Priorities in Peril

David Friedman is a bit skeptical regarding the evidence shared by those who are concerned with global warming.  Here are a couple of my comments on his global warming entries.

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Nordhaus on Global Warming

Speaking of partial knowledge. My guess is that none of you know the significance of my username. It refers to an epiphytic species of plant in the bromeliad family (ie pineapples)...Tillandsia xerographica.

For as long as I can remember I've been fascinated with epiphytes. Epiphytes, unlike parasites (ie mistletoe) do not derive any nutrients from their hosts, which is why they can grow on rocks as well as on trees and in quite a few instances...on cacti even!!! How cool is that? Talk about a marvelous adaptation in the ever constant conquest of space.  (Nerd alert - read the short Environmentalism and Ecology section for the Wikipedia article on Frank Herbert's classic sci-fi novel Dune)

The Orchidaceae, with around 30,000 species, is probably the largest plant family. It also has the greatest number of epiphytic species. What's unique about the orchid family is that their seeds are so tiny that they do not contain enough nutrients to germinate on their own. In order for the seed to germinate...it has to be penetrated by a certain species of fungus. The seed then manages to derive enough nutrients from the fungus to germinate. The fungus persists in and out of the roots of the orchid...and as far as I can tell...the orchid roots help the fungus colonize the tree that it is growing on...which is a mutually beneficial relationship.

Here we can see the opportunity cost concept. The orchid seed forgoes the weight of a "pack lunch" in order for the wind to carry it greater distances away.

The orchids that I study are the epiphytic, eurythermal, xerophytic species. In other words...they grow on trees/cactus/rocks and can tolerate wide fluctuations in temperature as well as extended periods of drought. This group represents perhaps anywhere from 1,000 to 3,000 species of orchids...depending on where you draw the line.  These species of plants make do with ridiculously limited resources. Relatively speaking...how many resources...nutrients/moisture...can there be on the surface of a cactus?  Economics is the study of scarcity...so if you want to study economics then you should study xerophytic epiphytes!

On the other end of the tolerance continuum...you'll find the species of orchids that have exact and extremely narrow temperature/moisture requirements. Some of them only grow in one valley...at a specific elevation...in a very specific microhabitat. These are the kinds of orchids that I have no interest in trying to grow outdoors here in Southern California.

That being said, it's bad enough that countless numbers of undiscovered species are lost from deforestation...but to lose species as a direct result of our impact on the climate only compounds the problems of unintended consequences. No species is an island...it's all a complex web of interdependent relationships.

We all have ridiculously limited perspectives...just like it's a fatal conceit for planners to try and impose their priorities on the use of limited resources...it's also a fatal conceit for us to impose our priorities on the environment. Both can have fatal and unseen and unintended consequences.  Should we err on the side of development or conservation?  What should our priorities be?

As I've mentioned before...my big picture solution is to allow taxpayers to directly allocate their taxes. This would give people the ability to allocate their individual taxes according to their partial knowledge and opportunity costs (priorities/values). Of course we're going to make mistakes...aka... fallibilism...which is exactly why we shouldn't put all our eggs in one basket.

David Friedman...the problem has never been with the taxing...it's always always always been with the spending. Of course...I might be wrong! Hopefully some day you'll see some value in making the effort to try and prove me wrong :D

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Richard Lindzen on Global Warming

Can't really contribute much in the way of critical analysis...but it really tugs at my heartstrings to see the polar bears sitting on tiny rapidly shrinking slabs of ice slowly drifting away. I think that's what they are going to do to me when I get old...if not sooner.

Oh wait...I thought of some critical analysis. We should always be very wary of the fatal conceit and unintended consequences. We overestimate our own intelligence if we think we can truly grasp the impact our activities have on the planet. Therefore, if we do err, it should be on the side of caution.

Then again, I might just be saying that because I'm biased towards polar bears. Then again...I REALLY hate the cold. When I spent a month doing military training up in the Andes...it was the worst. There was no water pressure so taking a shower was pretty much like standing naked under an icicle that was slowly melting. That being said, one of my fondest memories was when I took a break from chopping wood and I briefly saw an Andean condor soaring high up in the clouds.

