The Market Is The Most Useful Tool

Comment on: If Socialists Understand the Free-Rider Problem, Then Why Are They Socialists?

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

Do your readers equally value your blog entries? Are your entries equally useful/beneficial/important? Do you think that you can accurately guess the demand for topics? If so, then markets wouldn't be so incredibly useful.

Right now, as far as I can tell, your blog isn't a market. Readers don't have the freedom to "donate vote" for your best entries. This means that you don't know the demand for topics, which means that your supply of topics is suboptimal.

Just like your blog isn't a market, and just like your products aren't equally useful, the same is true of unions. This means that unions don't know the demand for their products, which means that their supply of products is suboptimal.

In order to help socialists, and your readers, understand why the market is such an incredibly useful tool, you first have to actually understand this yourself. If you genuinely desire this understanding then turn your blog into a market. Give readers the freedom to use their donations to reveal their demand for your products. See if the supply noticeably improves.

So no, the problem isn't that socialists don't understand the free-rider problem. The problem is that libertarians don't understand how and why markets work. The market is the most useful tool, but libertarians fail to use it to improve their products.

Questions For Vitalik Buterin

Here's the comment that I just posted on Tyler Cowen's blog entry... What should I ask Vitalik Buterin?

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

Yes! This! What does Buterin think about Cowen's critique of quadratic voting (QV)? I perceive QV to be a hybrid between voting and spending. How will Buterin determine whether QV is better than its parents at ranking things?

Is Buterin familiar with the idea of donation voting (DV)? DV is most commonly associated with using donations to decide who will kiss a pig, or get a pie in the face, or get dunked into a tank of water. Sometimes zoos use DV to decide what to name a baby animal.

The thing is, whenever anybody makes a donation, each dollar they donate is essentially a vote. This means that DV is used to rank/sort/order/prioritize all the non-profits. The Red Cross, for example, receives very many donation votes, which allows it to use a huge amount of society's limited resources.

Personally, I would be very surprised if QV is more effective than DV at ranking things. I can't imagine why it would be beneficial to arbitrarily diminish the Red Cross's control over society's limited resources. Perhaps though I'd be singing a very different tune if the Red Cross and the KKK were switched in the rankings.

My best guess is that it would be maximally beneficial if we used DV to rank potential people for Cowen to interview. DV should also be used to rank potential questions for Cowen to ask people that he plans to interview. All the money raised could be given to me. Alternatively, it could be given to Marginal Revolution University, which would allow it to compete more resources away from other uses.

It can be said that DV gives too much influence to the wealthy.  But it can also be said that it gives the smallest amount of influence to the biggest free-riders.

Obama Presidential Center VS Public Park

The proposed plan is for 20 acres of Chicago’s Jackson Park to be destroyed and replaced with the Obama Presidential Center. Here’s the comment that I posted on the Dezeen story…

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

Imagine a survey…

Should the presidential center be built in the park?

Yes
No

But instead of participants simply voting for their preferred option, they would spend any amount of money on it. This system has two benefits…

1. Everybody would see and know the actual demand for/against the proposal.
2. The city would raise money to help reduce its ridiculously huge debt.

From my perspective, the world needs a lot more trees than buildings. So I’d definitely spend my money on the “No” option.

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

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community’s utility and sacrifice against each other. — Knut Wicksell, A New Principle of Just Taxation

The Suburbanist gets credit for bringing this issue to my attention…

Carve 20 acres out of Central Park for a library? What an awful idea. Better to buy the land for housing. https://t.co/MyrXMAPb6t

— The Suburbanist (@The_Suburbanist) January 17, 2018

http://ideaplug.org/?t=Chicago_feedback

NPR

My letter to NPR

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

I just read "Readers Rankled By 'Democracy In Chains' Review" by Elizabeth Jensen.  It made me laugh.  Yes, it's progress to at least publicly consider and address the issue of whether a historian, rather than a novelist, should have reviewed Nancy MacLean's book.  But the fact of the matter is that the subject of the book is a Nobel economist's evaluation of democracy.  How can a historian possibly be qualified to effectively judge the validity of James Buchanan's economic arguments?  Of course this is the inherent problem with MacLean's book.

Since I'm here anyways, I might as well endeavor to explain the relevant economic concepts...

"NPR has made a push in the past year to review or interview the authors of all major nonfiction books that are published, and as close to publication date as possible."

Why just the major nonfiction books?  Why not the minor ones as well?  It's because NPR's resources are limited.  So it makes sense for NPR to allocate its limited resources to the more important books.  But it's also the case that the major books aren't equally important.  So then the real issue is... how, exactly, do you determine the importance of a book?

The NY Times maintains a list of the bestselling books.  Why should we care how many people have purchased a book?  Why does it matter how many people have been willing to pay for a book?  Would it be more effective to use voting (democracy) to determine the importance of books?  Or would it be more effective to vote for the representatives who vote to determine the importance of books?

One book that has never made the NY Times' list of bestsellers is The Wealth of Nations by Adam Smith.  Does this mean that it's less important than Thomas Piketty's book, which has made the list?  The issue is that, unlike Piketty's book... Smith's book is freely available.  This means that the two books are on an extremely unlevel playing field.

In order for NPR to optimally/efficiently divide its limited resources between these two books, it's necessary to correctly determine their importance.  Here are some possibilities...

1. Direct democracy.  NPR could give the public the opportunity to vote to determine the importance of the two books.

2. Representative democracy.  NPR could give the public the opportunity to vote for the representatives who will vote to determine the importance of the two books.

3. Charitable market.  NPR could give the public the opportunity to donate to NPR and earmark their donations to determine the importance of the two books.

Which system would most correctly determine the importance of the two books, which, in turn, would most efficiently divide NPRs limited resources between them?

This is what Buchanan worked on.  Well... unfortunately his work was entirely theoretical.  He never devised any experiments to test the effectiveness of these very different allocation systems.  But it's hard to blame him for failing to stand on his own shoulders.  Especially since these fundamental issues continue to be almost entirely overlooked/ignored by most economists.

We use representative democracy to allocate around a third of our country's limited resources.  Yet, this system has never been scientifically tested.  We all assume that it works, but there's absolutely no credible evidence that it works better than the alternatives would.  Historians can certainly explain how we ended up with this system, but they definitely can't prove or justify it.  For this we need economics/experiments/science.  We really don't need a novelist reviewing a book written by a historian criticizing an economist's work on public finance.

Let's say that NPR conducted an experiment to determine the importance of Smith's book and Piketty's book.  With direct democracy... historians and novelists would certainly have no problem voting for Piketty's book.  Neither would they have a problem voting for representatives who would vote for Piketty's book.  With the charitable market though, perhaps they'd have no problem donating and earmarking $5 dollars... or perhaps $20 dollars to Piketty's book.  But with larger amounts of money, they'd have to seriously confront the limits of their economic knowledge.  Would it be worth it for them to spend so much money on a subject outside their area of expertise?  For most it wouldn't be worth it.  So the charitable market would do by far the best job of filtering out public ignorance.  Which is pretty much the same thing as minimizing virtue signalling.  The outcome/results would embody/reflect public knowledge... which would logically help to eliminate public ignorance.  It would be a virtuous cycle.  If this system expanded to include all books, then the most valuable knowledge in each field would cross-pollinate all the different fields.

NPR can, and should be, the platform that we, the people, use to help bring the most valuable knowledge to each other's attention.

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

See also:

- Evonomics
- Public Finance For Andy Seal
- Show Me The Economic Case For Democracy
- The Pragmatarian Model For The NY Times

Commerce As Communication

Check out this article by Adam Gurri... A Critical Defense of Commerce.  As usual it starts with a relevant renaissance painting.  Why the renaissance?  Out of curiosity I searched Google images for "renaissance painting market".   I like the paintings... but maybe because I love markets.

I like Gurri's defense of commerce... because I love markets?  

If we think of his article as a market, then it has quite a few products that I'd like to buy.  Unfortunately, his market is missing the one product that I'm most interested in purchasing... commerce as communication. 

Not too long ago I had an epiphany.  I realized that spending is nonverbal communication.  When we spend our money, we inform others about the intensity of our preferences.  The transmission of information is the definition of communication.  So spending is certainly communication... and it's certainly not verbal communication... which leaves... nonverbal communication.

