My letter to NPR
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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.
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See also:
- Evonomics
- Public Finance For Andy Seal
- Show Me The Economic Case For Democracy
- The Pragmatarian Model For The NY Times
Showing posts with label scarcity. Show all posts
Showing posts with label scarcity. Show all posts
Saturday, August 19, 2017
Tuesday, June 6, 2017
So Many Humanists, So Little Time
A humanist, Gary Saul Morson, and an economist, Morton Schapiro, recently collaborated to produce this book... Cents and Sensibility: What Economics Can Learn from the Humanities. I read the first chapter and parts of the 7th chapter.
Economists can certainly learn a lot from humanists. But economists can also learn a lot from psychologists, sociologists, biologists and many other "ists". The issue is that economists, like all people, are constrained by time. All the time spent learning from humanists is time that can't be spent learning from psychologists.
Let's take the economist David Henderson for example. Like all of us, his time is limited but his desires are not. Therefore, he has to prioritize. He has to decide how to divide his limited time among his unlimited desires.
Henderson recently decided to allocate some his limited time to writing an entry about Cents and Sensibility (C&S). Thanks to his decision, I learned of the book's existence. The concept of cross-pollination matches my preferences so I decided to allocate some of my limited time to reading parts of C&S. Doing so inspired me to allocate some of my limited time to writing an entry about it.
The authors of C&S appreciate the fact that time, and other resources, are limited...
Right. But is not rejecting this idea really the standard? In order to answer this question it might help to allocate a minute of your limited time to watching this commercial...
We can imagine that all the people in this video are humanists. The dog is Henderson the economist. His mission is to select a humanist. There are so many humanists to choose from... but he can't pick them all. So how does he pick a humanist?
How does an economist pick a humanist? How did Morton Schapiro pick Gary Saul Morson? Did he randomly pick him from a pool that only consisted of white, older, male humanists from Northwestern University? This university doesn't have a monopoly on humanists, does it have a monopoly on the best humanists? Or did Schapiro pick Morson out of convenience? Did Schapiro settle for Morson?
For sure an economist can learn something from every humanist. Just like a humanist can learn something from every economist. But...
1. Everybody's time is limited
2. Lessons aren't equally valuable
Therefore, if Henderson is going to pick a humanist, then he should pick the one with the most valuable lesson. The question is... how can he spot this humanist?
If the loudest humanist also had the most valuable lesson then there wouldn't be an issue. However, there's absolutely no correlation between loudness and value.
Morson and Schapiro are correct that economists should learn from humanists. I doubt many economists would disagree with this. But the real issue is how to connect economists with the best humanists. This real issue is a purely economic problem.
The authors correctly recognize that Adam Smith is the "most important source of economic thought". Unfortunately, they failed to use Smith's most important thought to solve the purely economic problem of connecting economists with the best humanists.
Smith's most important thought is the Invisible Hand (IH)...
In a market, people divide their limited dollars among their unlimited desires. This prioritization process results in society's limited resources being optimally divided among its unlimited wants.
Most people don't understand what markets are good for. For example, Netflix is in a market, but it is not a market. There are around 100 million subscribers who don't have the opportunity to divide their limited fees among Netflix's unlimited content. People think the system works fine, but how could it possibly work better than a market? If it does truly work better than a market... then why should Netflix be in a market?
Imagine a Netflix that was a market but with academic papers. Subscribers could freely read all the papers, but they'd have the opportunity to divide their limited fees among the unlimited papers. This prioritization process would highlight the most valuable papers in each field, which would facilitate the most profitable cross-pollination.
Let's apply the IH to the pedigree scenario. Henderson walks in and wants to pick a humanist to learn from. Because his time is limited, he should choose the most valuable humanist. Doing so depends on actually knowing the value of the humanists, which depends on readers dividing their limited dollars among the unlimited humanists. The IH would guide Henderson to the most valuable humanist.
To some extent we already use this process. Even though Schapiro is an economist I'm sure that he's heard of J.K. Rowling. Even though Morson is a humanist I'm sure that he's heard of Tomas Piketty. Piketty and Rowling both wrote bestsellers. Lots of people used their limited dollars to say, "Pick her" and "Pick him".
Personally, I'm not going to buy C&S. I'm not going to use my money to say, "Pick them". It would be a completely different story if the authors had actually advocated using Smith's best idea to solve the problem of connecting economists to the best humanists. Heck, even if they had attacked/criticized Smith's best idea I still would have purchased their book. But they didn't even mention, notice, admit, or acknowledge its relevance to their objective.
The authors said, "To reject the idea of scarce resources is to reject reasonable thought altogether." But they completely failed to see, or mention, the relevance of the IH. Once you accept the idea of scarce resources, then you must also accept the necessity of choosing the best system for dividing society's limited resources among unlimited wants. In order to efficiently divide society's limited resources, it's necessary to know the social value of the different wants. Resources can't be efficiently allocated if we don't know the social value of things.
It might help the authors to see a small, but real life, example of the IH applied to scholarly products. The students in my friend's 4th grade class have a blog... Classtopia. On the homepage their products are sorted by the hand of time. But on this page their products are sorted by the Invisible Hand.
Right now the IH is pretty small. It consists of the students, their teacher and myself. But in theory the IH could be as large as everybody in the world.
Schapiro is the president of Northwestern University (NU). He could implement the same system for the entire university. Students could put their papers online and donors could grade them with their dollars. This system could supplement, rather than replace, traditional grading. So each paper could potentially have two grades. One would be given by the professor... the other would be given by the market. Which grade would be more useful, credible, reliable, trustworthy and informative?
If NU was a market, then it would be easy for everyone in the world to find and learn from the most valuable papers that it produces. It would be hard to avoid, or ignore, or neglect the most valuable papers in the different fields. If a paper promoting the IH was the most valuable economics paper, it would be hard for humanists to ignore it. If a paper criticizing the IH was the most valuable humanities paper, it would be hard for economists to ignore it.
Should NU be a market? Of course. If we embrace the idea of scarce resources, then knowing the value of papers is the only way for people to efficiently divide their limited time among unlimited papers.
I sneezed while writing this entry. The gray cat woke up and looked at me. I said, "It was just a sneeze. I'm not a mouse. Go back to sleep."
Nobody benefits from the inefficient allocation of attention. Was this blog entry an efficient allocation of my limited attention and time? It matched my preferences but, then again, no man is an island. Socially efficient allocations can only be facilitated by the market process.
Economists can certainly learn a lot from humanists. But economists can also learn a lot from psychologists, sociologists, biologists and many other "ists". The issue is that economists, like all people, are constrained by time. All the time spent learning from humanists is time that can't be spent learning from psychologists.
Let's take the economist David Henderson for example. Like all of us, his time is limited but his desires are not. Therefore, he has to prioritize. He has to decide how to divide his limited time among his unlimited desires.