Well...my point was that my biases probably cancel each other out...but then I started to talk about nature again...so I guess that they really do not.

The Economics of Threesomes

Disclaimer: In case you somehow missed the title of this post...this is a discussion on the "The Economics of Threesomes". If you think it's TMI when your friends talk about sex then perhaps you might want to read something else instead....like perhaps this post on the world's cutest economists.

For as long as I can remember I've been a huge fan of hypothetical situations. My favorite hypothetical situation is...what would happen if taxpayers could choose which government organizations received their taxes? After posing this hypothetical situation to enough people I started to notice a pattern. People's concerns revealed their values. Liberals were concerned that welfare programs wouldn't receive enough money and conservatives were concerned that national defense wouldn't receive enough money. In other words...their concerns revealed how they themselves would allocate their taxes.

Tax choice = revealing preferences = efficient allocation of resources

The idea of revealing preferences is associated with two economic concepts...opportunity costs and partial knowledge. Rather than selecting the extremely boring examples typically used to help illustrate these concepts...I figured I'd try using my second favorite hypothetical situation...the hypothetical threesome.

Let's say that you're at a bar with your best friend forever (bff). All of a sudden the celebrity that you find most attractive walks in and sits next to you. You manage to casually strike up a conversation and after a few drinks the celebrity asks if the two of you would be interested in a threesome. Do you accept the offer? Would your bff accept the offer?

Yesterday I posed this situation to my girlfriend (Rose) and her relatively new bff (Sally). It was pretty darn entertaining. It was especially entertaining because Sally is a lesbian...and she protests a bit too much that she's not attracted to my gf. She is, however, extremely attracted to Stevie Nicks. My gf's celebrity of choice was Joseph Gordon-Levitt.

Chances are really good that most people would not want to share their celebrity of choice with even their best friend...and Rose and Sally were certainly not the exceptions to this rule. So on one hand...they really wanted to sleep with their celebrity of choice...and on the other hand...they really didn't want to have a threesome. Therefore, they were presented with a difficult opportunity cost decision.

Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice". The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs. - Wikipedia

In order for Rose and Sally to make their opportunity cost decisions, they first had to figure out a few things. Which brings us to our second economic concept...partial knowledge.

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

Partial knowledge basically means that everybody has some information but nobody has all the information. When I posed this hypothetical situation to my gf and her bff...all the discussion that followed represented an exchange of partial knowledge.

Given that Rose is straight...she made it clear that she really would not want to have a threesome with Sally and Stevie Nicks. Given that Sally is a lesbian...and swears that she is not attracted to Rose...she made it clear that she really would not want to have a threesome with Rose and Joseph Gordon-Levitt. Yet...after a lot of hilariously awkward/uncomfortable dialogue...they both agreed that they would accept either offer should the opportunities present themselves in the future. Like I told them, it's a good thing that they figured this stuff out now, rather than in some bathroom bar. Because...you never know how long a window of opportunity will stay open for.

If you decide to pose this hypothetical threesome situation to your bff...or to any bffs that you know...please feel free to reply with all the details of your discussion. Personally, when I posed this situation to my bff...he said that there's no way he'd ever have a threesome with me and my celebrity of choice...Jennifer Connelly. It's not that he doesn't find Jennifer Connelly attractive...he says it's just because he wouldn't feel comfortable having a threesome with another guy. The problem for him is...this provides me with the perfect opportunity to encourage him to come out of the closet. There's just no way any straight guy can "win" an argument against this threesome. For example, I asked him whether he pays more attention to the guy or the girl when he's watching porn. From there he's got nowhere to go. So it's a double whammy. He fails the straight test and he fails the ultimate friendship test. But he's put up with me for this long...so I guess that's really the only test that matters. Then again, I think it would be considered justifiable brocide if his squeamishness did actually cost me the opportunity to sleep with Jennifer Connelly.

Hmmm...how can I tie the threesome hypothetical back to the tax choice hypothetical? Well...given that I'm discussing threesomes...would it be totally inappropriate for me to bring Sandra Fluke into the discussion? Maybe? Naw...it's just too perfect to pass up.