All my life I've known about spending money... and for pretty much the same amount of time I've also known about nonverbal communication.  So why in the world did I only just recently realize that spending money is nonverbal communication?  

Talk about overlooking the obvious.  

Ok, so Gurri's defense of commerce is entirely missing commerce as communication.  This raises a few really interesting questions...  

1. Is commerce as communication an important aspect of commerce?
2. If it is, should it be used in defense of commerce?
3. If it should, what's the best way to do so?  

Before I try my best to answer these questions, I'd like to say something useful and self-aware about my dynamic with Gurri.  From my perspective, usually it's reasonably constructive.  But then it seems like he invariably takes advantage of his freedom to bravely run away... aka "exit".  So perhaps there's something a bit dysfunctional about our relationship.  Which is unfortunate because I think he's a really intelligent guy who genuinely cares about liberty and writes about it far better than I could ever hope to.

Einstein's definition of insanity is doing the same thing over and over but expecting a different outcome.  Here are most of my previous interactions with Gurri...

• The Democratic Definition Of "Love" - 13 March 2016
• Persuading Puppets Is Pointless - 15 March 2016
• Markets maximize the exchange of information by maximizing the rationality of persuasion - 17 March 2016
• The Freedom To Easily Exit From Absurd Traditions - 16 April 2016
• Adam Gurri's Defense Of Liberty - 3 August 2016
• The Most Important Test For Humans, Robots And Others - 5 August 2016

Am I insane for trying again?  Well, from my perspective, each attempt was somewhat different.  Plus, as Heraclitus observed... no man steps in the same river twice.  Gurri and I really aren't the same guys that we were in 2016!  Heh.  

In any case, it's not like this is a private e-mail to Gurri.  This is a public blog entry.  So if you are not Gurri... then it's entirely possible that you'll appreciate the value of this information and put it to good use... even if he does not.  My eggs aren't all in one basket.  

Let's get this intellectual party started...

Is commerce as communication an important aspect of commerce?

Well yeah.  Spending money is a sacrifice.  It genuinely matters just how much we're truly willing to sacrifice for things.  As I already pointed out to Gurri, willingness to sacrifice is a central theme in the Bible.

In the beginning of the Bible there’s the story of Cain and Abel. Cain sacrificed some fruit, veggies and grains to God. Abel, on the other hand, sacrificed a lamb to God. Abel was willing to make a bigger sacrifice. From this God divined that Abel felt much deeper gratitude for God’s blessings than Cain did.

A little later on in the Bible, Abraham was willing to sacrifice his only son Isaac to God.  Abraham was willing to make a huge sacrifice.  His willingness to pay (WTP) such a steep price effectively transmitted information about the incredible intensity of his preference for God.  

In the new testament we see the culmination of the idea of sacrifice as communication when God sacrifices his only son in order to save the world.  His WTP effectively transmitted information about the incredible intensity of preference... aka "Love"... for the world.  

Imagine if we replaced the economic definition of "Love" (sacrifice) with the democratic definition of "Love" (voting)... "For God so loved the world that he voted for it..."  This would transmit barely any information about the intensity of God's preference for the world.  We'd be largely ignorant about God's true love for the world.  

For anybody who is interested in a coherent Biblical story... things are a bit tricky.  For sure, we really aren’t mind-readers. However, King Solomon believed that God was a mind-reader… “for thou, even thou only, knowest the hearts of all the children of men.” Clearly this would make sacrifice an entirely unnecessary way for humans to communicate with God.  

The Judeo-Christian religion doesn't have a monopoly on sacrifice as communication between God and man.  Here's a passage from John Holbo's book Reason and Persuasion...

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

Socrates: You could have been much more concise, Euthyphro, if you wanted to, by answering the main part of my question.  You're not exactly dying to teach me - that much is clear.  You were just on the point of doing so, but you turned aside.  If you had given the answer, I would already be well versed in holiness, thanks to you.  But as it is, the lover of inquiry must chase after his beloved, wherever he may lead him.  Once more then: what do you say that the holy is, or holiness?  Don't you say it's a kind of science of sacrifice and prayer?

Euthyphro: I do.

Socrates: To sacrifice is to give a gift to the gods; to pray is to ask them for something?

Euthyphro:  Definitely, Socrates.

Socrates: Then holiness must be a science of begging from the gods and giving to them, on this account.

Euthyphro: You have grasped my meaning perfectly, Socrates.

Socrates: That is because I want so badly to take in your wisdom that I concentrate my whole intellect upon it, lest a word of yours fall to the ground.  But tell me, what is this service to the gods?  You say it is to beg from them and give to them?

Euthyphro: I do

Socrates: And to ask correctly would be to ask them to give us the things we need?

Euthyphro: What else?

Socrates: And to give correctly is to give them in return what they need from us?  For it would hardly represent skill in giving to offer a gift that is not needed in the least.

Euthyphro: True, Socrates

Socrates: Holiness will then be a sort of art for bartering between gods and men?

Euthyphro: Bartering, yes - if you prefer to call it that.

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

We know what we need.  But it's essential that others also know what we need.

It is these needs which are essentially deficits in the organism, empty holes, so to speak, which must be filled up for health’s sake, and furthermore must be filled from without by human beings other than the subject, that I shall call deficits or deficiency needs for purposes of this exposition and to set them in contrast to another and very different kind of motivation. — Abraham Maslow, Toward a Psychology of Being

'Let our herds be so numerous that they cannot be housed; let children so abound that the care of them shall overcome their parents - as shall be seen by their burned hands; let our heads ever strike against brass pots innumerable hanging from our roofs; let the rats form their nests of shreds of scarlet cloth and silk; let all the kites in the country be seen in the trees of our village, from beasts being killed there every day.' - Edward Burnett Tylor, Primitive culture

Words can clearly be used to transmit information about our needs.  However, the problem with words is that they are cheap.  If we want others to truly believe that our needs are genuinely worth taking care of then it's necessary that we substantiate our words with sacrifice.  Sacrifice is solid evidence... it proves that our desire has depth...   

"Old-women's Grandson," ran the words of a Crow Indian's prayer to the Morning Star, "I give you this joint [of my finger], give me something good in exchange...I am poor, give me a good horse. I want to strike one of the enemy and I want to marry a good-natured woman. I want a tent of my own to live." "During the period of my visits to the Crow (1907-1916)," wrote Professor Lowie, to whom we owe the recording of this pitiful prayer, "I saw few old men with left hands intact." - Joseph Campbell, Primitive Mythology

In all cases, if you're going to make a sacrifice to a God, it's entirely reasonable to expect a blessing of greater value in return.  A sacrifice with a less valuable return is a bad deal.  A sacrifice without any return is a total waste.  

Let's switch from considering trade between humans and Gods to considering trade between humans. 

By far the most important depiction of commerce as communication is Adam Smith's Invisible Hand (IH).  Unfortunately most people really think that the IH is simply about the benefits of being selfish.   They are incredibly wrong...

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

In a nutshell, the IH is the decentralized process by which people use their own money to identify, quantify and encourage beneficial behavior.  Because again, nobody is a mind-reader.  Society's limited resources can't be efficiently allocated if we don't know the true intensity of people's specific preferences.  

Fast forward to 1944...

The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. - Ludwig von Mises, Omnipotent Government

In 1945 Friedrich Hayek's essay The Use of Knowledge in Society was published...

We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.

In 1954 Paul Samuelson's paper The Pure Theory of Public Expenditure was published...

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.

Accurate signals are just as important for public goods as they are for private goods.  But because of the very nature of public goods, it's possible to benefit from them without paying for them.  The standard solution to the free-rider problem is compulsory taxation.  However, simply forcing people to pay taxes does not create accurate signals for public goods.  

In 1963 James Buchanan had the incredible epiphany that people could use their taxes to honestly communicate the true intensity of their preferences for public goods...

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his "true" preferences for public goods. - James M. Buchanan, The Economics of Earmarked Taxes

If you subscribe to Netflix anyways, then you might as well use your fees to accurately communicate the true intensity of your preference for nature documentaries.  Except, Netflix subscribers obviously don't have the freedom to use their fees to communicate the intensity of their preferences for specific content.  The same is true of people who "subscribe" to the government... aka "taxpayers".  Why don't subscribers have this freedom?