Henderson recently decided to allocate some his limited time to writing an entry about Cents and Sensibility (C&S). Thanks to his decision, I learned of the book's existence. The concept of cross-pollination matches my preferences so I decided to allocate some of my limited time to reading parts of C&S. Doing so inspired me to allocate some of my limited time to writing an entry about it.
The authors of C&S appreciate the fact that time, and other resources, are limited...
To reject the idea of scarce resources is to reject reasonable thought altogether.
Right. But is not rejecting this idea really the standard? In order to answer this question it might help to allocate a minute of your limited time to watching this commercial...
We can imagine that all the people in this video are humanists. The dog is Henderson the economist. His mission is to select a humanist. There are so many humanists to choose from... but he can't pick them all. So how does he pick a humanist?
How does an economist pick a humanist? How did Morton Schapiro pick Gary Saul Morson? Did he randomly pick him from a pool that only consisted of white, older, male humanists from Northwestern University? This university doesn't have a monopoly on humanists, does it have a monopoly on the best humanists? Or did Schapiro pick Morson out of convenience? Did Schapiro settle for Morson?
For sure an economist can learn something from every humanist. Just like a humanist can learn something from every economist. But...
1. Everybody's time is limited
2. Lessons aren't equally valuable
Therefore, if Henderson is going to pick a humanist, then he should pick the one with the most valuable lesson. The question is... how can he spot this humanist?
If the loudest humanist also had the most valuable lesson then there wouldn't be an issue. However, there's absolutely no correlation between loudness and value.
Morson and Schapiro are correct that economists should learn from humanists. I doubt many economists would disagree with this. But the real issue is how to connect economists with the best humanists. This real issue is a purely economic problem.
The authors correctly recognize that Adam Smith is the "most important source of economic thought". Unfortunately, they failed to use Smith's most important thought to solve the purely economic problem of connecting economists with the best humanists.
Smith's most important thought is the Invisible Hand (IH)...
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 market, people divide their limited dollars among their unlimited desires. This prioritization process results in society's limited resources being optimally divided among its unlimited wants.
Most people don't understand what markets are good for. For example, Netflix is in a market, but it is not a market. There are around 100 million subscribers who don't have the opportunity to divide their limited fees among Netflix's unlimited content. People think the system works fine, but how could it possibly work better than a market? If it does truly work better than a market... then why should Netflix be in a market?
Imagine a Netflix that was a market but with academic papers. Subscribers could freely read all the papers, but they'd have the opportunity to divide their limited fees among the unlimited papers. This prioritization process would highlight the most valuable papers in each field, which would facilitate the most profitable cross-pollination.
Let's apply the IH to the pedigree scenario. Henderson walks in and wants to pick a humanist to learn from. Because his time is limited, he should choose the most valuable humanist. Doing so depends on actually knowing the value of the humanists, which depends on readers dividing their limited dollars among the unlimited humanists. The IH would guide Henderson to the most valuable humanist.
To some extent we already use this process. Even though Schapiro is an economist I'm sure that he's heard of J.K. Rowling. Even though Morson is a humanist I'm sure that he's heard of Tomas Piketty. Piketty and Rowling both wrote bestsellers. Lots of people used their limited dollars to say, "Pick her" and "Pick him".
Personally, I'm not going to buy C&S. I'm not going to use my money to say, "Pick them". It would be a completely different story if the authors had actually advocated using Smith's best idea to solve the problem of connecting economists to the best humanists. Heck, even if they had attacked/criticized Smith's best idea I still would have purchased their book. But they didn't even mention, notice, admit, or acknowledge its relevance to their objective.
The authors said, "To reject the idea of scarce resources is to reject reasonable thought altogether." But they completely failed to see, or mention, the relevance of the IH. Once you accept the idea of scarce resources, then you must also accept the necessity of choosing the best system for dividing society's limited resources among unlimited wants. In order to efficiently divide society's limited resources, it's necessary to know the social value of the different wants. Resources can't be efficiently allocated if we don't know the social value of things.
It might help the authors to see a small, but real life, example of the IH applied to scholarly products. The students in my friend's 4th grade class have a blog... Classtopia. On the homepage their products are sorted by the hand of time. But on this page their products are sorted by the Invisible Hand.
Right now the IH is pretty small. It consists of the students, their teacher and myself. But in theory the IH could be as large as everybody in the world.
Schapiro is the president of Northwestern University (NU). He could implement the same system for the entire university. Students could put their papers online and donors could grade them with their dollars. This system could supplement, rather than replace, traditional grading. So each paper could potentially have two grades. One would be given by the professor... the other would be given by the market. Which grade would be more useful, credible, reliable, trustworthy and informative?
If NU was a market, then it would be easy for everyone in the world to find and learn from the most valuable papers that it produces. It would be hard to avoid, or ignore, or neglect the most valuable papers in the different fields. If a paper promoting the IH was the most valuable economics paper, it would be hard for humanists to ignore it. If a paper criticizing the IH was the most valuable humanities paper, it would be hard for economists to ignore it.
Should NU be a market? Of course. If we embrace the idea of scarce resources, then knowing the value of papers is the only way for people to efficiently divide their limited time among unlimited papers.
I sneezed while writing this entry. The gray cat woke up and looked at me. I said, "It was just a sneeze. I'm not a mouse. Go back to sleep."
Nobody benefits from the inefficient allocation of attention. Was this blog entry an efficient allocation of my limited attention and time? It matched my preferences but, then again, no man is an island. Socially efficient allocations can only be facilitated by the market process.
Tuesday, September 13, 2016
You're Filling The Wrong Hole!!!
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
This means that the terraces of the Champ-de-Mars are ordered first to be built up and then to be torn down. The great Napoleon, it is said, thought he was doing philanthropic work when he had ditches dug and then filled in. He also said: "What difference does the result make? All we need is to see wealth spread among the laboring classes. - Frédéric Bastiat, What Is Seen and What Is Not Seen
Reply to: The Magnitude of Inequality by James Kwak
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Some people’s stories don’t receive any recommendations… other people’s stories receive 1000s of recommendations. That’s infinitely more recommendations. Why do you ignore the massive inequality that’s right under your nose?
Unlike the government, Medium is not way outside your range of effectiveness. You should have no problem persuading Medium to massively reduce recommendation inequality. When it does so, we’ll all be amazed and astounded by how much the stories improve as a result. Right? With such conclusive evidence, the government will no longer be way outside your range of effectiveness.
Fortunately for everybody, Medium is way outside my range of effectiveness. If it wasn’t, then we’d all have the option to allocate our pennies to our favorite stories. Oh man, can you imagine what would happen to penny inequality? For sure it would skyrocket. I wonder though if the most popular stories would also be the most valuable stories…
Seriously though, the primary purpose of paying for things is to reveal and communicate our perception of their relative scarcity. This should be pretty intuitive. If Medium facilitated micropayments then for sure you’d allocate more pennies to rarer stories.