The testimony that Fluke offered to congress is a perfect example of the partial knowledge concept. It's also a perfect example of how people do not understand the opportunity cost concept. As I pointed out in my post on prioritizing public goods...Fluke argued that she shouldn't be forced to decide between quality education and quality healthcare. Not only should she be forced to decide between those two public goods...but all taxpayers should be forced to decide whether they spend their taxes on public education or public healthcare.

It's pretty easy to understand partial knowledge and opportunity cost on an individual basis...the challenge is that it's extremely difficult to comprehend the value of these concepts on a national basis. What are the public goods preferences of our entire nation? Nobody can truly know that answer...all you can know is that you don't want your taxes wasted on things that you do not value. You're probably exceptional in a lot of ways...but this isn't one of them. The question then becomes...can you bring yourself to tolerate, if not respect, other people's values?

Why Is Your Partner Cheating on You?

The Analogy

For this analogy to work we have to assume that your partner is, for the most part, rational. This is because libertarians and anarcho-capitalists have to assume that taxpayers are, for the most part, rational...

Isn't that the central basis for the libertarian creed? The notion that educated free adults can be trusted with matches... not to mention their bank accounts and votes? If the masses are intrinsically stupid -- sheep -- then the paternalists are right and no future society of maximized freedom will ever be possible. - David Brin, Essences, Orcs and Civilization: The Case for a Cheerful Libertarianism

If you struggle with the idea that taxpayers (and your partners) are not sheep then please read this article by Paul Bonneau...The Problem With the 'People Are Idiots' Meme.

With that in mind...let's say that your woman...or man...is cheating on you. If you want them to stop cheating on you then it's absolutely essential for you to understand exactly why it is that they are cheating on you.

Given that your partner is probably not a sheep, we cay say with relative certainty that your partner is cheating on you because you are failing to meet their needs in one or more areas. If you can accurately identify exactly how you are failing to meet their needs...then you will be in a much better position to understand exactly what you have to to do in order satisfy their needs. If you can adequately satisfy their needs then you would eliminate their motive to cheat on you.

This entire process requires effective communication with your partner. You have to ask your partner..."what needs of yours am I failing to meet?"

• Am I not satisfying your physical needs?
• Am I not satisfying your emotional needs?
• Am I not listening to you enough?
• Am I not spending enough time with you?

The challenge is...you can't blame your partner for cheating. This is because your partner is, for the most part, not a sheep. That means that you have to be willing to honestly admit that you have inadequacies. If you're unwilling...or unable...to take an honest look at your inadequacies then you'll never be able to address them and your partner will continue to cheat.

If you want to completely eliminate the state...or reduce the heck out of the state...then you have to understand the needs of taxpayers. You can't just tell them over and over to stop cheating because cheating is wrong. Taxpayers aren't dumb...they aren't immoral...and they aren't sheep. So it's essential that you try and figure out why they are cheating. It's not that difficult...all you have to do is ask them..."which of your needs is the private sector not satisfying?"

• Is the private sector not satisfying your needs for national defense?
• Is the private sector not satisfying your needs for welfare?
• Is the private sector not satisfying your needs for education?
• Is the private sector not satisfying your needs for healthcare?

Allowing taxpayers to choose which government organizations receive their taxes would allow them to accurately and effectively communicate which of their needs are not being adequately met by the private sector. This information is priceless. Without it there's no way you'll be able to convince taxpayers to stop supporting the public sector.

The challenge is...this all depends on your ability to admit and acknowledge that the private sector is not perfect. Like every single one of us...it has its shortcomings. Are you willing to take an honest look at these shortcomings? If you can do so...then you will be able to take the necessary steps to address these inadequacies, failings and shortcomings of the private sector.

Let's Prove We're Not Sheep

Ok, let's spend a little bit more time considering the communication aspect of this analogy...because...this is where all the goodness is at. In technical terms we can refer to this as "revealing preferences". Do any of you remember those oldish commercials where people were asked what they would do for a Klondike Bar? That's a perfect example of revealing preferences. "Random" people on the street were asked if they would cluck and dance like a chicken for a Klondike Bar. Would you be willing to give up your dignity for a Klondike Bar? If you answered "yes" then you would be revealing your preference for the momentary enjoyment of a Klondike Bar over your momentary loss of dignity.