In 1981 Murray Rothbard's essay The Myth of Neutral Taxation was published...

The charity serves the purposes of the donors, and these purposes are in turn to help the poor. But it is the donors who are consuming, the donors who are demonstrating their preference for sacrificing a lesser benefit (the use of their money elsewhere) for a greater (giving money to the charity to help the poor). It is the donors whose production decisions guide the actions of the charity.

Donors use their donations to inform the decisions of non-profits.

Rothbard failed to appreciate that taxpayers could use their taxes to inform the decisions of government.  Evidently he overlooked Buchanan's 1963 paper.  If Buchanan's insight had been applied to academic papers, then subscribers would have used their fees to communicate the importance of specific papers, and logically they would have been willing to sacrifice a considerable amount of fees to Buchanan's paper.  Then it would have been very unlikely that Rothbard and others would have overlooked Buchanan's valuable paper.

Humans (and their Gods) really aren't the only ones who use sacrifice to communicate the intensity of their preferences...

Today’s Mandeville is the renowned biologist Thomas D. Seeley, who was part of a team which discovered that colonies of honey bees look for new pollen sources to harvest by sending out scouts who search for the most attractive places. When the scouts return to the hive, they perform complicated dances in front of their comrades. The duration and intensity of these dances vary: bees who have found more attractive sources of pollen dance longer and more excitedly to signal the value of their location. The other bees will fly to the locations that are signified as most attractive and then return and do their own dances if they concur. Eventually a consensus is reached, and the colony concentrates on the new food source. — Rory Sutherland and Glen Weyl, Humans are doing democracy wrong. Bees are doing it right

Obviously bees can’t spend money… but they can spend something that’s precious to them… their calories. So WTP is just as relevant for bees as it is for humans.

What about ants?

In Experiment 1 colonies distributed a greater proportion of their foragers towards the higher quality resource. This behaviour supports work by Sumpter and Beekman (2003) on M. pharaonis and is typical of this mass-recruiting species (Jackson et al. 2004; Jackson and Châline 2007; Evison et al. 2012b). The stronger allocation of workers to higher quality feeders is most likely due to a greater pheromone trail laying intensity by ants coming from these feeders (Jackson and Châline 2007) leading to faster exploitation of the higher quality food source via positive feedback influencing the decision by nestmates to lay pheromone trail (Sumpter and Beekman 2003; von Thienen et al. 2014). A greater disparity in quality should create greater disparity in foraging effort between two food sources, a simple behaviour that is integral to colony survival (Stroeymeyt et al. 2010), and this is indeed what we found (Fig. 2). — R. I’Anson Price, C. Grüter, W. O. H Hughes, S. E. F. Evison, Symmetry breaking in mass-recruiting ants: extent of foraging biases depends on resource quality

It takes precious calories to produce pheromones… so an ant’s willingness to spend their pheromones is the equivalent of a human’s willingness to spend their money.

Is it a coincidence that WTP is integral to ants, bees, humans and Gods?

With numerous widely dispersed and incredibly diverse individuals in complex and changing environments… commerce as communication is necessary to help minimize the chances that valuable things will be overlooked.

From ants to bees to Gods to Socrates to Abraham to Smith to Mises to Hayek to Samuelson to Buchanan to Rothbard... it should be abundantly clear that commerce as communication is an incredibly important aspect of commerce.

Should commerce as communication be used in defense of commerce?

Well yeah.  I don't think it's truly possible for people to fully understand and appreciate the incredible necessity and benefit of commerce if they don't clearly see it as communication.   

What's the best way to use commerce as communication in defense of commerce?

The best way to use commerce as communication in defense of commerce is to use commerce to bring commerce as communication to everybody's attention.

It will be pretty easy to bring this blog entry to Gurri's attention.  I'll simply go on Twitter, create a tweet with a link to this entry and mention Gurri in the tweet.  Voila!  He'll receive a notification and see my tweet.  Maybe he'll say to himself, "Oh no, not this guy again!" and ignore the link.  But if he does click on the link then he'll see this blog entry.

Perhaps he'll appreciate that I sacrificed a decent amount of time to create this entry.  However, this really won't adequately inform him of the true intensity of my preference for commerce as communication.

And yeah, I could definitely paypal Gurri $100 dollars.  Sacrificing $100 dollars would better inform him of my love for commerce as communication.  But would it better inform others?  Well...I could publicly announce my sacrifice to Gurri.  However, there is a better way.

Gurri has a brand new website... LiberalCurrents (LC).  It's so shiny and pretty.  Most importantly, it has that new website smell.  I know for a fact that Gurri loves the smell of new websites because creating new websites is his favorite thing.

On the LC homepage you'll see renaissance paintings and links to articles on the website.  But you know what I'd really love to see on the LC homepage?  I'd love to see a link to this blog entry!  I'd also love to see a link to Smith's Wealth of Nations and a link to Hayek's Use of Knowledge in Society and a link to Buchanan's Economics of Earmarked Taxes and and and... it's actually a pretty long list.

I created a Google sheet with a preliminary list and wrote some code to embed it on this page.  Gurri could easily embed the code for this list into LC's homepage or into some other prominent page.

The most important question is... how should the list be ordered???   The list of links should be ordered by their value.  In order to determine their value we can make donations to LC and use our donations to communicate the intensity of our preferences for specific links.  We'd be using commerce as communication in order to bring commerce as communication to everybody's attention. 

Also, we'd be helping to minimize the chances that people interested in liberty will overlook valuable information.  So it will be just like our very own Twitter... if the founder of Twitter hadn't overlooked Smith's Wealth Of Nations and Buchanan's Economics Of Earmarked Taxes.

We'll prioritize how we spend our limited money in order to help each other prioritize how we spend our limited time.

It might seem like information overload is a relatively new phenomenon.  But there's always been far more information than time to process it all.  It's only natural that our attention is drawn to the sacrifices that other people are willing to make.  In this regard, it definitely makes sense that the Bible managed to capture so many people's attention.

If we want to direct people's attention to commerce as communication... then we gotta make some sacrifices.  We can make donations to the LC and use our donations to determine the order of liberty links.

There are certainly a few logistical issues... such as... how does Gurri valuate links?  Clearly he can't simply take money out of his pocket and put it right back in!  So he'd have to figure out who to donate money to in order to communicate the intensity of his preferences for specific links.

As far as precedent is concerned... it shouldn't come as a surprise that it's pretty meager.

Based on my suggestion, a few months back my friend gave her 4th grade students the opportunity to use their donations to reveal the intensity of their preferences for their favorite books.

More recently, donors to the Libertarian Party were given the opportunity to use their donations to reveal the intensity of their preferences for their favorite potential themes.

In both cases the lists were ordered by the IH.  However, in the first case the IH was a lot smaller.

In the private sector, the IH determines the order of countless things... from frivolous things (ie gummy bears) to serious things (ie computers).  So it really shouldn't be necessary to make the case for using the IH to order a list of liberty links.  Then again, as far as I know, there are only two lists in the world that are ordered by the IH!  Therefore, commerce is certainly in need of a really strong defense.

It would be an incredibly powerful defense of commerce if Gurri used the LiberalCurrents website to allow the IH to order a list of liberty links.  Plus, the name of the website is certainly appropriate!  We'd all guide, and be guided by, the constantly changing currents of liberalism.

Yes, change is the basic law of nature. But the changes wrought by the passage of time affects individuals and institutions in different ways. According to Darwin’s Origin of Species, it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself. Applying this theoretical concept to us as individuals, we can state that the civilization that is able to survive is the one that is able to adapt to the changing physical, social, political, moral, and spiritual environment in which it finds itself. — Leon C. Megginson

Correctly and rapidly adjusting/adapting to constantly changing circumstances/conditions depends on accurate and efficient communication.  This is why commerce as communication is so incredibly important.

Pestering David Friedman

My comment on David Friedman's blog entry... A Scrap of Libertarian History

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

Rothbard sure did commit a few errors. But he and Buchanan were some of the precious few people who truly appreciated that the fundamental problem with government is the massive scarcity of individual valuation. However, unlike Buchanan, for some reason Rothbard never publicly considered the possibility of taxpayers simply directly allocating their taxes. I know there were quite a few rather fruitless exchanges between Buchanan and Samuelson... but I haven't run across any exchanges between Buchanan and Rothbard. Did you have any exchanges with Buchanan?

