Monday, March 23, 2015

In Which Our Anarchist Hero Jeffrey Tucker Proves The Point Of Taxation

The argument has often been made that helping the poor is a public good. There's something to that. But if the government sets up programs that ostensibly help the poor, we simply shift the public good problem. Now the public good is monitoring the government. Just as we had an incentive to free-ride on the charitable activities of others, creating too little charity, so also when the government runs programs, we have an incentive to free-ride on the monitoring activities of others, creating too little monitoring. - David Henderson, A Partial Defense of David Friedman
Henderson posted that a day after another EconLog blogger, Alberto Mingardi, posted his thoughts on a  "libertarian strategies" discussion over at Liberty Matters.  I read through the discussion and found this...
In economics, the first condition of the need for economization is scarcity. For this reason, the difference between scarce and nonscarce goods is fundamental and absolute. A good is either rivalrous in ownership and control or it is not. It either has to be reproduced following consumption or not. It either depreciates in its physical integrity or it does not. If I am wearing my shoes now, no one else can wear them at the same time. But if I hold an idea and decide to share it with the world, I can retain my ownership while permitting the creation of infinite numbers of copies. In this sense, ideas evade all the limitations of the physical world. - Jeffrey Tucker, Does the Structure of Production Apply to Ideas? 
Let's put 2 + 2 together.

2 = The free-rider problem would lead to a shortage of charity (a public good)

2 = Ideas that support freedom are a public good

2 + 2 = The free-rider problem is largely to blame for our shortage of freedom

Who do you think would be more inclined to agree with my logical conclusion... Henderson or Tucker?  Probably Henderson... given that Tucker is an anarcho-capitalist.

Tucker's perspective on the public goodness of ideas inspired me to do a bit of digging into his work (ideas).  It was pretty easy to find the "bug" in his economics.  

Back to Basics on Property and Competition

That's an article that Tucker wrote in 2009.  The first part is actually quite great and relevant...
Zeroing in on a topic like “intellectual property” offers a chance to clarify fundamental notions in economics generally. You think you understand something like property rights or the nature of competition — you have studied the ideas for years! — and then a challenge comes along that blows everything up. It’s an opportunity. Time to think and think again. 
This is true!  Let's seize the opportunity to clarify our economics!  Tucker goes on to say...
Ideas, then, are what Mises calls “free goods”: copies are potentially limitless. They “do not need to be economized.”
Hmmm. This sounded curious. So I looked it up...
They called free goods those things which, being available in superfluous abundance, do not need to be economized. Such goods are, however, not the object of any action. They are general conditions of human welfare; they are parts of the natural environment in which man lives and acts. Only the economic goods are the substratum of action. They alone are dealt with in economics. - Ludwig von Mises, A First Analysis of the Category of Action
If you search that page for the word "idea"... you'll learn that Mises did not once refer to ideas as "free goods".  Maybe he did elsewhere?  If he did, then point me in the right direction!  If he didn't, then it's Tucker, rather than Mises, who is calling ideas free goods.  I'm sure Tucker wasn't intentionally trying to mislead readers into believing that Mises argued that ideas are free goods... but hopefully you'll agree that Tucker's phrasing is easily open to misinterpretation.

Here's what Mises does say in the same source...
It is customary to say that acting man has a scale of wants or values in his mind when he arranges his actions. On the basis of such a scale he satisfies what is of higher value, i.e., his more urgent wants, and leaves unsatisfied what is of lower value, i.e., what is a less urgent want. There is no objection to such a presentation of the state of affairs. However, one must not forget that the scale of values or wants manifests itself only in the reality of action.  These scales have no independent existence apart from the actual behavior of individuals. The only source from which our knowledge concerning these scales is derived is the observation of a man's actions. Every action is always in perfect agreement with the scale of values or wants because these scales are nothing but an instrument for the interpretation of a man's acting.
Tucker's actions, for example, are the only way that we can know his values.  And to be clear, just in case you missed the previous million times that I've explained the concept of louder... here it is from the same source...
Neither is value in words and doctrines. It is reflected in human conduct. It is not what a man or groups of men say about value that counts, but how they act. The oratory of moralists and the pompousness of party programs are significant as such. But they influence the course of human events only as far as they really determine the actions of men. - Ludwig von Mises
Actions (spending) speak louder than words (voting).  What people are personally willing to sacrifice provides a far more accurate insight into their values.