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
We’d all use our pennies to communicate which stories fill our empty holes, so to speak. This fundamental feedback would logically alter everybody’s behavior. The result would be a feedback loop…
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
Economics is all about behavior optimization. Behavior can only be optimized when our payments accurately reflect our perception of relative scarcity…
allocation = valuation
Is labor an exception to this rule? Should we disregard people’s perception of labor’s relative scarcity? Should we pretend that it’s economically impossible for any given geographic area to ever have a labor surplus? It’s impossible for Seattle to ever have too many waiters? No matter what… Seattle will always have a shortage of waiters? No matter what… students in Seattle should drop out of school and become waiters? No matter what… waiters in Los Angeles and Houston should move to Seattle? But wouldn’t that mean that Seattle’s shortage of waiters is greater than the shortage of waiters in Los Angeles and Houston?
In ants, one such behaviour is the collective food search: ants initially explore at random. If they find food, they lay down pheromone trails on their way back to base which alters the behaviour of ants that subsequently set out to search for food: the trails attract ants to areas where food was previously located. — Jo Michell, The Fable of the Ants, or Why the Representative Agent is No Such Thing
Also…
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
It seems pretty straightforward that there’s some sort of relationship between the accuracy of communication and the benefit of behavior.
From my perspective, you’re never going to make the feedback loop more accurate by disregarding/overruling/overriding/ignoring/diminishing people’s true perceptions of relative scarcity. Of course I might be wrong.
FYI…. I did notice your scarcity. Even though we fundamentally disagree I really don’t think that your absence improved Medium. For sure you’re a liberal… but at least you’ve done some homework. You’ve read at least some Hayek. Like I’ve read at least some Samuelson.
So I’ll definitely appreciate your thoughts on the topic of disregarding people’s perception of relative scarcity. Please ignore my snark/sarcasm and do your best to try and persuade me that I’m barking up the wrong tree! My life is way too short to spend barking up the wrong tree!
[Update Feb 3, 2018]
Saw this tweet and it reminded me of the Maslow quote...
Genius Optical Illusions To Promote Pet Adoption pic.twitter.com/NXHqXesRsR— The Human Experience (@thehumanxp) February 2, 2018
[Update 3 March 2020]
Snippet of lyrics from Little Girl (With Blue Eyes) by Pulp...
Little girl (with blue eyes)
There's a hole in your heart
And one between your legs
You've never had to wonder
Which one he's going to fill
In spite of what he said
Wednesday, March 9, 2016
Sectornomics
Forum thread: Creating A Digital Sector
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There are lots of goods that we treat like private goods... photos, books, music, movies, software... but they aren't actually private goods. Maybe they aren't technically public goods either.
In any case, hopefully most of you intuitively appreciate that sharing a couch really isn't the same thing as sharing an ebook. Just like sharing an apple really isn't the same thing as sharing an mp3. Just like sharing a cab really isn't the same thing as sharing a jpg.
Personally, I'm pretty sure that it's extremely detrimental to try and treat digital goods like private goods. One solution would be to create a digital sector. Nobody would ever have to buy anything digital ever again. Instead... everybody would have to spend X% of their income on digital goods. It would be entirely up to each and every person to decide which digital goods they spent their X% on.
If we created a digital sector... then it would be the epitome of "sharing is caring". With the current system... in many cases... "sharing is criminal". Digital pirates can end up paying hefty fines if they get caught. We've all been thoroughly warned that "piracy is not a victimless crime".
Can you imagine living in a world where sharing digital goods was really encouraged rather than extremely discouraged? Can you imagine living in a world without any more paywalls? This world is entirely possible. Concentrate concentrate... it's in your reach. We can disrupt the shit out of the current system.
A digital sector wouldn't be without its challenges though. What would prevent two friends from creating blogs just so that they could pay each other? How could we minimize cheating? I'm sure there's a solution. Given enough eyeballs, all solutions can be found. Given enough eyeballs, all cheaters can be caught?
One particularly fascinating challenge would involve determining the percentage of income that should be spent on digital goods. Everybody would have to spend X% on digital goods... but what's the best X? What's the optimal X? Clearly there would be problems if X was suboptimal. If X was too small... then we'd suffer from a shortage of digital goods. But if X was too large... then we'd suffer from a shortage of non-digital goods.
One possible solution would be to create a non-profit organization dedicated to deciding what X should be. For convenience sake we can call this non-profit the Digital Balance Society (DBS). Let's say that you were suffering from a shortage of non-digital goods. In order to communicate your predicament, you'd simply boycott the DBS and let them know why you were doing so. With this financial feedback mechanism... the optimal X would be whichever X maximized the DBS's revenue.
I'm sure there's a better solution. There's always a better solution.
Another challenge would be enforcement. Perhaps there would have to be a government organization called the Digital Revenue Service (DRS). Their job would be to ensure that people pay their digital "taxes" (daxes). The DBS would determine the dax rate and the DRS would enforce it.
Of course... just like with taxes... there's absolutely no reason that the dax rate couldn't be progressive... or even extremely progressive. Maybe people with incomes under say, $25,000 dollars, would not be required to spend any percent of their income on digital goods.
Let's imagine that poor people no longer spent any money on digital goods. What impact would this have on digital goods? What impact would this have on non-digital goods?
I think it's really important to understand that consumers use their cash to direct the economy like a conductor uses a baton to direct an orchestra. Consumption is a function of direction. Being able to read a ton of sci-fi books depends on consumers directing enough cash to sci-fi books.
This idea of creating a digital sector falls under the category of "sectornomics". I would say that I just made this word up but a Google search for "sectornomics" reveals that there are currently 807 results for this word. It doesn't seem like any of those uses of the word are what I have in mind. There are relatively few search results though so I'll throw my own definition into the ring.
Just like we could create a digital sector... we could also create a non-profit sector. Well... we already have a non-profit sector. However, people are not currently required to spend Y% of their income in the non-profit sector.
Right now we are required to spend Z% of our income in the public sector. Fully applying sectornomics to the public sector would only involve allowing people to choose where their taxes go. And again, we've already had plenty of threads about pragmatarianism so please feel entirely free to not to discuss it in this thread! Although, I would certainly be the last person to stop you from doing so! :D
Based on what we've covered... the sectornomics breakdown would look something like this...
1. Digital sector: X%
2. Non-profit sector: Y%
3. Public sector: Z%
4. None-of-the-above sector: A%
X% + Y% + Z% + A% = 100%
Initially I wanted to create this thread to survey members about what the optimal dax rate would be. But I suppose it's more logical to first establish how many members would even want a digital sector.
