Monday, March 31, 2014

Samuelson, Tiebout, Buchanan and Exit Granularity

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Reply to reply: Is This Forum A Market?


[note]I say this sincerely and with no malice: you're taking peoples' complaints about the repetitive nature of your threads far too seriously. - Orham[/note]
It's just a helpful reminder. Kinda like some people need a friendly reminder that coffee from McDonald's is hot.
Eh, I'll go with the "forums are economies" metaphor. It's not entirely baseless, though it's not strictly true either. Anyway, on to the nitty-gritty then. - Orham
I like the part where you're the first person to point out that this forum is a mixed economy. Except, you didn't even come close to tackling my actual argument.

You spent quite a bit of time spelling out the obvious...that the supply of police isn't determined by the demand for police...but then when it came time to explaining why the visible hand wouldn't work for threads (my actual argument)...this is all the magic I got for my moment...
A moderation market, and especially an unregulated one (which it would need to be in order to be a characteristically pure market rather than a regulated market), would be unable to deliver objective rulings guided solely by the forum's equivalent to rule of law. - Orham
Your mission, if you choose to accept, is to explain to me why it wouldn't work to elect representatives to choose which threads consumers reply to. I know the you? If you don't know the answer...then how can you know that your answer regarding police is correct?
See? Supply and demand, as far as moderation is concerned, aren't being guided by market activity. The moderation supply is being rationed, distributed according to a planned schedule and set protocol which operates independently of present demand levels or consumer preferences for a particular sort or amount. - Orham
If the command outcome for police is more valuable than the market outcome would be...then why isn't this also true for threads? This is my question...which is based on my argument...which you entirely failed to address.
This forum, if it is to be metaphorically examined as an economy at all, is definitely neither a pure market system nor a pure command system. It is certainly a mixed system, and the reason why is because some services it provides are delivered according to command principles rather than market principles. - Orham
You missed my argument the first time. And I thought it was quite obvious. So perhaps it will help if I make it even more obvious. So...ok...I'm not disagreeing that this forum is a mixed economy. And, mad props for pointing that out. But, it doesn't help us tackle the issue of why elected representatives couldn't create more value by choosing which threads we replied to.
Xero, there are forums and websites where moderators are elected officials rather than appointed ones. Rational Wiki is an example. - Orham
Again, and again, and again...there aren't any forums which choose for you which threads you reply to. Should there be? If not, then why not? If so, then please let me know when you start one. Maybe then you'll learn why command economies fail. How priceless would it be to have that knowledge?
You dug yourself pretty deep with this one considering there are sites which charge premiums for use of their services (online tutoring services come to mind), forum moderators may or may not be elected officials (Rational Wiki), and NS is a profitable site regardless of the fact that its moderation services are rationed. - Orham
Again, again, again and again...there aren't any forums which determine which threads you spend your time on. Why is that?
...really, you've dug so deep I can't even see you anymore. - Orham've simply closed your eyes...that's why you can't see me anymore. If you want to bury me that badly...then start a forum where elected representatives choose which threads you reply to. If it thrives...then my world view would be annihilated. It will be an extremely unpleasant feeling. But so be it. I prefer reality. What about yourself?

If you had a million dollars laying around...I'm sure you wouldn't hesitate throwing $10,000 at the development of your proof. But that's not the case right? And I don't think you're going to sell your car to start a representative forum. And you're probably not going to ask the bank for a loan. So why not try and crowdfund it?

If you try and crowdfund it...then you can see if there's any demand for a forum where elected representatives dictate which threads you reply to.

While I'm here...let me share a bit of my reality with you.

In my OP I mentioned The Pure Theory of Public Expenditure. It was written in 1954 by the Nobel Prize winning liberal economist Paul Samuelson. It is by far the most widely cited economic justification for government.

His argument was that, because people can benefit from public goods without having to pay for them, it wouldn't work to simply ask people how much they value public goods. People would have an incentive to state that they value public goods less than they actually do. As a result, public goods would be undersupplied. Therefore, compulsory taxation is necessary.

Samuelson and I agree on this pretty fundamental point. Everybody wants a free lunch. We all want to externalize costs.