Ayn Rand simply refused to examine the anarcho-capitalist position? Hah. Ain't that the worst!? I know of one awesome and prominent anarcho-capitalist, not going to mention any names (because it's a really short list), who simply refuses to allocate more than three sentences to the pragmatarian position! So I can certainly empathize. :D But to his immense credit, so far he's been super tolerant of my occasional pestering. :)

Have you seen this fundraising page on the LP website? There's a list of possible themes for the 2018 convention. Donors can "dollar vote" for their favorite themes. Now we can all see that the demand for "Taxation Is Theft" is relatively insignificant. Oh man, if only Rothbard was alive to see that! Last time I checked the most valuable theme is, "I'm That Libertarian". I had no idea what it meant. Given that it was the most valuable theme I decided to google for it. I found a Youtube video of some guy giving a pretty impassioned libertarian speech. It was a little awkward, as is usually the case with libertarians, but I gotta admit that it was somewhat inspiring.

What's super cool, and loads ironic, about the Libertarian Party's fundraising system... is that it's a pragmatarian system! Well... to give credit where it's due... it's Buchanan's system. Since donors are giving their money to the LP anyways, they have absolutely no incentive to conceal their true preference for the themes. Sure, the donations are voluntary rather than compulsory... so in this regard there is still the free-rider problem. Perhaps if all libertarians were required to make a minimum donation to their preferred theme, we'd super ironically discover that the "Taxation Is Theft" theme is far more relatively valuable. Nevertheless the LP's fundraiser quite nicely demonstrates the idea of using a payment to reveal/communicate the intensity of more specific preferences.

Last night I e-mailed Wes Benedict and asked if he was interested in being BFFs. In my e-mail I told him that it would be ultra awesome if he did the same thing with books! Which pro-market/freedom book is the most valuable?! Oh God I'd love to know! I'd love to be able to see the true value of things! Dear God in heaven please cure my blindness!!!

Oh, wow, Benedict seriously just replied to my e-mail. I'm honestly very pleasantly surprised that he did so! Hmmm... he didn't accept or reject my BFF offer. Seems like he's playing it safe. :)

Bryan Caplan VS Voting Alternatives

I finally got around to reading this blog entry by Bryan Caplan... Why I Don't Vote: The Honest Truth.  To be equally honest, I don't vote either.

Here's what Caplan wrote in his entry...

My honest answer begins with extreme disgust.  When I look at voters, I see human beings at their hysterical, innumerate worst.  

Here's what I wrote in my previous entry...

Everybody perceives that they see society.  But this perception is wrong.  We don't actually see society.  What we actually see is a reflection of society. All we can ever see is a reflection of society. This is because all we can ever know about what's really inside people depends entirely on what they choose to reveal.  People's projections create society's reflection.

There are two main methods for people to reveal/communicate/project their preferences...

1. stated preference = voting, surveys, polls, Facebook "Likes"
2. demonstrated preference = willingness to pay/spend/sacrifice

Do both these methods create an equally accurate reflection of society?  Of course not.  As Nassim Taleb would say... voting doesn't have skin in the game...

Ralph Nader had a heuristic for war. He said that if you are going to vote for war, you should have a member of your family--a descendant, a son or grandson--on the draft. And then you can vote for war. - Nassim Taleb, Skin In The Game

As Alex Tabarrok would say... voting doesn't have a tax on bullshit...

Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief. A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge. - Alex Tabarrok, A Bet is a Tax on Bullshit

Anybody who knows anything about Bryan Caplan knows that he's willing to put his money where his mouth is.  This is how Caplan works.  This is really not how voting works.

Voting doesn't require skin in the game.  Voting doesn't have a tax on bullshit.  This means that the reflection that voting creates of society is bullshit.  Again, with emphasis.... the reflection that voting creates of society is bullshit.

Yet...

My honest answer begins with extreme disgust.  When I look at voters, I see human beings at their hysterical, innumerate worst.  

Don't you get the sense that Caplan is judging humanity by its opinions?  Doesn't it sure sound like he's judging the book by its cover?

Here's another economist doing the same thing...

Is it possible to make progress towards this inclusive state in the United States at the moment? I would’ve said yes 15 years ago, 10 years ago, 5 years ago, but today I do feel more pessimistic than ever about the United States and about the world. Of course, I’m not surprised that there is a huge amount of discontent among some segments of the voting public, and some of this is entangled with fear from and hatred against immigrants and minorities. But the extent of this hatred has been a shock to me. - Daron Acemoglu, Stop Crying About the Size of Government. Start Caring About Who Controls It.

And another economist who did the same thing...


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

Historians are mistaken in explaining the rise of Nazism by referring to real or imaginary adversities and hardships of the German people. What made the Germans support almost unanimously the twenty-five points of the "unalterable" Hitler program was not some conditions which they deemed unsatisfactory, but their expectation that the execution of this program would remove their complaints and render them happier. They turned to Nazism because they lacked common sense and intelligence. They were not judicious enough to recognize in time the disasters that Nazism was bound to bring upon them.

The immense majority of the world's population is extremely poor when compared with the average standard of living of the capitalist nations. But this poverty does not explain their propensity to adopt the communist program. They are anti-capitalistic because they are blinded by envy, ignorant, and too dull to appreciate correctly the causes of their distress. There is but one means to improve their material conditions, namely, to convince them that only capitalism can render them more prosperous.  - Ludwig von Mises

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

To argue that the Holocaust and WWII accurately reflected the German society is to pretend or assume that voting creates an accurate reflection of society.  Nothing could be further from the truth...

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, Democracy and Decision

Mises didn't know better.  Daron Acemoglu doesn't know better.  Bryan Caplan doesn't know better?  That's not true.  Of course Caplan knows better.  Yet, I sure do get the sense that he somehow kinda forgets that the reflection of society that voting creates is bullshit.

We really shouldn't judge society by its bullshit reflection.

So that was one issue that I had with Caplan's entry.  Another issue that I had with his entry was that there was something super strangely absent...  a viable alternative to voting.  Are there any viable alternatives?

Today’s Mandeville is the renowned biologist Thomas D. Seeley, who was part of a team which discovered that colonies of honey bees look for new pollen sources to harvest by sending out scouts who search for the most attractive places. When the scouts return to the hive, they perform complicated dances in front of their comrades. The duration and intensity of these dances vary: bees who have found more attractive sources of pollen dance longer and more excitedly to signal the value of their location. The other bees will fly to the locations that are signified as most attractive and then return and do their own dances if they concur. Eventually a consensus is reached, and the colony concentrates on the new food source.  - Rory Sutherland and Glen Weyl, Humans are doing democracy wrong. Bees are doing it right

Is quadratic voting a viable alternative to regular voting?  A quick google search did not provide Caplan's answer to this really good question.  On the other hand, a quick google search does provide Cowen's answer to this really good question.   Is Caplan's answer the same as Cowen's?  I'd sure like to know.

Personally, I definitely think that quadratic voting is a lot better than regular voting.  With quadratic voting at least there's some skin in the game.  At least there's some tax on bullshit.  At least there's some reflection/communication/projection of preference intensity.  But I'd really love to hear Glen Weyl explain why he thinks that it's better than straight buying and selling votes.  I'd also love to hear him explain whether he thinks that quadratic voting is better than coasianism.

Is coasianism a viable alternative to voting?  Coasianism would replace voting with spending.  Participants would have a certain amount of time to spend as much money as they wanted on their preferred option.  Whichever option received the most money would be the most valuable option.  The "losing" side would get their money back.  Plus, they would get all the money spent by the "winning" side.  So coasianism is actually a win-win situation.  Participants would either get their preferred option... or they would get something that they value even more.  In order to prevent perverse participation... the "market" would be blind.  The totals would only be revealed after the "market" closed.  Would there still be speculators?  If so, then they would quickly learn a fundamentally important lesson the hard way...