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Here's what a socialist economist had to say about capitalism...
How are profits destroyed when they are pursued by a large number of people?
Let's say that it's extremely profitable to grow and sell dragon fruit. This means that the demand for dragon fruit is far greater than the supply of dragon fruit. In other words... a lot of people want dragon fruit but it is very scarce.
Because it's extremely profitable to grow/sell dragon fruit... we can expect that more and more farmers would start growing/selling dragon fruit. But what happens when the supply of dragon fruit increases? The profitability would decrease.
This is how profits are destroyed when they are pursued by a large number of people. On the one hand... profits were destroyed...but on the other hand... dragon fruit went from being scarce to being abundant. Which is beneficial for consumers.
A straight line is the shortest distance between two points. Here are the two main economic points...
Point A: scarcity
Point B: abundance
The larger the consumer surplus (the smaller the profits for producers).... the longer the distance between these two points. The smaller the consumer surplus (the larger the profits for producers)... the shorter the distance between these two points.
Sacrificing consumer surplus means giving up momentary pleasure for future benefit.
When dragon fruits were super expensive (Point A)... who purchased them? Poor people? Nope. Rich people did. Rich people can afford luxuries. But even though dragon fruits were expensive luxuries... we can guess that there were quite a few rich people who received some amount of consumer surplus when they purchased them. In other words.... many rich people's valuation of dragon fruits was greater than their allocation to dragon fruits. This makes sense to you. You think it would be idiotic to eliminate consumer surplus. This means that you think it's better when poor people have to wait longer for dragon fruits to become a lot more affordable (Point B).
From my perspective... intelligent movies are super scarce right now (Point A). Does this mean that intelligent movies are super expensive? Nope. This is because we pretend that movies are private goods when actually they are digital goods. Therefore.... we should create a digital sector. The optimal dax rate would eliminate consumer surplus. Rich people wouldn't pay $10 dollars for intelligent movies. Instead, they would spend $1000s of dollars on intelligent movies. This would be the shortest path to Point B.
Would poor people benefit if we had an abundance of intelligent movies? Of course they'd benefit. Intelligent movies educate the public... and public education has many positive externalities.
Everybody would really benefit if there was an abundance of movies about Adam Smith...
Entrepreneurs want to try and cheat by hiding their profits from other entrepreneurs. Who does this cheating hurt? Consumers of course. What about when consumers try and hide their true valuations from all the entrepreneurs? Is this cheating? It really is. Who does this cheating hurt? Again... consumers! But in this case, consumers are inadvertently hurting themselves.
It's true that right now we have lots of abundance... and we also have consumer surplus. But our hidden valuations really didn't facilitate any of the abundance that we do have. All the abundance that we do have is the result of entrepreneurs acting on the information that they did have access to. Entrepreneurs really did not act on information that they did not have access to. If a decade ago we had been far more forthcoming about our true valuations then we would now have a lot more abundance. With this in mind... we should really sacrifice momentary pleasure for future benefit.
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There are lots of goods that we treat like private goods... photos, books, music, movies, software... but they aren't actually private goods. Maybe they aren't technically public goods either.
In any case, hopefully most of you intuitively appreciate that sharing a couch really isn't the same thing as sharing an ebook. Just like sharing an apple really isn't the same thing as sharing an mp3. Just like sharing a cab really isn't the same thing as sharing a jpg.
Personally, I'm pretty sure that it's extremely detrimental to try and treat digital goods like private goods. One solution would be to create a digital sector. Nobody would ever have to buy anything digital ever again. Instead... everybody would have to spend X% of their income on digital goods. It would be entirely up to each and every person to decide which digital goods they spent their X% on.
If we created a digital sector... then it would be the epitome of "sharing is caring". With the current system... in many cases... "sharing is criminal". Digital pirates can end up paying hefty fines if they get caught. We've all been thoroughly warned that "piracy is not a victimless crime".
Can you imagine living in a world where sharing digital goods was really encouraged rather than extremely discouraged? Can you imagine living in a world without any more paywalls? This world is entirely possible. Concentrate concentrate... it's in your reach. We can disrupt the shit out of the current system.
A digital sector wouldn't be without its challenges though. What would prevent two friends from creating blogs just so that they could pay each other? How could we minimize cheating? I'm sure there's a solution. Given enough eyeballs, all solutions can be found. Given enough eyeballs, all cheaters can be caught?
One particularly fascinating challenge would involve determining the percentage of income that should be spent on digital goods. Everybody would have to spend X% on digital goods... but what's the best X? What's the optimal X? Clearly there would be problems if X was suboptimal. If X was too small... then we'd suffer from a shortage of digital goods. But if X was too large... then we'd suffer from a shortage of non-digital goods.
One possible solution would be to create a non-profit organization dedicated to deciding what X should be. For convenience sake we can call this non-profit the Digital Balance Society (DBS). Let's say that you were suffering from a shortage of non-digital goods. In order to communicate your predicament, you'd simply boycott the DBS and let them know why you were doing so. With this financial feedback mechanism... the optimal X would be whichever X maximized the DBS's revenue.
I'm sure there's a better solution. There's always a better solution.
Another challenge would be enforcement. Perhaps there would have to be a government organization called the Digital Revenue Service (DRS). Their job would be to ensure that people pay their digital "taxes" (daxes). The DBS would determine the dax rate and the DRS would enforce it.
Of course... just like with taxes... there's absolutely no reason that the dax rate couldn't be progressive... or even extremely progressive. Maybe people with incomes under say, $25,000 dollars, would not be required to spend any percent of their income on digital goods.
Let's imagine that poor people no longer spent any money on digital goods. What impact would this have on digital goods? What impact would this have on non-digital goods?
I think it's really important to understand that consumers use their cash to direct the economy like a conductor uses a baton to direct an orchestra. Consumption is a function of direction. Being able to read a ton of sci-fi books depends on consumers directing enough cash to sci-fi books.
This idea of creating a digital sector falls under the category of "sectornomics". I would say that I just made this word up but a Google search for "sectornomics" reveals that there are currently 807 results for this word. It doesn't seem like any of those uses of the word are what I have in mind. There are relatively few search results though so I'll throw my own definition into the ring.
Just like we could create a digital sector... we could also create a non-profit sector. Well... we already have a non-profit sector. However, people are not currently required to spend Y% of their income in the non-profit sector.
Right now we are required to spend Z% of our income in the public sector. Fully applying sectornomics to the public sector would only involve allowing people to choose where their taxes go. And again, we've already had plenty of threads about pragmatarianism so please feel entirely free to not to discuss it in this thread! Although, I would certainly be the last person to stop you from doing so! :D
Based on what we've covered... the sectornomics breakdown would look something like this...
