conveniently ignores Rothbard's strongest argument...

In the first place, how much of the deficient good should be supplied? What criterion can the State have for deciding the optimal amount and for gauging by how much the market provision of the service falls short? Even if free riders benefit from collective service X, in short, taxing them to pay for producing more will deprive them of unspecified amounts of private goods Y, Z, and so on. We know from their actions that these private consumers wish to continue to purchase private goods Y, Z, and so on, in various amounts. But where is their analogous demonstrated preference for the various collective goods? We know that a tax will deprive the free riders of various amounts of their cherished private goods, but we have no idea how much benefit they will acquire from the increased provision of the collective good; and so we have no warrant whatever for believing that the benefits will be greater than the imposed costs. The presumption should be quite the reverse. And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service. - Murray Rothbard, The Myth of Neutral Taxation

Rothbard clearly understood that the problem with government is that allocation occurs in a valuation vacuum.  And he did an excellent job of articulating this problem.  But unfortunately, he got the solution really wrong.  Rather than advocating that we simply add the missing ingredient to the government, Rothbard advocated that we eliminate the government entirely.

Rothbard's solution was extremely erroneous and it resulted in the massive misallocation of a significant amount of libertarian effort/energy/excellence.  He inadvertently sent way too many libertarians on a wild goose chase... barking up the wrong trees... tilting at windmills...

Libertarians should have been attacking the idea that the optimal (most valuable) allocation could be determined without earner valuation.  Libertarians should have been endeavoring to destroy the assumption of omniscience and benevolence.  A few were... but far too many were wasting their time building up strawmen.  And liberals have consistently chosen to attack these easy targets.

It's been 34 years since Rothbard wrote "The Myth of Neutral Taxation" and finally, at long last, there's an influential libertarian who's made the case for truly fixing, rather than eliminating, the government.

In his WP article, Boaz argued that taxpayers should be free to choose where their taxes go.  This solution is consistent with Rothbard's strongest argument... which is consistent with Hazlitt's and Bastiat's arguments... which are based on earner valuation.  Earner valuation is where individuals weigh the alternative uses of their own hard-earned money (consider the opportunity costs) and choose the most valuable options.

So Boaz is an exceptional libertarian just like Quiggin is an exceptional liberal.  Boaz is exceptional for being the only influential libertarian to suggest that we add earner valuation to the government... and Quiggin is exceptional for being the only influential liberal to seriously consider opportunity cost.  They are both converging on economic reality/truth from opposite directions.

And when I say "converging"... I'm trying to say that they've both placed an unnecessary ingredient on the table.  Consider this passage from Bastiat...

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. - Frédéric Bastiat, Justice and Fraternity

As far as I know, Bastiat never argues that taxation is unnecessary.  His main concern was the absence of earner valuation...

This means that the terraces of the Champ-de-Mars are ordered first to be built up and then to be torn down. The great Napoleon, it is said, thought he was doing philanthropic work when he had ditches dug and then filled in. He also said: "What difference does the result make? All we need is to see wealth spread among the laboring classes." - Frédéric Bastiat, What Is Seen and What Is Not Seen

Bastiat was all about the benefit principle...

When it is a question of taxes, gentlemen, prove their usefulness by reasons with some foundation, but not with that lamentable assertion: "Public spending keeps the working class alive." It makes the mistake of covering up a fact that it is essential to know: namely, that public spending is always a substitute for private spending, and that consequently it may well support one worker in place of another but adds nothing to the lot of the working class taken as a whole. Your argument is fashionable, but it is quite absurd, for the reasoning is not correct. - Frédéric Bastiat, What Is Seen and What Is Not Seen

So Bastiat wasn't concerned with taxation itself... he was concerned with the government vigorously violating Quiggin's Implied Rule of Economics (society's limited resources should be put to more, rather than less, valuable uses).

With this in mind... consider Quiggin's first paragraph in his recent blog entry...

