Saturday, March 14, 2015

Matt Bruenig vs Poverty

A few days ago I mentioned in this entry...Raymond Fisman - Education vs Markets ... that John Quiggin is my second favorite Crooked Timber liberal.  If you'd like to know who my first favorite Crooked Timber liberal is... then you're welcome to read this entry... Is A Procreation License Consistent With Libertarianism?

Yes, Quiggin is still my second favorite Crooked Timber liberal.  It probably doesn't hurt that I have a cognitive bias towards Australians.  I think Australians are so cool for so many reasons!  But I'll avoid the strong temptation to digress any further down that path.

As I was about to start this entry, I wondered whether it's really necessary for me to refer to Quiggin as my second favorite Crooked Timber liberal.  It kind of begs the question of how he ranks among all the liberals in the world.  Doesn't it?  I'm sure the question keeps Quiggin up at night.  So from now on... I'm going to zoom out.  John Quiggin is my second favorite liberal in the world.  The world has a lot of liberals so that's pretty impressive... right?  There's nothing dubious about this distinction!

So who's my third favorite liberal in the world?  Noah Smith!  And my fourth favorite liberal in the world?  Errrr...I don't have one.  :(   That's got to be a problem.  I should have at least 5 favorite liberals or else I'm a huge failure at life.

Quiggin has been kind enough to suggest a candidate... The US government didn’t lose the War on Poverty: it changed sides.  Well... the suggestion was... subtle.  It was actually in the comments section... and somebody else's comment no less.  But Australians work in mysterious (and wonderful) ways!

The candidate is the liberal Matt Bruenig.  Is he going to be my fourth favorite liberal?  Let's find out!

Bruenig and I have at least two very important things in common...

1. We both want to eliminate poverty
2. We both think that the non-aggression principle (NAP) is... not that great

Here's why Bruenig isn't a fan of the NAP... Non-aggression never does any argumentative work at any time.  If you'd like to know why I'm not a fan of the NAP... then evidently you didn't read my entry that I linked to in the beginning of this entry!  For your convenience... here it is again... Is A Procreation License Consistent With Libertarianism?

Even though Bruenig and I both want to eliminate poverty... our policy recommendations are extremely different.  They can both be wrong... but they can't both be right.  Therefore, it would behoove us to poke and prod each other's poverty remedies.

From Bruenig himself...
As regular readers here know, I am a big fan of reducing inequality and combatting poverty by distributing income more evenly. This involves, among other things, increasing taxes on the rich and using the revenue from such taxes to boost the incomes of the poor. It's pretty simple and has been a winner of a policy everywhere it has been tried. - Matt Bruenig, Social Security Pulled 22 Million Out of Poverty in 2012
Most liberals would probably agree with this "solution".  Which is a problem because I'm pretty sure that it's fundamentally flawed.  Let me try and explain why.

Here was the comment on Quiggin's recent entry that he was responsible (more or less) for...
Exactly right John. When people say that the War on Poverty failed they need to be reminder that poverty is a flow not a stock. Matt Bruenig has an excellent article on this:
- MPAVictoria
Unless somebody wants to argue that MPAVictoria was lying, it seems pretty reasonable to assume that she values Bruenig's article.  The question is... how much does she value his article?  Does she value it at a penny?  A dime?  A dollar?  Ten dollars?

Let's go ahead and also assume that MPAVictoria isn't a free-rider.  Each year she donates $100 a year to Demos.  Even if this is true, it still wouldn't tell us how much she values the article in question.  Unless we want to assume that she values every single Demos article equally.  Do we want to assume this?  I sure don't.

It should be clear that MPAVictoria has her valuation of Bruenig's article locked away in her heart of hearts.    If Bruenig was only missing one person's valuation of one of his articles... then, unless she really valued the article, it would just be a small problem.  But if you add up enough small problems... then you can end up with a huge problem.  There are millions and millions of liberals in the world.... so you do the math!