This leaves us with the issue of determining how much people truly value public goods. Is it important to figure this out? Well...yeah...the optimal supply depends on this information. You can't say, "hey man nice shot" if you don't know where the target is. In economics, the target is demand. The value of the supply is judged by its proximity to demand. How valuable is this thread? The answer depends on how closely it matches the preferences of consumers.

What Samuelson did was simply assume that government planners already know what our preferences are. In other words, he just assumed that government planners are omniscient. Seriously. I really disagree with Samuelson on this fundamental point. And I sure wasn't the only one.

Two years after Samuelson published his paper...Charles Tiebout published A Pure Theory of Local Expenditures. It's been cited over 10,000 times...which gives you a pretty decent idea of its importance.

Tiebout's paper was a response to Samuelson's argument that it was impossible to discern people's true preferences for public goods. In his paper, Tiebout argued that people will move to whichever communities supply levels of public goods which most closely match their preferences. Basically, foot voting solves the preference revelation problem. was a great argument because there was a decent amount of truth to it...but many economists were not very satisfied with the answer. Therefore, many economists have been trying to figure out other ways to get people to reveal how much they value public goods.

Now, I'm pretty sure you've never even heard of Tiebout or his extremely well cited paper. Just like I'm sure you've never heard of any of the economists since then who've attempted to solve the preference revelation problem. Clearly you're not even aware of the preference revelation problem.

I'm especially bringing up Tiebout though because of his relevance to your post. In the real world...there are significant costs to moving to a new community. Foot voting is not cheap. So the push/pull has to be pretty significant before you'll move to the next community...let alone to another country.

But this really isn't the case with forums. Foot voting for a different forum is far less costly than foot voting for a different real life community. It was pretty much the easiest thing for people to migrate from Friendster to MySpace to Facebook. And unlike real communities...we can live simultaneously in numerous online communities. This means that the supply of public goods in forums will more closely match the preferences of consumers than the supply of public goods in towns will. It's far easier to start a new forum than it is to start a new town.

So you're right that this forum is a mixed economy...but the supply of public goods is more accurate/valuable (closer to the target) because leaving (exit) is relatively easy. If it was just as easy to move in the real world...then it wouldn't be as important to try and help people understand why pragmatarianism is by far the best option.

In 1963, seven years after Tiebout published his paper, the Nobel Prize winning market economist, James Buchanan, published The Economics of Earmarked Taxes. It's only been cited 246 times. Sometimes it takes the crowd a while to recognize an Easter Egg. That being said, the crowd finds infinitely more Easter Eggs than government planners can.

Buchanan's argument was basically that if people have to pay taxes anyways, then it's in their selfish interest to spend their taxes on the public goods that most closely match their preferences. If your buck is a foregone conclusion, then you might as well spend it on whatever gives you the most bang. If your moment is a foregone conclusion, then you might as well spend it on whatever gives you the most magic. If you've already paid for a buffet...then you might as well select the dishes that you find most delicious. When consumers are free to spend their time/money on the items that most closely match their preferences...producers have the strongest possible incentive to try and supply better items. As I said in an earlier post...consumer choice has very beneficial consequences.

To summarize...

1954 - Samuelson - omniscient government planners
1956 - Tiebout - foot voting
1963 - Buchanan - tax voting

Foot voting and tax voting are by no means mutually exclusive. But it's the epitome of throwing the baby out with the bath water if people totally exit because they don't have the option to specifically exit. It would destroy value if the only way you could exit from this thread would be to exit from this forum. Therefore, you should be free to exit from funding the war on drugs just like you're free to exit from this thread. You should be free to exit from funding the DoD just like you're free to exit from the NRA.

Imagine how absurd it would be if the only way vegetarians could avoid buying meat would be to move to a town where nobody purchased meat. If you take that absurdity and multiply it by a really giant number you end up with our public sector.

First you move your money/time...and if that doesn't work...then you move yourself.

I like your sig by the way. At this stage in the game...there's no such thing as bad publicity.

Also, out of curiosity...have you ever wondered whether you're more analytical than most?

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