But why in the world should we even care about Tucker's values?  Does it truly matter which products/services he values more?  Why is this information at all important or necessary?
The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. - Ludwig von Mises, Omnipotent Government
Socialism fails because production isn't guided by the valuations of consumers.  Tucker doesn't truly grasp this.
Let’s say I write a book and publish 1000 copies. They are all mine. When I sell one, I now have 999 remaining and the new owner of the one book, in a free society, is free to do with his copy what he wants: use it as a placemat, throw it away, deface it, photocopy, and even republish it. You can even re-republish it under your own name, though that would amount to the socially repudiated vice of plagiarism (vice, not crime). The new copies, which always involve some cost, compete with old copies.
Not sure if you noticed, but you can download Mises' book Omnipotent Government for free.  You don't even have to pay a penny!  It's a really great deal!  Right?
What are the advantages of living under intellectual freedom as described above? The authors list three main ones. 1) The number of copies is more plentiful and that price is thereby lower, which helps consumers. I like this point because it underscorces that IP is really what the old classical liberals denounced as a “producers’ policy” like protectionism or industrial subsidies. It beefs up the bottom line of specific firms at consumers’ expense. 2) The initial innovator still earns money as in the perfume or fashion or recipe industry, 3) “The market functions whether there is one innovator or many — and socially beneficial simultaneous innovation is possible.”
Does the $0 price tag on Omnipotent Government truly help consumers?  Yes... if you only focus on the Seen.  But as Bastiat pointed out, the good economist focuses on the Unseen.

The Unseen is that we don't have access to consumers' valuations of Omnipotent Government.  This essential information is hidden away in each and every consumer's heart of hearts.  Latent information doesn't factor into the decisions of producers.  This means that the compass that guides the economy is marginally less effective.

If we only look at one single product... Omnipotent Government... then the compass appears to be only slightly defective.  But what if we consider all the other free books, essays, articles, papers, Youtube videos and blog entries that promote freedom?  If you can picture all the valuation information that's missing... then it should be painfully clear that the compass isn't marginally defective... it's substantially deceptive.  It communicates the really wrong thing.  The message it sends to producers is incorrect.  The compass erroneously indicates that society doesn't highly value ideas for freedom.  And why should producers allocate significant amounts of society's limited resources to the production of something that society doesn't highly value?  They really shouldn't... so they don't.  As a result, there's a shortage of ideas that effectively promote freedom.  As they say in computing... garbage in, garbage out.

Perhaps a picture will help.  Here's one from my entry on the topic of value signals...

Imagine that the next generation's Mises or Hayek or Friedman or Buchanan is in high school right now.  His name is Roberto.  It stands to reason that we probably don't want Roberto to become a brain surgeon or a judge or an engineer.  Right?  We'd really prefer it if he would apply his considerable genius to vanquishing the obstacles that stand in the way of more freedom.  Therefore... what?  We should take our valuations of liberty "ideas" and hide them under a bushel?  We should diminish the value signal that points to liberty?  We should make a career in freedom a lot less lucrative than the alternatives?  We should decrease Roberto's incentive to forego his other options?  We should increase the opportunity cost of fighting for freedom?  We might as well shoot ourselves in the feet while we're at it.

Maybe another illustration would help...

Low prices are only beneficial when they send the right message to producers.  If the price of corn, for example, is very low... then the message that's sent to farmers is... "use your land to grow higher-priced crops".  This is the right message if there's a surplus of corn.  If, on the other hand, there's a shortage of corn... then this message is really wrong.

It's the same thing when it comes to higher prices.  Higher prices are only beneficial when they send the right message to producers.  Take the minimum wage for example...

A minimum wage communicates to (potential) producers of unskilled labor that they should drop out of school and/or move to the US.  This is the right message if the US is suffering from a shortage of unskilled labor.  If, on the other hand, the US is suffering from a surplus of unskilled labor... then a minimum wage sends the really wrong message to (potential) producers of unskilled labor.

All economic problems stem from communication failures.  And all communication failures stem from economists failing to see and/or explain the Unseen.

The solution is super simple.  Tucker would create a website just like LessWrong... but dedicated to the promotion of liberty.  Members would pay $5 per month... but they could allocate their monthly fee among the other members.  Whichever members produced the best arguments for freedom would receive the most money.  The more money that they received... the brighter the value signal.  The brighter the value signal... the more people that would join the website.  This virtuous cycle would produce freedom superstars.