For quite a few years now, I’ve been working on a response to Henry Hazlitt’s Economics in One Lesson, a defence of free-market economics first published in 1946, but still in print and popular among libertarians. Hazlitt, as he says, is essentially just reworking Bastiat’s analysis of opportunity cost, represented by the broken window parable. What I’m trying to do is take the idea of opportunity cost seriously, and apply it across the board, including to issues of income distribution and property rights. It’s obvious (to me, at any rate) that any allocation of property rights to one or more people has an opportunity cost, namely the benefits that could be realised if the property rights were allocated to someone else. This is a live issue when property rights are being created explicitly right now, as they are with various kinds of intellectual property. But it is just as relevant when we come to consider the historical origins of property. I’ve spent a fair bit of time debating the question of whether property rights have a basis (say, in natural law) for existence independent of the states or governments that typically define and enforce them. I don’t want to talk about that issue right now, but it explains why I’m taking an interest in (I think) the most prominent proponent of natural law in relation to property, John Locke.

There's a few different ingredients in here.  Taking opportunity cost seriously?  Deeeeelish!  Natural law?  Yuck!  Bastiat's arguments aren't based on nonsense on stilts.  Which is what makes them so good.  So by bringing up the "issue" of natural law... Quiggin is being less like Quiggin and more like Bruenig.  Which is unfortunate because there's a surplus of Bruenigs and a shortage of Quiggins.

Now let's take a look at this ingredient supplied by Boaz...

Real budget democracy, of course, means not just that the taxpayers can decide where their money will go but also that they can decide how much of their money the government is entitled to. Thus the last line on the 1040-D form must be “Tax refund.”  The form would indicate that none of the taxpayer’s duly calculated tax should be refunded to him; but under budget democracy the taxpayer would have the right to allocate less than the amount requested for some or all programs in order to claim a refund (beyond whatever excess withholding is already due him).

What do you think?  Does it taste like natural law?  Kinda?

I could be wrong... but I really don't think that any truly delicious and nutritious dish could have natural law as an ingredient.  It's like stuffing a turkey with foam peanuts.  I'm pretty sure that Martha Stewart would say, "It's not a good thing".

So Boaz's unnecessary ingredient tastes like natural law.  And Quiggin's unnecessary ingredient is natural law.  Let's remove all natural law type ingredients from the table.

What ingredients are left on the table?  Well... there's certainly Boaz's consumer choice.  What a wonderful ingredient!  If you'd like proof then consider this comment that was left on Boaz's article...

********************************

Dear Washington Post editors,

Please remove $0.15 off my my monthly subscription. In return, I would like you to remove any op-eds that amount to demagoguery, supported by half baked arguments. I'm sure you'll know which ones I'm referring to.

Sincerely,
Broprah Winfrey

********************************

Awesome idea!!!

Boaz was like, "Hey, what about consumer choice in the public sector?".  Winfrey replied, "Oh yeah, what about consumer choice here at Washington Post?"

Boaz was like, "What about adding earner valuation to the public sector?"  Winfrey replied, "Oh yeah, what about adding earner valuation to the Washington Post?"

Boaz was like, "What about adding garlic to steak?"  Winfrey replied, "Oh yeah, what about adding garlic to salad?"

Right now there isn't a market in the public sector.  Boaz showed readers of the Washington Post what a market in the public sector might look like.  Winfrey took this logic and ran with it in an excellent direction.

If you start thinking about creating a market in the public sector... then you start to see all the other places that are really missing markets.

In Thumbs Up vs Quarters Up I argued that we should create a market in Youtube...

... and in Netflix...

... as well as in Fee.org, Liberty.me, Medium and a bunch of other websites.

In Visualizing The Economics of Education I argued that every school should be a market...

Markets everywhere and in everything!  Why?  Enlightenment.  So we can shed light on everything.  Communication.  So we can know what's truly important to other people.  So other people can know what's truly important to us.

Just in case you were wondering how a market in the Washington Post (WP) would work... when you paid for a subscription... your WP "wallet" or "bank account" would be credited accordingly.  Then, with one click, you could allocate as little as a penny to an article (see the Youtube picture above for a very rough idea of what "one click giving" might look like).  Each article would show you the amount of money that you allocated to it and the amount of money that the crowd allocated to it.  WP would take its cut and pass the rest onto the authors.