The question of whether you would forgo your dignity for a Klondike Bar is, in technical terms, known as an opportunity cost decision. Everything we want has opportunity costs. All the time/money we spend on one thing we value cannot also be spent on other things we value. This forces us to prioritize how we spend our time/money. The opportunity cost concept, which is arguably the most important economic concept, was first developed by Bastiat in his epic essay...What is Seen and What is Not Seen. Opportunity cost decisions help ensure the efficient allocation of limited resources. In other words...they help ensure that people who really want Klondike Bars are the ones who receive them.

If you've already read Bastiat's essay then you will of course know that Bastiat was considering the opportunity costs of taxes. We all stand to benefit as a society from lower taxes because you spend your money better than the government can spend your money. Spending your money allows your unique preferences to help determine the most efficient allocation of limited resources. If you can't reveal your preferences for a Klondike Bar then we can't really be certain if you should really have one or not.

Perhaps you're asking yourself..."but if he's such a big fan of Bastiat, then why doesn't he advocate for lower taxes or no taxes?" The thing is...if you understand the opportunity cost concept then you'll understand that there's absolutely no need to argue for lower taxes. By allowing taxpayers to reveal their preferences in the public sector...we'll be able to see what is missing from the private sector. If taxpayers spend their taxes on government Klondike Bars...then we'll understand that there is a shortage...or absence of...private Klondike Bars. With this information you'd be able to start a private organization dedicated to supplying Klondike Bars.

When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money? There is a whole economic literature dealing with the willingness-to-pay methods and contingent valuation techniques to try and divine such preference in the absence of a market price doing so, but even the most optimistic proponets of such devices tend to concede that public goods will still most likley be underprovided or overprovided under government stewardship. - Patricia Kennett, Governance, globalization and public policy

When it comes to the efficient allocation of limited resources...we can't rely on voting. Voting is good for a lot of things...but efficiently allocating resources is not one of them. This is simply because there's a huge information disparity between 1) asking somebody if they want a Klondike Bar and 2) asking somebody what they would do for a Klondike Bar. Given that you're the only one that knows what you would do for a Klondike Bar...we can begin to understand why congress can't even come close to accurately answering the question of how our taxes should be spent. This leads us to Hayek's concept of partial knowledge. Here's a great passage from his epic essay on The Use of Knowledge in Society...

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

Part of the answer is in your hand, part of the answer is in my hand...and everybody's partial answers are in the invisible hand. If we truly want to answer the question of what the public sector should supply then all we need to do is to allow taxpayers to choose which government organizations receive their taxes.

Ok ok, so my cheaters analogy is far from perfect. But if anybody wants to criticize it then you might as well go ahead and criticize a few of my other analogies while you're at it...

Aikido, Dune and Taxes
The Real World - Pragmatarian Rules

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When I posted this on the Ron Paul forums a member, AquaBuddha2010, twice asked me if there should be taxpayers..."You can know the answer by revealing what you believe at a fundamental level. Should there be taxpayers?"

This was my second response...


Do you think I'm God? That perhaps I've got the whole world in my hands? Do you know that song? I had to sing it all the time when I was growing up.

Not only do I not have the whole world in my hands...but I don't even have the United States in my hands...and I don't even have California in my hands...and I don't even have Southern California in my hands...and I don't even have Glendale in my hands...and I don't even have my neighborhood in my hands...and I don't even have my next door neighbors in my hands...

What's in my hands? My own unique but extremely limited perspective. Having served over in Afghanistan...where I witnessed people living without taxes...and having attended a public university which was partly paid for by the GI Bill...and having sat through way too many horror stories shared by my girlfriend who gets paid by taxpayers to give therapy to abused kids...then yeah...there should be taxpayers.

But given my awareness of how extremely limited my perspective is...then I'm very willing to concede that I might be wrong. The question is...why aren't you willing to concede that you might be wrong as well? Why aren't you willing to allow taxpayers to decide whether the public sector is indeed unnecessary?

Socialism failed because the people in charge were unable to admit that they might be wrong. If you can't admit that you might be wrong...then how are you any different?