1. Digital sector: X%
2. Non-profit sector: Y%
3. Public sector: Z%
4. None-of-the-above sector: A%
X% + Y% + Z% + A% = 100%
Initially I wanted to create this thread to survey members about what the optimal dax rate would be. But I suppose it's more logical to first establish how many members would even want a digital sector.
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Your concept of 'making your valuation more accessible', in real economic terms, means 'voluntarily eliminating your personal consumer surplus'. If you can't see how idiotic that is I don't think anything can save you. - Maqo
Here's what a socialist economist had to say about capitalism...
The system of free competition is a rather peculiar one. Its mechanism is one of fooling entrepreneurs. It requires the pursuit of maximum profit in order to function, but it destroys profits when they are actually pursued by a larger number of people. - Oskar Lange, On the Economic Theory of Socialism: Part Two
How are profits destroyed when they are pursued by a large number of people?
Let's say that it's extremely profitable to grow and sell dragon fruit. This means that the demand for dragon fruit is far greater than the supply of dragon fruit. In other words... a lot of people want dragon fruit but it is very scarce.
Because it's extremely profitable to grow/sell dragon fruit... we can expect that more and more farmers would start growing/selling dragon fruit. But what happens when the supply of dragon fruit increases? The profitability would decrease.
This is how profits are destroyed when they are pursued by a large number of people. On the one hand... profits were destroyed...but on the other hand... dragon fruit went from being scarce to being abundant. Which is beneficial for consumers.
A straight line is the shortest distance between two points. Here are the two main economic points...
Point A: scarcity
Point B: abundance
The larger the consumer surplus (the smaller the profits for producers).... the longer the distance between these two points. The smaller the consumer surplus (the larger the profits for producers)... the shorter the distance between these two points.
Sacrificing consumer surplus means giving up momentary pleasure for future benefit.
When dragon fruits were super expensive (Point A)... who purchased them? Poor people? Nope. Rich people did. Rich people can afford luxuries. But even though dragon fruits were expensive luxuries... we can guess that there were quite a few rich people who received some amount of consumer surplus when they purchased them. In other words.... many rich people's valuation of dragon fruits was greater than their allocation to dragon fruits. This makes sense to you. You think it would be idiotic to eliminate consumer surplus. This means that you think it's better when poor people have to wait longer for dragon fruits to become a lot more affordable (Point B).
From my perspective... intelligent movies are super scarce right now (Point A). Does this mean that intelligent movies are super expensive? Nope. This is because we pretend that movies are private goods when actually they are digital goods. Therefore.... we should create a digital sector. The optimal dax rate would eliminate consumer surplus. Rich people wouldn't pay $10 dollars for intelligent movies. Instead, they would spend $1000s of dollars on intelligent movies. This would be the shortest path to Point B.
Would poor people benefit if we had an abundance of intelligent movies? Of course they'd benefit. Intelligent movies educate the public... and public education has many positive externalities.
Everybody would really benefit if there was an abundance of movies about Adam Smith...
When by an increase in the effectual demand, the market price of some particular commodity happens to rise a good deal above the natural price, those who employ their stocks in supplying that market are generally careful to conceal this change. If it was commonly known, their great profit would tempt so many new rivals to employ their stocks in the same way, that, the effectual demand being fully supplied, the market price would soon be reduced to the natural price, and perhaps for some time even below it. If the market is at a great distance from the residence of those who supply it, they may sometimes be able to keep the secret for several years together, and may so long enjoy their extraordinary profits without any new rivals. Secrets of this kind, however, it must be acknowledged, can seldom be long kept; and the extraordinary profit can last very little longer than they are kept. - Adam Smith, Wealth of Nations
Entrepreneurs want to try and cheat by hiding their profits from other entrepreneurs. Who does this cheating hurt? Consumers of course. What about when consumers try and hide their true valuations from all the entrepreneurs? Is this cheating? It really is. Who does this cheating hurt? Again... consumers! But in this case, consumers are inadvertently hurting themselves.
It's true that right now we have lots of abundance... and we also have consumer surplus. But our hidden valuations really didn't facilitate any of the abundance that we do have. All the abundance that we do have is the result of entrepreneurs acting on the information that they did have access to. Entrepreneurs really did not act on information that they did not have access to. If a decade ago we had been far more forthcoming about our true valuations then we would now have a lot more abundance. With this in mind... we should really sacrifice momentary pleasure for future benefit.
Thursday, February 25, 2016
Batman vs Hitler
Forum thread: Clarifying The Popularity Of Three Economic Rules
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Surveys are very useful tools. They make it really quick and easy to clarify just how popular, or unpopular, something is. So I thought it would be helpful if we could clarify the popularity of three economic rules. Which rule is the most popular? Which rule is the least popular? Let's find out!
To try and avoid some potential confusion... I should mention that I took the liberty of naming these rules. It makes it easier to talk about them when they have names. I'm not very clever though so I simply named them after some of my favorite economists. James Buchanan was a Nobel Prize libertarian economist, John Quiggin is a liberal economist and Alex Tabarrok is a libertarian economist.
So here are their rules...
Buchanan's Rule: Using a resource one way means sacrificing the other ways that it could also be used
Eisenhower probably put it best...
Quiggin's Rule: Society's limited resources should be put to more, rather than less, valuable uses
Tabarrok's Rule: Actions speak louder than words
In my opinion, these rules are all good rules. I think it's beneficial when we abide by them and harmful when we don't.
What do you think? Are these rules worthwhile or worthless? Do you know of any other economic rules that are more worthwhile?
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Reply to reply...
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People vote for Batman to rescue a cat from a tree...
X = Batman rescuing a cat from a tree
Is there a Y? Of course there's a Y. According to Buchanan's Rule (Rule #1)... there's always a Y.
So what is Y?
Y = Batman sitting at home twiddling his thumbs
In this case...
X > Y
Thanks to voting... society's limited resource, in this case Batman, was put to a more, rather than a less, valuable use. Therefore... Quiggin's Rule (Rule #2)... was not violated.
But what if Y is different?
Y = Batman rescuing Gotham from imminent destruction
In this case...
X < Y
As a result of voting... society's limited resource, again Batman, was put to a less, rather than a more, valuable use. Therefore... Quiggin's Rule was violated.
Let's get a little weird now...
X = Batman fighting alcohol traffickers
Y = Batman fighting Hitler
The time periods don't perfectly align... then again... we're talking about Batman here.
Most of us would agree that....
Y > X
Therefore... Quiggin's Rule was violated when people voted for X. Batman would have fought alcohol traffickers instead of Hitler.
Let's get a little less weird and replace Batman, a fictional character, with Eliot Ness, a nonfictional character. If people had not voted for prohibition... then Ness would have done something else instead. What would that something else have been? What was Y? Would Y have been more or less valuable than the enforcement of prohibition?