When you searched WP for articles.... you could sort the results by date, popularity ("likes") or value (allocations).  

Right now there's an article on WP that's more valuable than all the other WP articles.  And we don't know which article it is.  And we don't know how valuable it is.  Is it worth $1,000 dollars?  Or $10,000 dollars?

Quiggin's been allocating a lot of brain power to the opportunity cost concept.  How would he describe the most valuable WP article in terms of opportunity cost?  Wouldn't you like to know?

Here's a couple of my attempts...

The most valuable WP article is the article that readers have been willing to sacrifice the most for.  The most valuable WP article is the article that the crowd has been willing to give up the most for.

Carefully chew on the fact that we don't know which WP article is most worthy of people's sacrifice.  We don't know... because... it's not important to know?  The amount of money that people are willing to sacrifice for an article is frivolous information?

Here's my most relevant illustration...

In my response to James Kwak's response to Steven Levy's story... I shared this passage...

Chwe’s concept is readily apparent in the dynamics of social media. When a media organization posts a link to an online article on Facebook, for example, and people begin “liking” it, others will begin to assign some level of importance to the story and some will be compelled to share it and discuss it. The idea of “common knowledge” may also lend itself to thinking about advertising strategies on social media. — Richard Feloni, Mark Zuckerberg hopes this book will help shape his vision for Facebook

... and here's a passage from Steven Levy...

So what’s the solution? We need a great artificial intelligence effort to comb through our information, assess the urgency and relevance, and use a deep knowledge of who we are and what we think is important to deliver the right notifications at the right time.

There's all these intelligent people thinking about determining importance... and there's Quiggin over at Crooked Timber with his opportunity cost and Boaz over at WP with his tax choice.

It's all about creating value signals...

The most valuable WP article would be the article that the crowd would want Batman to read the most.  Does Batman even read the WP?  He would if WP allowed its members to crowdfund articles.

Check out this tweet from Quiggin...

Two views on the frontier in libertarian thought. Patri Friedman http://t.co/fyqOKDYW4L and me (final para) http://t.co/hU6sfTxrck
— JohnQuiggin (@JohnQuiggin) April 19, 2015

It's a bite size fusion food for thought!  The tweet combines Quiggin's liberal thoughts with Friedman's libertarian thoughts.

If you read Friedman's article... you'll learn that he agrees with Margaret Flowers...

Each of us has a finite number of resources.  So where are you going to put your resources?  Where are you going to put your time and your money?  Are you going to put it into trying to elect somebody into this current system that's broken?  Or are you going to put that into building something?

Friedman offers four alternatives to traditional activism...

• Free State Project - libertarians voting with their feet for New Hampshire 
• Crypto-Anarchy - using bitcoin subversively 
• Market Anarchism - making the government redundant
• Seasteading - libertarians voting with their feet for artificial islands

Here's an updated version by Max Borders and Jeffrey Tucker... Fifty Ways to Leave Leviathan.  What you won't find in that list is the idea of creating a market within WP, Fee.org, Liberty.me, Youtube, Netflix or any other website.

If more libertarians follow Boaz's lead... then it's a given that more and more people will start seeing market mirages.  Market mirages?  Like you're crawling around the desert seeing an oasis where there is none?  It's kind of hard to create a real oasis but it's easy enough to create a virtual oasis.  Cato could put its considerable funding to good use by creating a website where members can submit articles and allocate money to their favorite articles.  The best writers will earn the most money and this will create a bright value signal that will attract better writers.  As more and more talent foot votes for Cato's virtual oasis... and consumers follow... the Washington Post will clearly see the brilliance of Broprah Winfrey's suggestion.  When WP creates its own virtual oasis... maybe Wired will follow suit.  Who's next?  Maybe the Economist?  Eventually Huffington Post and the New York Times will suffer enough brain drainage that they will adapt or go extinct.  The same is true of Netflix, Youtube and Spotify.  Until the only sector left without an oasis will be the public sector.

