In order to fully grasp the deficiency of Southwood's critique, it's necessary to fully grasp the most basic, fundamental and elementary economic problem...
Society's wants: unlimited
Society's resources: limited
From Buchanan...
The concept of opportunity cost (or alternative cost) expresses the basic relationship between scarcity and choice. If no object or activity that is valued by anyone is scarce, all demands for all persons and in all periods can be satisfied. There is no need to choose among separately valued options; there is no need for social coordination processes that will effectively determine which demands have priority. In this fantasized setting without scarcity, there are no opportunities or alternatives that are missed, forgone, or sacrificed. - James M. Buchanan
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
Understanding scarcity means understanding that society must prioritize. Society's unlimited wants aren't equally relevant. Some wants are more socially relevant than others. The relevance of society's wants must be known in order for its limited resources to be efficiently allocated. From Smith....
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, consumers decide how to divide their limited dollars among their unlimited desires. This inclusive, substantial, and specific prioritization process optimally (efficiently) divides society's limited resources among its unlimited wants.
With this prioritization process in mind, let's consider the issue of public goods. From Paul Samuelson's 1954 paper ...
But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc. — Paul Samuelson, The Pure Theory of Public Expenditure
The concern here isn't that people wrongly or incorrectly or inaccurately value public goods. The concern is that, if people are asked how much they value national defense, for example, and they know that their answer will determine their payment, then they will have an incentive to pretend to value national defense less than they truly do. Conversely, if people know that their answer will not determine their payment, then they will have an incentive to pretend to value national defense more than they truly do. Both cases are problematic because they will result in society's limited resources being incorrectly divided. In the first case too few resources will be allocated to defense. In the second case too many resources will be allocated to defense. Society really doesn't benefit from a shortage or a surplus of defense.
It's crucial to appreciate that false signals are a problem because they incorrectly divide society's limited resources. It should be crystal clear that the correct division of resources depends on true signals. The inherent challenge is that the truth of signals can only be known by the people themselves.
Therefore... what? Samuelson immediately jumped to voting as the solution? Nope. In order to create a pretty model, he simply assumed omniscience on the part of government planners.
Buchanan was not a fan of assuming omniscience on anyone's part. In 1963 he responded...
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 M. Buchanan, The Economics of Earmarked Taxes
Let’s take Netflix for example…
Samuelson: The optimal quantity, quality and variety of movies depends on knowing the intensity of people’s preferences for movies. But if movies were freely available, and we asked people to report their valuation of specific movies, and they knew that their answer would determine their payment, then they would have an incentive to under-report their valuation. Therefore, we need Netflix. Subscribers will pay a fee, Netflix will “divine” their preferences and spend their fees accordingly.
Buchanan: Since Netflix subscribers are already paying fees, if they are given the option to earmark their fees to their favorite movies, they’d have absolutely no incentive to conceal their “true” preferences for movies.
Later on Buchanan put his criticism of the omniscience assumption like so...
What, then, does Barry mean (and others who make similar statements), when the order generated by market interaction is made comparable to that order which might emerge from an omniscient, designing single mind? If pushed on this question, economists would say that if the designer could somehow know the utility functions of all participants, along with the constraints, such a mind could, by fiat, duplicate precisely the results that would emerge from the process of market adjustment. By implication, individuals are presumed to carry around with them fully determined utility functions, and, in the market, they act always to maximize utilities subject to the constraints they confront. As I have noted elsewhere, however, in this presumed setting, there is no genuine choice behavior on the part of anyone. In this model of market process, the relative efficiency of institutional arrangements allowing for spontaneous adjustment stems solely from the informational aspects.
This emphasis is misleading. Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of "as if" functions that are maximized. But these "as if" functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will.
Public choice attacks the omniscience assumption. Southwood probably doesn't believe that anybody is omniscient. So then, what does he believe? Does he believe, like Buchanan and Samuelson did, that the optimal division of resources depends on true signals? If so, does Southwood also believe that true signals can be revealed/communicated/transmitted by voting? Does he seriously believe that direct democracy can optimally divide society's limited resources among its unlimited wants? Does he truly believe that shopping is a massive waste of everybody's limited time, energy and brainpower?
The fact of the matter is that the Adam Smith Institute (ASI) is not a market. Donors aren't given the opportunity to divide their donations among the ASI's numerous products. The order (relative importance) of the ASI's products/topics is not determined by the Invisible Hand (IH), and it's not determined by the Democratic Hand (DH)... so it must be determined by the Visible Hand (VH).