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other. - Knut Wicksell, A New Principle of Just Taxation

As far as I know, coasianism is a recent invention.  So it makes sense that Caplan hasn't already analyzed it.  But will he analyze it now?  Will he compare coasianism to quadratic voting?  Will he compare them both to vote buying/selling?  Will he compare all three of them to regular voting?

Caplan has lots of kids.... I don't have any kids.  So he can correct me if I'm wrong... but if little kids are playing with something that they shouldn't be playing with... generally the best strategy isn't to directly take the item away from them.  The best strategy is to offer them a better item.  Perhaps in some cases this isn't the best strategy.  Like if they are playing with a loaded gun.

Sure it's really reasonable to see see democracy as a loaded gun... but none of us who might perceive it as such are in a position to take it away from citizens.  And even if we were in such a position... would we really want to take advantage of our authority?

Watch "Milton Friedman on Libertarianism (Part 4 of 4)". The interviewer starts to ask him a hypothetical..."if you were dictator for a day" question and Friedman quickly interrupts him and says with great emphasis, "If we can't persuade the public that it's desirable to do these things, then we have no right to impose them even if we had the power to do it!"  Here's the extended version.

Part of the beauty of the free-market is that entrepreneurs, at least in theory, don't have the authority to directly take products away from citizens.  Entrepreneurs have no choice but to provide consumers with better products.  And it's entirely up to consumers to decide for themselves whether the new products are truly better than the old products.  In the multitude of consumers there is safety.

Liberals really don't see the beauty of builderism.  They see that working in a sweatshop is a terrible option but they really do not risk their own resources in order to provide the workers with better options.  Instead they endeavor to get sweatshops shut down.  They also vote for higher minimum wages, stricter regulations and more benefits for workers.  Liberals shoot workers in the feet by skyrocketing the barriers to entry... which makes it far less likely that entrepreneurs will provide workers and consumers with genuinely better options.

Some liberals are somewhat exceptional...

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? - Margaret Flowers

What's voting?  Voting is an idea.  All ideas are products.  So voting is a product.  And Caplan, probably more than anyone, knows and understands exactly what's wrong with this product.  He knows exactly where there's room for improvement.  And fortunately, in this case, nothing really prevents him from selling/creating a better product.  Ideas don't have artificial barriers to entry.  As far as voting is concerned, nothing technically prevents Caplan from engaging in builderism...

1. explaining why voting is bullshit
2. offering a better alternative

Hmmm... and I suppose that there is a decent amount of division of labor involved.  Specialization does increase productivity.  To use a volleyball analogy... one person sets the ball and another person spikes it.  Caplan sure has done a really wonderful job of setting the ball.  So isn't it unreasonable to expect him to spike it as well?

I don't think that I would have been able to invent coasianism without Coase or Caplan.  But it certainly can't be the case that I can spike the ball on my own.  Replacing voting with a better product will require a multitude of spikers.

In theory, Caplan should be especially interested in products that might be better than voting.  So it seems pretty logical that he would make the effort to review the alternatives to voting and use his considerable energy and expertise to help spike the best ones.

When it comes to Caplan and any given voting alternative... here are four courses of action...

1. He can explain why it's a good alternative
2. He can explain why it's a bad alternative
3. He can ask for explanations
4. He can ignore the alternative

Which course of action is the least beneficial?

Let's say that, thanks in no small part to Caplan, we do manage to creatively destroy voting.  As a result, society's reflection will be a lot less bullshit.  Will Caplan be happy with what he sees?  I'm guessing that he'll be happier... but it's doubtful that he'll be perfectly happy.  It's very likely that he'll spot some flaws.  But at least the flaws will be real.  So if he barks up a tree, the cat that he sees in the tree won't be a mirage cat.  What happens when Caplan and 300 million other citizens are far less likely to bark up the wrong trees?  Progress.  A lot more progress in a lot less time.

I'll finish by sharing some ideas about ideas....


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


It is ideas that determine social trends that create or destroy social systems. Therefore, the right ideas, the right philosophy, should be advocated and spread. - Ayn Rand, Playboy Interview

***

It turns out that most of our country is empty for a very good reason: people derive great value from concentrating together in urban areas. First, proximity reduces transportation costs, so producers benefit from being close to their suppliers and customers.  Second, more people living in one place means deeper and more diverse markets for both products and labor. With a large enough urban population, niche markets that appeal to only a small fraction of consumers become profitable to serve. Employers have a better pool of potential workers to draw from, while workers have greater choice in prospective employers.  And third, people living and working close to one another can take advantage of “information spillovers”: cities expand opportunities for exchanging ideas and information, thereby facilitating both innovation and the accumulation of human capital. - Brink Lindsey, Low-Hanging Fruit Guarded By Dragons

***

Here is another critical point. Rarely does a new idea come into existence and cause just one change. Every change creates a new and different situation, potentially creating further opportunities to be taken advantage of by other alert and insightful individuals. In an open competitive system, there is no reason why the process of discovery and adaptation should ever come to an end state in which new insights can no longer be made and change is no longer possible. - David Glasner, In Praise of Israel Kirzner

***

This process by which the new emerges is best understood in the intellectual sphere when the results are new ideas. It is the field in which most of us are aware at least of some of the individual steps of the process, where we necessarily know what is happening and thus generally recognize the necessity of freedom. Most scientists realize that we cannot plan the advance of knowledge, that in the voyage into the unknown — which is what research is— we are in great measure dependent on the vagaries of individual genius and of circumstance, and that scientific advance, like a new idea that will spring up in a single mind, will be the result of a combination of conceptions, habits, and circumstances brought to one person by society, the result as much of lucky accidents as of systematic effort. - Friedrich Hayek, The Case For Freedom

***

The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote. Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this had rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost. The intellectual revival of liberalism is already underway in many parts of the world. Will it be in time? - Friedrich Hayek, The Intellectuals and Socialism

***

Orthodoxy of any kind, any pretense that a system of ideas is final and must be unquestioningly accepted as a whole, is the one view which of necessity antagonizes all intellectuals, whatever their views on particular issues. Any system which judges men by the completeness of their conformity to a fixed set of opinions, by their "soundness" or the extent to which they can be relied upon to hold approved views on all points, deprives itself of a support without which no set of ideas can maintain its influence in modern society. The ability to criticize accepted views, to explore new vistas and to experience with new conceptions, provides the atmosphere without which the intellectual cannot breathe. A cause which offers no scope for these traits can have no support from him and is thereby doomed in any society which, like ours, rests on his services. - Friedrich Hayek, The Intellectuals and Socialism

***

These intellectuals are the organs which modern society has developed for spreading knowledge and ideas, and it is their convictions and opinions which operate as the sieve through which all new conceptions must pass before they can reach the masses. - Friedrich Hayek, The Intellectuals and Socialism

***

I have already referred to the differences between conservatism and liberalism in the purely intellectual field, but I must return to them because the characteristic conservative attitude here not only is a serious weakness of conservatism but tends to harm any cause which allies itself with it. Conservatives feel instinctively that it is new ideas more than anything else that cause change. But, from its point of view rightly, conservatism fears new ideas because it has no distinctive principles of its own to oppose them; and, by its distrust of theory and its lack of imagination concerning anything except that which experience has already proved, it deprives itself of the weapons needed in the struggle of ideas. Unlike liberalism, with its fundamental belief in the long-range power of ideas, conservatism is bound by the stock of ideas inherited at a given time. And since it does not really believe in the power of argument, its last resort is generally a claim to superior wisdom, based on some self-arrogated superior quality. - Friedrich Hayek, The Constitution of Liberty

***

Every act of competitive entry is an entrepreneurial act; every entrepreneurial action is necessarily competitive (in the dynamic sense of the word). To compete is to act (or to be in a position to act) to offer buyers a more attractive deal, or to offer sellers a more attractive deal, than others are offering. To do so it is necessary to discover situations where incumbent market participants are offering less than the best possible deals, and to move to grasp the profits made possible by filling the gap so created by the incumbents. Such activity is strictly entrepreneurial. To act entrepreneurially is to enter a market with a new idea, with a better product, with a more attractive price, or with a new technique of production. Any such act necessarily competes with others. - Israel Kirzner, How Markets Work

***

But unfamiliarity is a disadvantage which, when there is any real value to an idea, it only requires time to remove.  And in these days of discussion, and generally awakened interest in improvement, what formerly was the work of centuries, often requires only years. - J.S. Mill, Representative Government

***

But I want to draw your attention to something more, to an aspect that allowed Professor Hayek to endure the lonely years, an aspect that may too readily be overlooked. Hayek’s position was made more tolerable by a few sources of external financial support, a few scattered persons with access to funds who recognized the value and importance of ideas. Hayek was given such support for his research, for The Constitution of Liberty, and for the beginnings of Law, Legislation and Liberty. He was supported indirectly, but importantly, via support of the Mt. Pelerin Society, the international society of market-oriented scholars and leaders, a society that was created and maintained almost single-handedly by Hayek. He was supported by lecture invitations to such as the old Volker Fund conferences, where he could try out his ideas, and where so many of my own generation first came to know both the man and these ideas. I cannot list all of those who supported Hayek in those lean years; I do not know who they were. I only know that they were an extremely small group of men and foundations, and I also know that the Realm-Earhart Foundations were almost unique in sticking to Hayek through the very worst of times.