They say that states are the laboratories of democracy.  There are only like 50 states so it's no wonder that democracy and states still suck.  When websites become the laboratories of markets... given that there are a gazillion websites... we're going to see markets improve exponentially.  Everybody's going to want to participate in better markets and the costs of virtual foot voting will be vanishingly small.  Better market traits will be identified and adopted at a furious pace.  It will be survival of the fittest markets.

This is relevant...

I’d make a different point: the way I’ve learned how things operate is to work with a government or organization to try out a policy and succeed or fail. This kind of trial and error seems crucial to me. Karl Popper called this the piecemeal social engineer. Deng Xiaoping called it crossing the river by feeling each stone. 

This sounds like a good way to figure out the way your world works (your model), and then to reform. A lot of people would say this is China’s secret to success: informal experimentation on a grand scale. The problem, as I see it, is that most governments and aid organizations I’ve worked with are really, really bad at this. They don’t use the lessons from past failures to try again a different, better way. They don’t throw out bad programs. - Chris Blattman, The mistakes made by most development reformers

If there's widespread failure to evolve/adapt/improve... then the problem always boils down to inadequate selection pressure...

This diagram is relevant to Washington Post, schools and the government.  As you can see, producers are not directly subject to the massively powerful selective pressure/force of consumer choice.  Nobody benefits from protecting producers from consumers.  The solution is to eliminate the bottleneck...

Bottleneck removed.  Doing so facilitates trades.  And facilitating trades is the same thing as facilitating communication.

Washington Post, schools and the government all need greater granularity.  Is there such a thing as too much granularity?  I'm sure there is... but so what?  Any website/market/sector that offers too much granularity will take itself out of the market gene pool.  Will their failure negatively impact the system?  How could it?  When the failure of a single node in a network impacts the entire system... then it's because the system isn't adequately decentralized.  Inadequate decentralization is an issue now... but it won't be by the time Crooked Timber allows readers to allocate their money to Quiggin's entries.  Once we have a gazillion markets... then none of them will ever be too big to fail.

Command economies result in the uniformity of products.   Market economies result in the diversification of products.  That's why this ingredient from Boaz's article is probably my favorite...

There would be quite a bit of debate, of course, over how to list programs in the 1040-D program. Spending interests would want to use broad categories–national defense, health, education, job training. Opponents of spending would prefer to narrow the categories so taxpayers can see what they’re really buying– defense of Japan and Korea, war in Iraq, farm subsidies, mass-transit “demonstration” projects in West Virginia, and so on. Libertarians and the arts establishment might agree on listing just “arts,” while the religious right might lobby to have the category broken into “fine arts,” “pork-barrel arts,” and “obscene art.” Language would be an issue – “corporate welfare” or “loans for small businesses”?

Compare it to this recent passage from my favorite liberal (Quiggin's my second favorite liberal)...

Bakers and florists who refuse service are colorful instances. They are burdening customers with their orthodoxies when they could be acting as ‘commmon carriers’ of whatever good/service they provide. Tax issues are less exciting but more wide-spread and consequential. Any organization that enjoys tax-exempt status is, in a sense, being subsidized by citizens who may not approve of what that organization does, or stands for. The issue here is structurally similar to the NEA ‘piss christ’ and Robert Maplethorpe controversies of yore. Should ordinary citizens, scandalized by this stuff, be forced to pay for it via taxes (or even just tax exemptions for organizations than sponsor it)? There is a certain logic to the notion that state-sponsored art should be bland, agreeable art. But if that logic is good logic, there would be a certain logic to extending it to all education and religion (that involves tax-supported or just tax-exempt status.) Most everyone is in favor of a bit of unorthodoxy somewhere along the line. Spice of life! So we would want the bland mandate of pan-agreeableness to lapse at some point. But at what point? - John Holbo, Religious liberty and the Romance of Orthodoxy

Compare it to this recent and excellent blog entry by Don Boudreaux... Insipidness Guaranteed.  I really want to quote the entire thing but I'll just share the punchline...

It’s intriguing that the people who most self-righteously criticize the likes of McDonald’s, Anheuser-Busch, pop rock, and builders of ‘cookie-cutter’ houses for being bland and failing to experiment with the Bold and the Edgy – those who condemn conformity, sneer at the crowds in Wal-Mart, and trumpet their devotion to diversity – are especially likely to be among those who glorify politics and to find in democratic elections the possibility of transcendence and of discovering and empowering the bold, the different, and the courageous trend-bucking leader. 