In the ASI's case, the debate isn't about compulsory versus voluntary contributions to public goods. It's purely and simply a matter of which hand is better at dividing the ASI's limited resources. My theory is that the IH would do the best job, by far, of dividing the ASI's resources. So should I provide a strong and wonderful argument in favor of replacing the VH with the IH? What's the alternative? Southwood should provide a strong and wonderful argument against replacing the VH with the IH?
After I publish this entry, I'll try and bring it to Southwood's attention by using Twitter. After all, Twitter is how his entry was brought to my attention. Twitter divides our limited attention among unlimited articles. But does it efficiently allocate our attention?
If economics is really the study of the allocation of scarce resources it should be way more focused on time and attention— Tim Wu (@superwuster) June 2, 2017
From Adam Smith's perspective, the efficient division of limited resources depends on people dividing their limited dollars among their unlimited desires. Attention is certainly a limited resource. Yet, members of Twitter don't use their dollars to allocate each other's limited attention. Twitter is not based on Smith's perspective. Neither is the ASI. Donors don't use their dollars to allocate each other's limited attention.
We shouldn't be surprised that Twitter is not based on Smith's perspective... but the ASI? What hope can we have for Twitter, and the rest of the world, when even the Adam Smith Institute isn't based on Adam Smith's perspective?
Smith's perspective is either wrong or right. Or, perhaps, somehow it's right for clothes, computers and cars... but it's wrong for articles, papers, posts and tweets. I'll certainly admit that articles and clothes are different types of goods. But even though articles are digital goods, and frequently public goods, their creation still requires the use of society's limited resources. All the time that I spend writing about this topic is time that I can't also spend writing about other topics. How should I divide my limited time among unlimited topics? Should you answer this question with your dollars (Smith's perspective)? Or should you answer this question with experts/leaders/committees/dictators (ASI's perspective)? Or should you answer this question with cheap-talk (Twitter's perspective)?
Consider this blog written by 4th graders... Classtopia. The entries on the homepage are sorted by the hand of time. But the entries on this page are sorted by the Invisible Hand.
The IH is currently 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. Everybody could use their money to grade the relevance of Classtopia's (home)work. If every school was a market, then the IH would guide each and every student to their personally and socially optimal occupation. If it makes sense for the IH to guide students... shouldn't it also guide prisoners?
Prison labor is dangerously close to a new form of American slavery. Fight it by paying inmates minimum wage: https://t.co/Wn3ZIYY3HE— Noah Smith (@Noahpinion) June 2, 2017
My challenge to Southwood, and anybody else who reads this, is to come up with a coherent economic story. Start with a solid foundation of scarcity and then construct a sound economic argument for inconsistently, or consistently, applying Smith's perspective.
I suppose that I should acknowledge that Smith himself didn't apply the IH to public goods, articles, tweets, Netflix shows or homework. He didn't stand on his own shoulders. Well... actually... he certainly recognized the importance of replacing Twitter's perspective with his own...
The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. - Adam Smith, Wealth of Nations
Compare Adam Smith's solution to Noah Smith's solutions...
But as I see it, some kind of concentration is needed. Informational anarchy is always ruled by the Shouting Class, so the only way to curb the Shouters' power is to end the anarchy. Maybe social media platforms themselves will become the new quality filters. Maybe algorithmic blocking will use robots to shut down the Shouters. Maybe people will just stop using Twitter, and stop joining political argument groups on Facebook. Maybe everyone will make their profiles more private, and learn to unfollow people who engage in callout culture. - Noah Smith, The Shouting Class
Noah Smith didn't even mention Adam Smith's solution. Why is that?
There's nothing inherently wrong with shouting. The problem is when the crowd doesn't have the easy opportunity to put its money where its mouth is.
It should definitely be easy for people to point and shout "Watch out for that ________ !!!" But the number of exclamation points that they are willing to use should be given far less credence than the number of their own dollars that they are willing to spend. Admittedly, if you're walking down the street and somebody points and shouts "Watch out for that piano!!!" then perhaps you shouldn't wait for the shouter to put their money where their mouth is. But this is a purely technical issue. In all cases, tying shouts and spending together is the only way to maximize rational choice.
Noah Smith, Ben Southwood and I are planning to go backpacking. Noah is going to carry everything but all three of us will vote on what to take. Southwood and I might as well vote/shout for some luxuries. It's not like we will have to directly pay the price of our decisions. Our costs will be completely covered by Noah. He's going to be our beast of burden.