The thing is... Tucker already created this website! costs $5 per month and you can blog all about freedom and liberty.  The minor detail is that you can't choose which members you allocate your monthly fee to.

Tucker thinks markets are so great... but he didn't create a market within his website.  Why didn't he?  It's because there's a "bug" in his economics.  Tucker mistakenly believes that non-rivalry negates the necessity of valuations.  In no way, shape, or form does non-rivalry negate the necessity of valuation.  What non-rivalry indicates is the necessity for a mandatory minimum contribution (MMC) combined with consumer choice (CC).  Combining MMC and CC allows for economic action (spending) to more accurately communicate individual valuation of non-rivalrous goods.

Right now I'm really not going to pay $5/month to blog.  It's one thing to blog for free... but it's another thing to pay to blog.  However, I'd certainly join if each and every member could allocate their $5 dollars among the other members.

Consider this list...

If every single person on this list was a member of who would receive the most money?   There's a "bug" in your economics if you don't want to find out.

To be clear, this list is the Seen.  Nearly all these people spend a considerable amount of their limited time promoting liberty for free.  A bad or buggy economist will look at this list and argue that the considerable supply of pro-liberty material proves that we really don't need to accurately valuate non-rivalrous goods.  So what's the Unseen?  Obviously it's not easy to see!

In order to see the Unseen... you have to imagine what would happen if we did figure out how to accurately valuate the demand for non-rivalrous goods.  It stands to reason that as the value signal grew brighter... that more people would be added to this list.  So what's the Unseen?  It's all the people who aren't on this list... but should be.

If it sounds like I'm harshly criticizing Tucker for failing to see the Unseen... then let me direct you to this blog entry that I posted a year ago... Don't Hide Marx Under A Bushel.  What inspired that blog entry was a blog entry over at the Crooked Timber liberal website... Karlo Marx and Fredrich Engels / Came to the checkout at the 7-11.  In that entry, Scott McLemee lamented the fact that a publisher (Lawrence & Wishart) forced to stop freely sharing copyrighted material.  Here's a snippet from McLemee's blog entry...
Somehow it has not occurred to Lawrence & Wishart that, by enlarging the pool of people aware of and reading the Collected Works, the archive is actually expanding the audience (and potential market) for L & W’s books, including the somewhat pricey MECW volumes themselves, available only in hardback at $25-50 per volume. I’m stressing the bottom line here, given that the press’s decision is rational only on the narrowest conception of it. But a piece of synchronicity involving another CTer underscores just how much the left can learn from, of all things, the sectarian right: 
About the time the Marxist Internet Archive announced that it would be taking down all the MECW material, Corey and I both, by coincidence, were availing ourselves of radically under-priced materials from the enemy’s publishing apparatus. He’d received an order containing dirt-cheap copies of Bastiat from the Liberty Fund, while a day earlier I had downloaded free digital editions of the major Austrian School books on theory of value and the socialist-calculation debate from the Mises Institute website. There’s more to neoliberal hegemony than loss-leader pricing, but as ideological combatants those people know what they’re doing. - Scott McLemee
If you read my blog entry on McLemee's lament then you'd know that I found it immensely funny.  But now I find it immensely "funny" for reasons that I've endeavored to explain in this blog entry.

What I'm trying to say is that if I'm harshly criticizing Tucker for missing this "bug" in his economics... then all this harsh criticism is equally applicable to myself as well.  Well... not me now... but me a year ago.  In other words, I only just recently removed this "beam" from my own eye.

This concludes my debugging of Jeffrey Tucker's economics!  Well... I've pointed out the bug... but only Tucker himself can remove it from his economics.

Some other relevant material from Tucker...

And some other relevant material from myself...

And another relevant passage from Mises...
If profits were to be curtailed for the benefit of those whom a change in the data has injured, the adjustment of supply to demand would not be improved but impaired. If one were to prevent doctors from occasionally earning high fees, one would not increase but rather decrease the number of those choosing the medical profession. - Ludwig von Mises, Human Action



  1. "The free-rider problem would lead to a shortage of charity (a public good)"

    You state this as if it is axiomatic. I disagree, charity is something people do by choice. It is a "private transaction", not a "public good".