Valuation information is fundamentally important.  We really can't make informed decisions without it.  So when we make important decisions in the absence of valuation information... it's very likely that we will misallocate our resources.

Paying somebody for something has two purposes... compensate and communicate.  The first is "seen" and the second is "unseen".  Liberals grasp the first but not the second.  As a result, they see no problem arbitrarily increasing compensation.  Changing the accuracy of what's communicated results in the proliferation of misinformation.  Spreading lies puts people into poverty.  And then Matt Bruenig endeavors to "save" them by adding fuel to the misinformation forest fire.  It's a vicious and violent cycle.

The efficient allocation of resources depends on accurate information.   Here's just some of the missing information...

  • Bruenig doesn't know how much MPAVictoria, or any liberal, values any of his articles
  • The government doesn't know how much Bruenig, or anybody else, values any public good
  • Poor people and students don't know how much any business owner values unskilled labor
  • Teachers don't know how much parents value their services

In this veritable valuation vacuum, it's a given that far too many people are going to end up being majorly misallocated.  This misallocation is impossible to miss when people are in poverty.  But it's a case of "really missing the point" to assume that poor people are the only victims of this valuation vacuum.  Perhaps if, at an earlier stage in life, some millionaire had known exactly how much society valued his writing, then he would have pursued his passion rather than settle for a lucrative but joyless career.  Humanity will never be able to benefit from the valuable volumes that the millionaire would have produced if his path had been properly illuminated by everybody's valuations.

So how do we unlock the mountain of valuation information that's hidden away in everybody's heart of hearts?  All that's required is to facilitate payments (communication).  The proliferation of accurate information will greatly increase the chances that we will choose the most valuable paths in life.  It will greatly decrease the chances that we'll spend our lives barking up the wrong trees, or tilting at windmills, or going on wild goose chases.


1. We have to acknowledge that movies, shows, books, blogs, music and the rest really aren't private goods.  They are public goods that are subject to the free-rider (valuation vacuum) problems.  As such, there should be mechanisms that require minimum contributions but also allow for maximum choice regarding how contributions are allocated.  This would unlock the mountain of valuation information regarding these types of goods.  For more info... The Satt.

2. We should eliminate minimum wages.  This would unlock the mountain of valuation information regarding any given area's demand for unskilled labor.  Nobody's better off when poor people misallocate themselves to areas that have a major surplus of unskilled labor.

3. Parents should be allowed to choose which teachers they give their money to.  This would unlock the mountain of valuation information regarding education.  For more info... Raymond Fisman - Education vs Markets

4. People should be free to shop for themselves in the public sector.  This would unlock the mountain of valuation information regarding public goods.  For more info... FAQ.

Can Bruenig effectively poke and prod all of this?  He would have to make a convincing argument that it's beneficial, rather than detrimental, when the supply of goods and services fails to reflect what people aren't given the opportunity to communicate.  In other words, he'd have to make a solid case that the efficient allocation of resources doesn't really depend on accurate valuation information.

Have I effectively poked and prodded Bruenig's argument?
So yes, as a matter of undeniable fact, handing out money does pull people out of poverty. It is astonishing to me that saying something like that is met with such gobsmacked skepticism. It is nearly the most obvious thing in the world that giving people more income makes them less poor. - Matt Bruenig, Social Security Pulled 22 Million Out of Poverty in 2012
If this astonishes Bruenig, then he really needs to familiarize himself with Quiggin's Implied Rule of Economics... The Inadequacy Of The Opportunity Cost Concept.

So is Bruenig going to be my fourth favorite liberal?  The position is his if he truly wants it.  All he has to do is reply to this. If his reply is substantial enough... then there's even a chance that he might steal Noah Smith's ranking!  It would have to be fairly substantial though because Smith and I go way back.

See also:

The Truth About Infrastructure Projects?
Jeff Madrick vs The Invisible Hand

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