Buchanan thoroughly understood the incredible importance of creating a solid bridge between choice and cost...
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Historically, legislative bodies, through which the preferences of individual citizens are most directly represented, have exercised more control over revenue or tax decisions than they have over expenditure decisions. In part this asymmetry has its origin in the development of democratic political institutions out of monarchial institutions. Representative bodies, parliaments, first achieved the power to restrict the tax-gathering privileges of the kings. Before taxes could be levied on the people, representative bodies were given the right to grant their approval. No consideration was given to the spending side of the account because public expenses were assumed to benefit primarily the royal court, at least in the early days of constitutional monarchy. Taxes were viewed as necessary charges on the people, but they were not really conceived as any part of an "exchange" process from which the people secured public benefits. It was out of this conception of the fiscal process that both the modern institutions and the modern theory of public finance developed. - James Buchanan The Bridge Between Tax and Expenditure in the Fiscal Decision Process
The emerging of modern democratic states dramatically modified the setting for the fiscal process, but only recently has attention been paid to the necessity of revising age-old norms. As royal courts came to be replaced by executives, and monarchies by republics, taxes continued to be viewed as necessary to sustain the expenses of “government,” with the burden of these taxes to be minimized to the maximum extent possible. Surprisingly little recognition has been given, even yet, to the idea that taxes must, in the final analysis, be considered as the “costs” of those public goods and services which provide benefits to the same people who pay taxes. - James Buchanan, The Bridge Between Tax and Expenditure in the Fiscal Decision Process
A second analytical principle emerged more than a century after Smith’s Wealth of Nations, and it was not explicitly incorporated into the norms for policy. But it may have been implicitly recognized. It is important because it reinforces the classical principles from a different and essentially political or public-choice perspective. In 1896, Knut Wicksell noted that an individual could make an informed, rational assessment of various proposals for public expenditure only if he were confronted with a tax bill at the same time. Moreover, to facilitate such comparison, Wicksell suggested that the total costs of any proposed expenditure program should be apportioned among the individual members of the political community. These were among the institutional features that he thought necessary to make reasonably efficient fiscal decisions in a democracy. Effective democratic government requires institutional arrangements that force citizens to take account of the costs of government as well as the benefits, and to do so simultaneously. The Wicksellian emphasis was on making political decisions more efficient, on ensuring that costs be properly weighed against benefits. A norm of balancing the fiscal decision or choice process, if not a formal balancing of the budget, emerges directly from the Wicksellian analysis. - James Buchanan, Richard Wagner Democracy in Deficit: The Political Legacy of Lord Keynes
The necessity of relating decisions on public expenditures explicitly to decisions on taxes through the political process, and of assigning a definite revenue category to each single expenditure was stressed by Wicksell in his classic statement of the individualistic theory of public finance (see Knut Wicksell, "A New Principle of Just Taxation," in Classics in the Theory of P'ublic Finance, ed. 1R. A. Musgrave and A. T. Peacock [London: International Economic Association, 1958], pp. 72-118, but esp. p. 94. The original Wicksell work is Finanztileorietisclie Uizlersuchlungen [Jena: Gustav Fischer, 1896]). - James Buchanan, The Economics of Earmarked Taxes
The most sophisticated contribution was made by Knut Wicksell in 1896. He explicitly identified the fundamental methodological error in the then-orthodox approach, and he combined positive criticism with normative suggestions for reforms. Wicksell recognized the necessity of bridging the two sides of the fiscal account, and he noted the indeterminacy of any proposed principles that were limited to tax-side considerations. - James Buchanan, Public Finance and Public Choice
In addition to the uncertainty factor, which can be readily understood to limit the range of rational calculus, the single individual loses the sense of decision-making responsibility that is inherent in private choice. Secure in the knowledge that, regardless of his own action, social or collective decisions affecting him will be made, the individual is offered a greater opportunity either to abstain altogether from making a positive choice or to choose without having considered the alternatives carefully. In a real sense, private action forces the individual to exercise his freedom by making choices compulsory. These choices will not be made for him. The consumer who refrains from entering the market place will starve unless he hires a professional shopper. Moreover, once having been forced to make choices, he is likely to be somewhat more rational in evaluating the alternatives before him. - Gordon Tullock, James Buchanan, Individuality Rationality in Social Choice
The introduction of the debt alternative to taxation makes the bridge between cost and benefit more difficult for the individual to construct. - James Buchanan, "Fiscal Policy" and Fiscal Choice