No one should be surprised that candidates for the U.S. presidency transact mostly in platitudes and are forever performing deeds on the campaign trail that any self-respecting person with independent judgment and a genuine sense and appreciation of his or her uniqueness would never in a million years dream of doing.  And the closer a candidate gets to the political promised land, the more intense becomes the pressure for him or her to be the political equivalent of a Bud Lite.

The forced-rider problem ties back to Rothbard's passage that I shared earlier...

And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service. - Murray Rothbard, The Myth of Neutral Taxation

 Again, Rothbard wrote that 34 years ago.  Can you clearly see the pattern/process of truth converging/diverging/converging?

Quiggin, given that he's a liberal who has seriously studied Hazlitt and Bastiat, is in a unique position to facilitate converging on the truth.  I'm not saying that he has to agree with my version of the truth... I'm just saying if he's going to critique the true frontiers of libertarianism... then he needs to focus his efforts on Boaz's solution.  This is because Boaz's solution is entirely consistent with Bastiat.  Well... minus the hint of natural law.

Well there you go!  Some fusion food for thought!  If you can find any room for improvement then please grab these ingredients, grab some other ingredients, grab your apron and start cooking!

A couple more things...

Results of a survey/poll from this thread... Tax Choice Discussion Thread

According to this highly credible/reliable survey... more than 1/3 of the population wants some tax choice.

And how cool is this passage?

We've gone beyond the capacity of the human mind to an extraordinary degree. And by the way, that's one of the reasons that I'm not interested in the debate about I.Q., about whether some groups have higher I.Q.s than other groups. It's completely irrelevant. What's relevant to a society is how well people are communicating their ideas, and how well they're cooperating, not how clever the individuals are. So we've created something called the collective brain. We're just the nodes in the network. We're the neurons in this brain. It's the interchange of ideas, the meeting and mating of ideas between them, that is causing technological progress, incrementally, bit by bit. However, bad things happen. And in the future, as we go forward, we will, of course, experience terrible things. There will be wars; there will be depressions; there will be natural disasters. Awful things will happen in this century, I'm absolutely sure. But I'm also sure that, because of the connections people are making, and the ability of ideas to meet and to mate as never before, I'm also sure that technology will advance, and therefore living standards will advance. Because through the cloud, through crowd sourcing, through the bottom-up world that we've created, where not just the elites but everybody is able to have their ideas and make them meet and mate, we are surely accelerating the rate of innovation. - Matt Ridley, When ideas have sex

Compare it to...

The principle that the multitude ought to be supreme rather than the few best is capable of a satisfactory explanation, and, though not free from difficulty, yet seems to contain an element of truth. For the many, of whom each individual is but an ordinary person, when they meet together may very likely be better than the few good, if regarded not individually but collectively, just as a feast to which many contribute is better than a dinner provided out of a single purse. For each individual among the many has a share of virtue and prudence, and when they meet together they become in a manner one man, who has many feet, and hands, and senses; that is a figure of their mind and disposition. Hence the many are better judges than a single man of music and poetry; for some understand one part, and some another, and among them, they understand the whole. There is a similar combination of qualities in good men, who differ from any individual of the many, as the beautiful are said to differ from those who are not beautiful, and works of art from realities, because in them the scattered elements are combined, although, if taken separately, the eye of one person or some other feature in another person would be fairer than in the picture. - Aristotle, The Politics

Compare it to...

It is through the mutually adjusted efforts of many people that more knowledge is utilized than any one individual possesses or than it is possible to synthesize intellectually; and it is through such utilization of dispersed knowledge that achievements are made possible, greater than any single mind can foresee. It is because freedom means the renunciation of direct control of individual efforts that a free society can make use of so much more knowledge than the mind of the wisest ruler could comprehend. - Friedrich A. Hayek, The Case for Freedom

...and...

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. But the "man on the spot" cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem of communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system. - Friedrich A. Hayek, The Use of Knowledge in Society