I think we should draw some lessons from this experience. We should, I think, appreciate that ideas matter, and that financial support for the generation of ideas matters. Those who supported Professor Hayek in the lonely years were courageous in their expressions of confidence in the man and the ideas he represented. They were not demanding of him some immediate relevance to then-topical issues of policy; they were not demanding of him that he try to communicate his ideas to mass audiences; they were not demanding of him that he produce fancy numbers to test self-evident hypotheses. - James Buchanan, Notes on Hayek

***

Fourth, while I don’t see much, if any, benefit in engaging with actually existing conservatism, that doesn’t mean that we should ignore conservative, and libertarian, ideas. You don’t have to be an unqualified admirer of writers like Burke, Popper or Hayek to concede that they made valid criticisms of the progressive ideas of their day, and to seek a better way forward. Some examples of the kind of thing I have in mind

Popper’s critique of historicism. After thirty years in which teleological claims of inevitable triumph have been the stock in trade of Fukuyama and his epigones, the left should surely have been cured of such ideas, but their centrality is evident in the very use of terms like “progressive”. It’s important to recognise that beneficial change is not an automatic outcome of “progress”

Burke and his successors on the need for beneficial reform to be “organic”, in the sense that it reflects the actual historical evolution of particular societies, rather than being based on universal truths that are applicable in all times and places

Hayek on the impossibility of comprehensive planning. No planner can possess all relevant information or account for all possible contingencies. We need institutions that respond to local information and that are robust enough to cope with unconsidered possibilities. In some circumstances, but certainly not all, markets fit the bill. - John Quiggin, After the dead horses

***

In a totalitarian State or in a field already made into a State monopoly, those dissatisfied with the institutions that they find can seek a remedy only by seeking to change the Government of the country. In a free society and a free field they have a different remedy; discontented individuals with new ideas can make a new institution to meet their needs. The field is open to experiment and success or failure; secession is the midwife of invention. - Lord Beveridge, Voluntary Action

***

This is a reminder that one of my least-favorite sayings about politics is the idea that democracy is the worst form of government except for the alternatives. Not that I favor dictatorship, but this often seems to me to reflect a failure of imagination. There are lots of non-authoritarian modes of governance, including selecting people by lottery (like we do for juries), plebiscites, direct citizen input (as in this tax choice concept), along with different balances between elected officials, appointees, and civil servants. It’s important to actually think about the flaws in our current approach and whether better ideas exist. - Matthew Yglesias, Giving Taxpayers Choice Could Boost Satisfaction With Big Government And Boost Social Spending

***

I was writing a simple teaching post, on ideas and increasing returns to scale, in micro and macro. I wrote down "Ideas are non-rival". Then I thought I had better explain what I meant by that. Then I thought about professors, who do research (thinking up new ideas), and teaching (communicating existing ideas to other people). Then I thought about how some professors like research but don't like teaching. Then I thought about this post.

Sure, two people can use the same idea (ideas are non-rival), but can't eat the same apple (apples are rival). But the second person can't use that idea unless the first person communicates that idea to the second person. The first has to teach it, and the second has to learn it, and teaching and learning are (sometimes) costly. The cost of communicating the idea to the second person might even be greater than the cost of the first person coming up with the new idea in the first place.  Sometimes it might be cheaper to reinvent the wheel than walk to the library. - Nick Rowe, Are ideas really non-rival?

What Is Alex Tabarrok’s Biggest Mistake?

Alex Tabarrok is my favorite living economist.  Here's his most recent blog entry... What Was Gary Becker’s Biggest Mistake?

Becker's biggest mistake was incoherent economics.  It's also Tabarrok's biggest mistake.

In his entry, Tabarrok wrote that he favors "more police on the street to make punishment more quick, clear, and consistent."

Let's consult my favorite recently-dead economist...

A nation cannot survive with political institutions that do not face up squarely to the essential fact of scarcity: It is simply impossible to promise more to one person without reducing that which is promised to others. And it is not possible to increase consumption today, at least without an increase in saving, without having less consumption tomorrow. Scarcity is indeed a fact of life, and political institutions that do not confront this fact threaten the existence of a prosperous and free society. - James Buchanan, Richard Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes 

More guns, less butter.  More cops, less coaches.  A coach is the opportunity cost of a cop... and vice versa.  What is the optimal ratio of cops and coaches?

Let's consult my favorite long-dead economist...

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

The optimal proportion depends on people's priorities.  How do we know people's priorities?  By how they spend their money.

Three facts...

1. Nobody's omniscient
2. The optimal proportion depends on people's priorities
3. People's priorities are revealed/communicated by their spending decisions

Getting back to Buchanan...

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his "true" preferences for public goods. - James Buchanan, The Economics of Earmarked Taxes

Buchanan appreciated that clarifying demand is just as important for public goods as it is for private goods.  Buchanan stood on Adam Smith's shoulders.  Is Tabarrok standing on Buchanan's shoulders?

We know that Tabarrok believes that it would be beneficial if there were more police.  We also know that he believes that it would be beneficial if there was more asteroid defense...

I am also a contributor to an Indiegogo campaign to develop a planetary defense system–yes, seriously! I don’t expect the campaign to succeed because, as our principles of economics textbook explains, too many people will try to free ride. But perhaps the campaign will generate some needed attention. In the meantime, check out this video on public goods and asteroid defense from our MRU course (as always the videos are free for anyone to use in the classroom.) - Alex Tabarrok, Planetary Defense is a Public Good

What we don't know is whether more police or more asteroid defense is a bigger priority for Tabarrok.  Why don't we know this?  It's because 1. we aren't omniscient and 2. Tabarrok does not have the freedom to use his tax dollars to tell us what his true priorities are.  Information is asymmetrical.  I kinda get the impression that Tabarrok would prefer more information symmetry...

Still, the passing of many information asymmetries will lead easier trade, higher productivity, and better matches of people to jobs and to each other. - Alex Tabarrok, Tyler Cowen, The End of Asymmetric Information

But does Tabarrok want the freedom to shop in the public sector?  I don't know!  He certainly didn't mention it in that article... or any other.

Tabarrok kinda recognizes that demand opacity is a problem...

Voting and other democratic procedures can help to produce information about the demand for public goods, but these processes are unlikely to work as well at providing the optimal amounts of public goods as do markets at providing the optimal amounts of private goods.  Thus, we have more confidence that the optimal amount of toothpaste is purchased every year ($2.3 billion worth in recent years) than the optimal amount of defense spending ($549 billion) or the optimal amount of asteroid deflection (close to $0).  In some cases, we could get too much of the public good with many people being forced riders and in other cases we could get too little of the public good. - Tyler Cowen, Alex Tabarrok, Modern Principles of Economics

Why do markets provide the optimal amounts of private goods?

Many more people need a kidney than there are kidneys available for transplant. Economists such as Gary Becker (and I) have argued that the quantity supplied would increase if we lifted the ban on paying for organs. - Alex Tabarrok,  Matchmaker, Make Me a Market

If people had the freedom to pay for kidneys then we would know the demand for kidneys.  Knowing the demand for kidneys would facilitate more informed decisions.  Correctly deciding whether to keep or sell an item depends entirely on knowing its true market value.  Supply optimality depends entirely on demand clarity.