Let's get a little more weird and imagine that Germans had voted for prohibition. What was Y? What if it had been the Holocaust? In this case... given that Y was the least valuable use of society's limited resources... then voting for prohibition would not have been a violation of Quiggin's Rule. It would have been extremely valuable if the Eliot Nesses had stopped enforcing the Holocaust and started enforcing prohibition.
With voting... you are never the one who gets to decide what Y is. Therefore, voters never know what Y is. Not knowing what Y is guarantees that Quiggin's Rule will be thoroughly and regularly violated. When you spend your money though... you always know what Y is. This is simply because you're the one who decides what Y is. Again, Tabarrok's Rule is the only way that we can ensure that Quiggin's Rule is not violated.
Sure I'd like to take credit for "my" argument. But I really can't. As I thought I made it clear in the OP... these aren't my rules. I am not James Buchanan or John Quiggin or Alex Tabarrok. Neither am I Nietzsche...
Am I misunderstanding and slandering your reality? Am I sanctifying lies? Am I disturbing your conscience? Am I sacrificing your "God"? If a temple is to be erected... then a temple must be destroyed. This is the law. But it's really not my law! I'm just the guy pointing it out to you and endeavoring to explain its relevance/importance.
You're really not happy with my attempt to build up my temple (aka tear down your temple). But are you really sure that your temple is worth defending? If you're going to defend something... then wouldn't it be a good idea to first establish whether it's truly worth defending?
John Quiggin is a liberal economist. Here's his entire and only response to "my" argument. Here's what he did not tweet...
"Xero's a moron who doesn't understand just how effective contingent valuation techniques truly are."
Quiggin did not tweet that. He could have made that argument. But he did not. Instead, you are making this argument. Except... not once have you used the term "contingent valuation" before. Which means that you've never even heard the term before. Do you think that Quiggin has heard the term before? Do you think he's familiar with the concept? I'm actually pretty sure that he is quite familiar with the concept... which begs the question of why he didn't even mention it in his tweet.
In case you missed it... Quiggin is your champion. Watch...
There's Quiggin defending his temple (Democracy) against those who would tear it down.
Obviously it's not hard for Quiggin to defend Democracy. So why didn't he take the opportunity to do so when I clearly challenged Democracy?
I'm here because your champion didn't even show up to the fight. Or... he showed up to the fight... saluted me... and went on his merry way.
Even though I'm an atheist, I really love the story of Elijah versus the prophets of Baal...
Right now you're trying to fight a battle that you're clearly not qualified to fight. But you really don't need to fight this battle yourself! Seriously! You have plenty of champions to choose from! Like Paul Krugman. Send him an e-mail and let us know what he says. If he doesn't reply because he's too busy lecturing or traveling or sleeping then send an e-mail to Quiggin. If he doesn't reply then here's a page that lists UCLA's econ professors. As you can see... their e-mail addresses are right there. It's ridiculously easy to send them a link to this thread.
You're right that I'm biased. I'm biased because I'm really confident that your champions are not going to tell you what you want to hear. But please, by all means, feel free to prove me wrong. Let me be crystal clear though... if you fail to prove me wrong... then this will provide even more justification for the erection of my temple (aka the destruction of your temple).
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Surveys are very useful tools. They make it really quick and easy to clarify just how popular, or unpopular, something is. So I thought it would be helpful if we could clarify the popularity of three economic rules. Which rule is the most popular? Which rule is the least popular? Let's find out!
To try and avoid some potential confusion... I should mention that I took the liberty of naming these rules. It makes it easier to talk about them when they have names. I'm not very clever though so I simply named them after some of my favorite economists. James Buchanan was a Nobel Prize libertarian economist, John Quiggin is a liberal economist and Alex Tabarrok is a libertarian economist.
So here are their rules...
Buchanan's Rule: Using a resource one way means sacrificing the other ways that it could also be used
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
Eisenhower probably put it best...
Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron...Is there no other way the world may live? - Dwight D. Eisenhower
Quiggin's Rule: Society's limited resources should be put to more, rather than less, valuable uses
Even at the cost of lining up with [Tom] Friedman, I’d be pleased if the idea that war is a mostly futile waste of lives and money became conventional wisdom. Switching to utopian mode, wouldn’t it be amazing if the urge to “do something” could be channeled into, say, ending hunger in the world or universal literacy (both cheaper than even one Iraq-sized war)? - John Quiggin, War and waste
Tabarrok's Rule: Actions speak louder than words
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
In my opinion, these rules are all good rules. I think it's beneficial when we abide by them and harmful when we don't.
What do you think? Are these rules worthwhile or worthless? Do you know of any other economic rules that are more worthwhile?
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Reply to reply...
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I disagree that you have at all demonstrated that rule 3 will have less clear consequences than voting. - Alvecia
People vote for Batman to rescue a cat from a tree...
X = Batman rescuing a cat from a tree
Is there a Y? Of course there's a Y. According to Buchanan's Rule (Rule #1)... there's always a Y.
So what is Y?
Y = Batman sitting at home twiddling his thumbs
In this case...
X > Y
Thanks to voting... society's limited resource, in this case Batman, was put to a more, rather than a less, valuable use. Therefore... Quiggin's Rule (Rule #2)... was not violated.
But what if Y is different?
Y = Batman rescuing Gotham from imminent destruction
In this case...
X < Y
As a result of voting... society's limited resource, again Batman, was put to a less, rather than a more, valuable use. Therefore... Quiggin's Rule was violated.
Let's get a little weird now...
X = Batman fighting alcohol traffickers
Y = Batman fighting Hitler
The time periods don't perfectly align... then again... we're talking about Batman here.
Most of us would agree that....
Y > X
Therefore... Quiggin's Rule was violated when people voted for X. Batman would have fought alcohol traffickers instead of Hitler.
Let's get a little less weird and replace Batman, a fictional character, with Eliot Ness, a nonfictional character. If people had not voted for prohibition... then Ness would have done something else instead. What would that something else have been? What was Y? Would Y have been more or less valuable than the enforcement of prohibition?
Let's get a little more weird and imagine that Germans had voted for prohibition. What was Y? What if it had been the Holocaust? In this case... given that Y was the least valuable use of society's limited resources... then voting for prohibition would not have been a violation of Quiggin's Rule. It would have been extremely valuable if the Eliot Nesses had stopped enforcing the Holocaust and started enforcing prohibition.
With voting... you are never the one who gets to decide what Y is. Therefore, voters never know what Y is. Not knowing what Y is guarantees that Quiggin's Rule will be thoroughly and regularly violated. When you spend your money though... you always know what Y is. This is simply because you're the one who decides what Y is. Again, Tabarrok's Rule is the only way that we can ensure that Quiggin's Rule is not violated.