Tabarrok, more than most, appreciates the importance of clarifying the demand for public goods...

The free rider problem is a challenge to the market provision of public goods. In my paper on dominant assurance contracts I use game theory to show how some public goods can be produced by markets using a special contract.  In an assurance contract, people pledge to fund a public good if and only if enough others pledge to fund the public good. Assurance contracts were not well-known when I began to write on this topic but have now become common due to organizations like Groupon and Kickstarter, which work on this principle (indeed, I have been credited with the ideas behind Groupon, although sadly for my bank account, I don’t think that claim would stand in a court of law). Since no money is paid unless the total pledges are high enough to fund the public good, assurance contracts remove the fear that your contribution will be wasted if other people fail to contribute. - Alex Tabarrok, A Test of Dominant Assurance Contracts

Also...

Tiebout identified a force, voting with one's feet, that would discipline local governments and provide information about which public goods and services are most valued by residents. - Alex Tabarrok, Market Challenges and Government Failure

There's a shortage of consistency though...

In other words, the Federal government spends more on preventing trade than on preventing murder, rape and theft. I call it the anti-nanny state. It’s hard to believe that this truly reflects the American public’s priorities. - Alex Tabarrok, The Anti-Nanny State

We really shouldn't have to guess what the public's priorities actually are.  We should already know the public's priorities.  Several decades ago Buchanan informed us that, when it comes to public goods, it's entirely possible to know the public's priorities.  Yet, here we are... still in the dark age of public goods.

The biggest mistake of every economist is that they don't adequately appreciate, or emphasize, or explain the importance of clarifying demand.  No two biggest mistakes are equally big though.  The bigger the mistake, the more incoherent the economics.

Let's expand the "more police" snippet from Tabarrok...

I favor more police on the street to make punishment more quick, clear, and consistent. I would be much happier with more police on the street, however, if that policy was combined with an end to the “war on drugs”...

Tabarrok doesn't want a police bundle that includes the war on drugs?  Yet, Tabarrok is not a fan of unbundling cable.  Tabarrok wants his cable dollars spent on terrible shows... but he doesn't want his tax dollars spent on the drug war.  Except, as far as I know, he's never once argued that people should be free to choose how they spend their tax dollars in the public sector.  Sometimes his preferences matter... othertimes they do not.  Sometimes he wants to use his dollars to communicate his priorities... othertimes he doesn't.  Where and why does he draw the line?  What is his rule?

Is it greedy of me to want more economic coherence from my favorite living economist?

Tabarrok clearly believes that no two activities that cops engage in are equally valuable.  Unfortunately, he doesn't pounce on the opportunity to channel Smith or Buchanan.  So he leaves readers with the incredibly wrong impression that the public's priorities can be adequately known and the public's funds can be adequately allocated despite the fact that people don't have the freedom to communicate their priorities by spending their tax dollars.

As Buchanan pointed out... scarcity is a fact of life.  No single resource can be in two places at the same exact time.  Are there any exceptions to this rule?  Maybe?  Well... for sure a cop isn't one of them.  A cop definitely can't be in two different places at the same exact time.  If a cop is here... then he can't be there.  And if he's there... then he can't be here.

If we're going to pay some guy to be a cop... then it stands to reason that we really want him to be in the most valuable location.  This is Quiggin's Implied Rule of Economics (QIRE): society's limited resources should be put to more, rather than less, valuable uses.

QIRE is exactly where Tabarrok drops the ball.  Or, it's where he doesn't pick up the ball and run with it.  Or, it's where he doesn't run fast/far enough with it.

How do we determine where in the world the cop will create the most value for society?  How can we know where in the world the cop will provide taxpayers with the most bang for their buck?  How can we determine the most efficient allocation of the cop?

According to Buchanan, the most efficient allocation of the cop depends entirely on the preferences of taxpayers.  This is because values are entirely subjective.  Benefit is in the eye of the beholder.  One person's trash is another person's treasure.  One person's weed is another person's epiphyte.

Understanding and appreciating the fact that values are entirely subjective is essential in order to understand and appreciate how to determine the correct answer to the single most important question:  How should society's limited resources be used?  Because values are entirely subjective, every single person knows a different part of the correct answer.  People communicate their unique part of the correct answer when they are free to spend their own money on whichever allocations provide them with the most value.  The more people participating in the valuating/choosing/spending process, the more valuable/correct the answer.  The less people participating in the valuating/choosing/spending process, the less valuable/correct the answer.  Inclusive valuation is more valuable than exclusive valuation.

Imagine that I assign a value to every possible location that one cop could be in.  Tabarrok also assigns a value to every possible location that the same cop could be in.  Would our valuations be perfectly equal?  Of course not.  I live in California... Tabarrok lives in Virginia.  I'd benefit more if the cop was located closer to where I live... and presumably Tabarrok would benefit more if the cop was located closer to where he lives.

What if the other 300 million people in America assigned a value to every possible location that the cop could be in?  Where in America would the cop create the most value?

Location isn't the only variable.  Activity is another variable.

How many different locations are there in America?  How many different activities can a cop engage in?

When we combine all the different locations with all the different activities with all the different cops with all the different preferences and circumstances of 300 million Americans... we end up with quite a few different possible combinations/allocations.  Some of these possible allocations are a lot more valuable than other possible allocations.

Socialism is the idea that cops can be adequately allocated without the invisible hand.  I think that Tabarrok is under the impression that cops can be adequately allocated without the invisible hand.  Well... as far as I know, he's never said, "we need the invisible hand to efficiently allocate cops".  But he certainly has said that cable doesn't need to be unbundled.  If clarifying the demand for content isn't necessary... then there's no reason that it should be necessary for cops.  If every single individual's unique part of the answer isn't needed to determine whether enough cop shows are being supplied... then every single individual's unique part of the answer isn't needed to determine whether enough cops are being supplied.  

Tabarrok has never endorsed people voting with their taxes... but he's certainly a huge fan of people voting with their feet.  How could he be a huge fan of one but not the other?  The benefit of foot voting is that it helps clarify the demand for public goods...

Tiebout identified a force, voting with one's feet, that would discipline local governments and provide information about which public goods and services are most valued by residents. - Alex Tabarrok, Market Challenges and Government Failure

Tabarrok loves the idea of private cities...

So, people who live in cities are much more productive than in the agriculture. We know in agriculture in Africa, in Asia, that it's essentially subsistence living. So, they are really just making enough to stay alive, to support themselves. While in the city, you can have people making much higher, much above subsistence level. So there's definitely room there for a large profit opportunity. And in fact that is what has created modern China--it's getting hundreds of millions of people out of subsistence agriculture and into the cities where they can make much more. The question is: Are we just going to pile them into the cities and hope for the best, or can we have a planning system? The public planning is usually not going to work, because the incentives aren't there, the bureaucracy is inefficient, it's corrupt, and so forth. Can we have a private planning system? That's at least what the hope is. It worked with Walt Disney World. It worked with Jamshedpur, in India. I think it can work in other cities as well. - Alex Tabarrok, On Private Cities

Maybe Disney World is the heart of Tabarrok's biggest mistake?  Disney World seems to work perfectly fine despite the fact that residents can't use their taxes to communicate their priorities.  Perhaps this leads Tabarrok to perceive that, as long as people are free to vote with their feet, then there's no point for people to be free to vote with their taxes.  But if there's no point in people being free to vote with their tax dollars... then what's the point of people being free to vote with their non-tax dollars?  Dollar voting is entirely pointless?

Can you imagine a world with all foot voting and no dollar voting?  If a vegetarian didn't want her dollars spent on meat... then she could simply quit her enjoyable job, sell her nice house, say goodbye to her friends and family, say goodbye to her favorite bookstore, say goodbye to her favorite boutique, say goodbye to her favorite masseuse and hairstylist and mechanic... and move to a town that didn't spend any money on meat.  Would eliminating dollar voting be a marginal revolution?  Not so much.  It would be the epitome of throwing the baby out with the bath water.  Vegetarians would certainly be free to clarify their demand for no meat... but it would cost them an arm and a leg to do so.

Imagine if foot voting was the only way to break up with someone.  It's a given that a lot more people would be stuck in less than beneficial relationships.

If it's really important to know people's true priorities... then wouldn't it be beneficial to make it easier for people to share their true priorities?