That is to say, that other than your own obviously bias opinion, there is no reason to conclude that rule 3 is better than voting. - Alvecia
Sure I'd like to take credit for "my" argument. But I really can't. As I thought I made it clear in the OP... these aren't my rules. I am not James Buchanan or John Quiggin or Alex Tabarrok. Neither am I Nietzsche...
But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law – let anyone who can show me a case in which it is not fulfilled! – Friedrich Nietzsche, On the Genealogy of Morality
Am I misunderstanding and slandering your reality? Am I sanctifying lies? Am I disturbing your conscience? Am I sacrificing your "God"? If a temple is to be erected... then a temple must be destroyed. This is the law. But it's really not my law! I'm just the guy pointing it out to you and endeavoring to explain its relevance/importance.
You're really not happy with my attempt to build up my temple (aka tear down your temple). But are you really sure that your temple is worth defending? If you're going to defend something... then wouldn't it be a good idea to first establish whether it's truly worth defending?
John Quiggin is a liberal economist. Here's his entire and only response to "my" argument. Here's what he did not tweet...
"Xero's a moron who doesn't understand just how effective contingent valuation techniques truly are."
Quiggin did not tweet that. He could have made that argument. But he did not. Instead, you are making this argument. Except... not once have you used the term "contingent valuation" before. Which means that you've never even heard the term before. Do you think that Quiggin has heard the term before? Do you think he's familiar with the concept? I'm actually pretty sure that he is quite familiar with the concept... which begs the question of why he didn't even mention it in his tweet.
In case you missed it... Quiggin is your champion. Watch...
That is, the neoliberal ideology itself has little to say about these questions. Neoliberals may regard democracy and ordinary notions of political liberalism with outright hostility (Lee Kuan Yew, the Mises Institute). Or, they may like Hayek, regard democracy and free speech as second-order goals, desirable only if they don’t get in the way of free markets. - John Quiggin, The ideology that dare not speak its name
There's Quiggin defending his temple (Democracy) against those who would tear it down.
Obviously it's not hard for Quiggin to defend Democracy. So why didn't he take the opportunity to do so when I clearly challenged Democracy?
I'm here because your champion didn't even show up to the fight. Or... he showed up to the fight... saluted me... and went on his merry way.
Even though I'm an atheist, I really love the story of Elijah versus the prophets of Baal...
24 And call ye on the name of your gods, and I will call on the name of the Lord: and the God that answereth by fire, let him be God. And all the people answered and said, It is well spoken.
25 And Elijah said unto the prophets of Baal, Choose you one bullock for yourselves, and dress it first; for ye are many; and call on the name of your gods, but put no fire under.
26 And they took the bullock which was given them, and they dressed it, and called on the name of Baal from morning even until noon, saying, O Baal, hear us. But there was no voice, nor any that answered. And they leaped upon the altar which was made.
27 And it came to pass at noon, that Elijah mocked them, and said, Cry aloud: for he is a god; either he is talking, or he is pursuing, or he is in a journey, or peradventure he sleepeth, and must be awaked.
28 And they cried aloud, and cut themselves after their manner with knives and lancets, till the blood gushed out upon them.
29 And it came to pass, when midday was past, and they prophesied until the time of the offering of the evening sacrifice, that there was neither voice, nor any to answer, nor any that regarded.
Right now you're trying to fight a battle that you're clearly not qualified to fight. But you really don't need to fight this battle yourself! Seriously! You have plenty of champions to choose from! Like Paul Krugman. Send him an e-mail and let us know what he says. If he doesn't reply because he's too busy lecturing or traveling or sleeping then send an e-mail to Quiggin. If he doesn't reply then here's a page that lists UCLA's econ professors. As you can see... their e-mail addresses are right there. It's ridiculously easy to send them a link to this thread.
You're right that I'm biased. I'm biased because I'm really confident that your champions are not going to tell you what you want to hear. But please, by all means, feel free to prove me wrong. Let me be crystal clear though... if you fail to prove me wrong... then this will provide even more justification for the erection of my temple (aka the destruction of your temple).
Sunday, February 7, 2016
Buchanan's Law
Reply to reply: The Demand For Defense?
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When congress gives more money to the DoD... and the DoD spends this additional money on more resources... then this logically means that there will be less resources available for all the other possible uses... such as farming. If the DoD hires Terence Tao... then all the brainpower that Tao allocates to defense can't also be allocated to farming.
Right now you're confident that congress gets the supply of defense right. But you're not confident that congress can get the supply of food right. This is logically absurd. As I've tried to explain to you countless times before... it's impossible for congress to be able to get the supply of defense right without also being able to get the supply of food right. This is because allocating more resources to defense logically means allocating less resources to food. Every allocation requires sacrificing the alternatives. This is the most fundamentally basic law of economics.
You can't logically be a part-time socialist. If you trust a committee to determine how much of the country's resources should be allocated to defense... then by the most fundamentally basic law of economics... you must also trust the committee to determine how much of the country's resources should be allocated to food.
Except... committees have never done a good job determining the supply of food. According to the most fundamentally basic law of economics... this means that committees have never done a good job of determining the supply of defense. Which is why I'm not a socialist. I believe that taxpayers should be free to choose where their taxes go. Each and every consumer would decide for themselves whether we truly need more defense. When making this decision... they will automatically consider whether more defense is worth less food. Each and every consumer will decide for themselves whether Terence Tao should allocate his brainpower to improving the supply of...
A. defense
B. food
C. other
As an aside... it just struck me as really strange that I have to say... "the most fundamentally basic law of economics". Doesn't this law have a name? No. It doesn't. So, for efficiency sake, until somebody comes up with a better name... I'm going to refer to this law as Buchanan's Law. Buchanan is my favorite recently dead economist.
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Because, when goods are rivalrous and excludable, with limited beneficial or detrimental externalities, market pricing reflects roughly the true cost. While congress may, via advisors, come up with a cost that is approximately the true cost, they are not as precise as the market itself. - Galloism
When congress gives more money to the DoD... and the DoD spends this additional money on more resources... then this logically means that there will be less resources available for all the other possible uses... such as farming. If the DoD hires Terence Tao... then all the brainpower that Tao allocates to defense can't also be allocated to farming.
Right now you're confident that congress gets the supply of defense right. But you're not confident that congress can get the supply of food right. This is logically absurd. As I've tried to explain to you countless times before... it's impossible for congress to be able to get the supply of defense right without also being able to get the supply of food right. This is because allocating more resources to defense logically means allocating less resources to food. Every allocation requires sacrificing the alternatives. This is the most fundamentally basic law of economics.
You can't logically be a part-time socialist. If you trust a committee to determine how much of the country's resources should be allocated to defense... then by the most fundamentally basic law of economics... you must also trust the committee to determine how much of the country's resources should be allocated to food.
Except... committees have never done a good job determining the supply of food. According to the most fundamentally basic law of economics... this means that committees have never done a good job of determining the supply of defense. Which is why I'm not a socialist. I believe that taxpayers should be free to choose where their taxes go. Each and every consumer would decide for themselves whether we truly need more defense. When making this decision... they will automatically consider whether more defense is worth less food. Each and every consumer will decide for themselves whether Terence Tao should allocate his brainpower to improving the supply of...
A. defense
B. food
C. other
As an aside... it just struck me as really strange that I have to say... "the most fundamentally basic law of economics". Doesn't this law have a name? No. It doesn't. So, for efficiency sake, until somebody comes up with a better name... I'm going to refer to this law as Buchanan's Law. Buchanan is 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
Sunday, October 4, 2015
Missing Markets: The Bane Of Our Existence
Reply to: Traditional Economics Don’t Make Sense For Open Business Models
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Imagine that you’re trying to decide whether to play golf (X) or write a story on Medium (Y). The question is… how should you allocate your time? Your time is a limited resource. Your time is scarce. Given that your time is scarce, it makes sense to allocate your time to whichever activity will provide you with the most benefit.
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Imagine that you’re trying to decide whether to play golf (X) or write a story on Medium (Y). The question is… how should you allocate your time? Your time is a limited resource. Your time is scarce. Given that your time is scarce, it makes sense to allocate your time to whichever activity will provide you with the most benefit.
Whenever people talk about post-scarcity economics… it’s a pretty good sign that they are clueless. Even if you were immortal you still wouldn’t be able to play golf and write stories at the same time. And [“Her” spoiler alert]… even if you were an incredibly advanced artificial intelligence capable of writing stories, playing virtual golf and engaging in a gazillion other activities at the same time… all the resources that you allocated to these gazillion activities couldn’t also be allocated to all the other gazillions and gazillions of possible activities.
Scarcity will always be relevant… so prioritization will always be relevant.
The way that market economies work is that everybody can help influence everybody’s priorities. If I had to allocate one of my dollars to X (you playing golf) or Y (you writing stories)… then I’d allocate it to Y. This is because I don’t derive any benefit from X.
This is going to sound incredibly obvious but… you can never be me. And you are not omniscient. These incredibly obvious facts of life have incredibly powerful implications. You can never truly know how much benefit I derive from either X or Y. But, when I allocate my dollar to Y rather than X, then you can know that, from my perspective…
Y > X
It stands to reason that… the more people that give you their dollars for you to do Y… the more likely you are to do Y… and the more benefit you’d create for society.
Let’s review the economic truisms…
- Scarcity is, and always will be, relevant
- Nobody’s omniscient
- Incentives matter
Is this traditional economics? Well… it’s certainly economics. And it most definitely makes sense when we’re talking about open business models.
This is what Medium might look like if they had a half-way competent economist on their payroll…
I would be able to use paypal to put money into my digital wallet. Then, if I benefited from your story, I could click the appropriate *heart* button. Let’s say that I clicked the 25 cent button. In less than a second, 25 cents would be transferred from my digital wallet to your digital wallet. I essentially gave you 25 cents of incentive to write stories rather than play golf. I increased your opportunity cost of playing golf by 25 cents.
Our society has a lot of people in it. And each person can engage in an infinite variety of activities. Market economies work because we can help encourage people to engage in the most beneficial activities.
All the biggest problems that we face as a society are not caused by markets… they are caused by the absence of markets.
Right now we don’t have a market in Medium just like we don’t have a market in the public sector. These markets are missing because people don’t understand basic economics. People are under the impression that “recommending” or “liking” or voting can ensure that society’s limited resources are put to their most valuable uses.
Solving the biggest problems in the world boils down to helping people understand basic economics. Then people would understand the point of markets… markets would be created wherever they are missing… and our collective intelligence and ingenuity would eliminate the world’s biggest problems.
To help further illustrate the problem with missing markets… let’s consider this passage that you wrote…
I find this weird in so many ways. Let me highlight just one — consumption provides utility. Under this logic a tree has no utility unless it is cut down and “consumed”. I expect all of you question the logic of this. A tree can provide great utility without being consumed. It provides shade on a hot day, its leaves cleanse the air we breath, its branches provide homes for birds, its roots prevent erosion, and to many it is a thing of beauty. To assert that a tree has no utility if it is not consumed is, to me, a bizarre premise.
Benefit is in the eye of the beholder. Benefit is entirely in the eye of the beholder.
In theory you benefit from trees being conserved rather than developed. It’s only a theory because you do not currently have the freedom to put your own taxes where your words are. Right now we don’t have a market in the public sector. A major and fundamentally important market is missing. It’s missing because people don’t understand basic economics.
Creating a market in the public sector would be incredibly easy. People would be given the freedom to choose where their taxes go. I refer to this as “pragmatarianism”. Here’s the FAQ.
Once we created a market in the public sector… then you could decide whether more trees (X) was more important to you than more defense (Y).
If you decided that X > Y… then you’d allocate more taxes to X and less taxes to Y. Evidently, from your perspective, the world needs more trees more than it needs more tanks.
I’d probably be in the same boat as you. How many other people would be in the same boat? We don’t know. We don’t know the demand for conservation just like we don’t know the demand for defense.
Right now you’re saying, more or less, that the supply of conservation is wrong… but why in the world would you expect it to be right? How could it possibly be right when the demand for conservation is unknown? If the supply could possibly be right without the demand being known… then markets would be entirely pointless.
If we created a market in the public sector then the supply of conservation would be entirely determined by the demand for conservation. And then you’d be more than welcome to argue that the demand for conservation was inadequate. Would taxpayers find your arguments/information convincing? If so, then they’d give more of their taxes to the EPA.
Sharing information isn’t the easiest thing. It takes time and effort. So if you take the time and make the effort to share your information about the environment with other people… then it becomes a lot more worthwhile to do so when the recipients of your info have the freedom to immediately act on it.
If you’re a door and door salesman then you’re not going to waste your time making your sales pitch to a kid that answers the door. You’re going to ask to speak to whoever can make the decision to purchase your product.
With our current system… congress controls the purse. So all the sales pitches are made to congress rather than to the public. The public is treated like some kid. This is a problem because, with our current system… the kid is responsible for determining who controls the purse.
The only way that the public is going to make sound decisions about the environment is if they are given the relevant information. And the only way that it’s going to be worthwhile for the public to be given relevant information about the environment is if they have the freedom to control the money that they earned.
Missing markets are the cause of rational ignorance. The effects of ignorance, rational or otherwise, are extremely detrimental. Therefore, it would be extremely beneficial to create markets wherever they are missing.
Friday, September 18, 2015
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...
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...
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...
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...
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...
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...
Why do markets provide the optimal amounts of private goods?
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...
Also...
There's a shortage of consistency though...
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...
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...
Tabarrok loves the idea of 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?
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...
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.
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?
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.
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