Allowing people to vote with their tax dollars would be the most important marginal revolution of all time.  But you certainly wouldn't know it from reading Tabarrok's blog!

Unlike Gary Becker, Tabarrok is still alive.  This means that he has the wonderful opportunity to try and correct his biggest mistake.  Or, he has the opportunity to do an excellent job of explaining away his economic incoherence.

Would I personally spend my taxes on more cops?  Well... the thing is... cops endeavor to take away some people's best options.  Let's say that a guy wants to rob a convenience store.  Evidently, from his perspective, robbing the store is his best option.  This best option would probably be eliminated if there was a cop located outside the store.

Most of us would agree that robbing a convenience store is a terrible best option.  But it's extremely important to understand that taking away a terrible best option from somebody really isn't the same thing as giving them a better option.

A sweatshop is a terrible first option.  But eliminating this option really isn't the same thing as giving people the option to work in an air-conditioned factory.  Tearing down really isn't the same as building up. Destroying isn't the same as creating.

In a world without scarcity... then sure, let's have one more cop on the block.  However, our world really isn't an exception to the rule of scarcity.  So one more cop means one less coach.  I'm using the word "coach" to refer to anybody who helps, in some way, to create better options.  Do we want a larger market for coaches... or a larger market for cops?

Perhaps what pushes Le Guin onto the wrong track is that there are more (inter)-national blockbusters than ever before which gives some people the impression that variety is declining. It’s not a contradiction, however, that niche products can become more easily available even as there are more blockbusters–as Paul Krugman explained the two phenomena are part and parcel of the same logic of larger markets. It’s important, however, to keep one’s eye on the variety available to individuals. Variety has gone up for every person even as some measures of geographic variety have gone down. - Alex Tabarrok, Why Does Ursula K. Le Guin Hate Amazon?

The more cops there are... the less coaches there are.  The less coaches there are... the less variety of opportunities that will be available to individuals.  The less variety of opportunities available.... the less likely it is that individuals will find their niche.  The less likely it is that individuals will find their niche... the more likely it is that individuals will commit crimes.

We really don't want anybody to have terrible first options.  Which is why it's so important to understand that taking away terrible first options does absolutely nothing to increase the supply of better options.  In fact, because of scarcity, allocating more resources to destroying options means that less resources will be allocated to creating options.  The result is a vicious cycle.

Creating a market in the public sector would help ensure that cops were efficiently allocated.  With cops engaging in the most valuable activities in the most valuable locations... we would be a lot better protected with far fewer cops.  This would free-up more people to be coaches... which would decrease the demand for cops... which would free-up even more people to be coaches...   It would be a virtuous cycle.

Basically, the more resources that we allocate to cultivating, the less resources we will need to allocate to weeding.  With this in mind... let's jump back to private cities.

Unlike the government, private cities would have the maximum incentive to try and discern people's true priorities.  The profit motive would ensure that we'd see some increase in the diversity of the supply of public goods.  But how, exactly, would the owners of the private cities do a better job of discerning people's true priorities?  More cheap talk surveys?  More cheap talk town hall meetings?  Whichever methods were used... none of them would come even close to the preference revelation effectiveness and accuracy of giving taxpayers the freedom to vote with their tax dollars.  Foot voting is the epitome of a blunt instrument.  Opinion voting is the epitome of an inaccurate instrument.  Dollar voting is the epitome of a precise and accurate instrument.

Humans are diverse... which means that demand is naturally diverse.  Creating a market in the public sector would ensure that the supply of public goods is just as diverse as the demand for public goods.  Maximizing supply diversity would maximize niche diversity.

Here are some passages that have something to do, more or less, with niches...

It is, after all, not necessary to fly right into the middle of the sun, but it is necessary to crawl to a clean little spot on earth where the sun sometimes shines and one can warm oneself a little. - Franz Kafka,  Kafka’s Remarkable Letter to His Abusive and Narcissistic Father

Ecological Homogenization - Part of the problem for our native bees is our human desire for neatness and uniformity. Pretty lawns with no bare spots. Non-flowering grass, or pollen-less flowers. Paved spots where a sand bank or brush pile may have been before. All places where a native bee might have made her home or found a snack. - Gwen Pearson, You're Worrying About The Wrong Bees

That on the multiplicity of those wants depended all those mutual services which the individual members of a society pay to each other: and that consequently, the greater variety there was of wants, the larger number of individuals might find their private interest in labouring for the good of others, and united together, compose one body. - Bernard Mandeville, The Fable of the Bees and Other Writings 

The solution, as I believe, is that the modified offspring of all dominant and increasing forms tend to become adapted to many and highly diversified places in the economy of nature. - Charles Darwin, On the Origin of Species by Means of Natural Selection 

If it were only that people have diversities of taste, that is reason enough for not attempting to shape them all after one model. But different persons also require different conditions for their spiritual development; and can no more exist healthily in the same moral, than all the variety of plants can in the same physical, atmosphere and climate. The same things which are helps to one person towards the cultivation of his higher nature, are hindrances to another. The same mode of life is a healthy excitement to one, keeping all his faculties of action and enjoyment in their best order, while to another it is a distracting burthen, which suspends or crushes all internal life. Such are the differences among human beings in their sources of pleasure, their susceptibilities of pain, and the operation on them of different physical and moral agencies, that unless there is a corresponding diversity in their modes of life, they neither obtain their fair share of happiness, nor grow up to the mental, moral, and aesthetic stature of which their nature is capable. - J.S. Mill, On Liberty

Tree crowns consist of a heterogeneous mosaic of microhabitats resulting from a complex combination of biotic and abiotic variables (Benzing 1978, 2000; Callaway et al. 2002; Hietz & Briones 1998; Madison 1977; Scheffknecht et al. 2012; Winkler et al. 2005). Within the canopy, radiation, temperature, wind velocity, and water and nutrient availability vary spatiotemporally, creating microclimatic gradients that may differentially affect the germination of different epiphytic species (Benzing 1978; Hietz & Briones 1998; Zotz & Andrade 2002). These variables change from one phorophyte to another, depending on their height, crown size and shape, leaf habit, bark characteristics (texture, stability and water retention capacity), branch thickness, position in the canopy, the presence of allelopathic compounds or other minerals washed from the phorophyte, i.e., lixiviates (Bennett 1986; Benzing 1978, 1990; Callaway et al. 2002; Castro et al. 1999; Frei et al. 1972; Mehltreter et al. 2005). - Mondragon et al, Population Ecology of Epiphytic Angiosperms: A Review

Biodiversity is a function of niche diversity.  The greater the variety of niches... the greater the richness of life.  Niche diversity is just as important for the economy as it is for the environment.  As J.S. Mill so wonderfully explained... people, like plants, are all different.  Human diversity means that demand is inherently diverse.  When demand is perfectly clarified... supply will be just as diverse as demand.  Supply diversity will create a "heterogeneous mosaic of microhabitats".  Every individual will have a niche to thrive in and coaches will be extremely good at helping people find their optimal niches.

The efficient allocation of individuals depends entirely on demand clarity.  Right now demand is far from clear.  This is because economists struggle to get their stories straight.  Every economist's biggest mistake is that their economic story is not coherent.  My favorite living economist certainly isn't an exception.  Tabarrok largely acknowledges that people's preferences matter... even when it comes to public goods... but then he doesn't recognize the value of unbundling cable or the government.  This begs the question... where and why are markets necessary?

From my perspective... markets are necessary wherever there's scarcity.  Scarcity is everywhere so markets should be everywhere as well.  Wherever markets are missing... people's true priorities will not be known... and Quiggin's Implied Rule of Economics will be violated.    

My economic story is the least incoherent... but I'm sure that Tabarrok could do a much better job of standing on Buchanan's shoulders.  

And again, I do get the feeling that it's greedy of me to expect more from Tabarrok when he's already done so much.  But life is too short not to be greedy!  If markets are only needed in certain circumstances... then Tabarrok should show us the rule.  And if he can't show us the rule... then he should admit it.  If nothing else, publicly acknowledging a lack of knowledge will help point future economists in the right direction.  

See also:

• Opposite Of Mistake
• Chris Edwards' Rothberror
• Evaluating Mistakes on an X Y Graph