Institutionally, earmarking provides a means of compartmentalizing fiscal decisions. The individual citizen, as voter-taxpayer-beneficiary, is enabled to participate, separately, either directly or through his legislative representative, in the several public expenditure decisions that may arise. He may, through this device, "vote" independently on the funds to be devoted to schools, to sanitation, and so on, given the specified revenue sources. Only in this manner can he make "private" choices on the basis of some reasonably accurate comparison of the costs and the benefits of the specific public services, one at the time. By contrast, general-fund budgeting, or non-earmarking, allows the citizen to "vote" only on the aggregate outlay for the predetermined "bundles" of public services, as this choice is presented to him by the budgetary authorities. - James Buchanan, The Economics of Earmarked Taxes
Conceptually, an "ideal" institutional arrangement might be that of allowing individuals to "pay for" governmental goods and services in a manner analogous to that which they have found most convenient for financing consumer durables. The quarterly payments of tax on declarations of income above or outside withholding probably tend, on balance, to promote "logical" response to the income tax structure. It is the absence of any conscious sense of transfer, the absence of any monthly or quarterly bill, that represents the questionable feature of withholding, and one that may tend to create a Puviani-type illusion. - James Buchanan, Public Finance in Democratic Process: Fiscal Institutions and Individual Choice
Only one of these questions seems relatively easy to answer. If the individual can make separate fiscal choices for each public-goods program, which a structure of earmarked taxes conceptually allows him to do, directly or indirectly, he is informed as to the alternatives that he confronts, at least to the extent that the payment institutions allow, and subject, of course, to all of the qualifications noted in previous analysis. The uncertainty that he faces is clearly less than that which is present in the comparable decision on a “bundle” of public goods or services, with the mix among the separate components in the bundle to be determined in a separate decision process or through the auspices of a delegated budget-making authority. If this mix is not announced in advance to the voter-taxpayer, he must try to predict the outcome of another decision process, in which he may or may not participate, a process that need not exist at all in the more straightforward earmarking model where all revenue sources are specifically dedicated. - James Buchanan, Public Finance in Democratic Process: Fiscal Institutions and Individual Choice
In a balanced-budget context, a decision to spend publicly implies a decision to tax, and a decision to tax implies a decision to spend. Only if the actual institutions of fiscal choice are organized in such a way that this basic truism is reflected in the alternatives confronting the individual participant can these uncertainties be minimized. Much of the modern criticism of the United States Congress is directed at its failure to allow simultaneous consideration of expenditure and tax decisions. - James Buchanan, The Bridge Between Tax and Expenditure in the Fiscal Decision Process
Nevertheless, the fact remains that such choice embodies a direct correspondence between private cost and private benefit, the characteristic that is stressed here, and the one that is absent, in varying degree, from individual choice in collective decision processes. This central feature of market choice, rather than any implied assumption of rationality, makes individual behavior in organized markets useful as a benchmark from which we begin to assess collective choice institutions. - James Buchanan, Public Finance in Democratic Process
Similar behavior can be predicted on the spending side of the account. If the individual citizen were asked, in mid-1963, his opinions on proposed expansions in the federal space program, he could, roughly and in some fashion, measure benefits in terms of sport, national prestige, adventure, technological fallout, etc. But what were the costs? He would not have translated the costs of the space program into increased taxes. And for a very simple reason: the individual knew that he would not have to pay such taxes. The predictable result of a democratic choice process is the generation of budget deficits when borrowing is available as an alternative to taxation unless deficit creation is not somehow restrained by constitutional limitations. - James Buchanan, Public Finance in Democratic Process: Fiscal Institutions and Individual Choice
The Clay committee has at last discovered the fiscal version of Aladdin's wonderful lamp, and that henceforth all governmental “good things” such as super-super highways may come to us without our having to bear either the burden of taxation of the sufferings of conscience over increasing national debt. - James Buchanan, Painless Pavements: Highways by High Finance
Good things come at a cost, whether they be provided by the government or the grocery store. - James Buchanan, Painless Pavements: Highways by High Finance
The apparent splitting of the fiscal process into two parts was shown to produce potential gaps between preferred spending on public goods and services and preferred levels of taxation. Until and unless these gaps are eliminated, budget deficits tend to emerge from democratic decision processes. - James Buchanan, "Fiscal Policy" and Fiscal Choice
Under the assumption that public output enters positively into the utility functions of citizens, the expenditure by itself will secure support for the politician. The taxes, however, will reduce the disposable income of citizens, thereby affecting them negatively and reducing support for the politician. In a plurality electoral system, for given preferences and fixed tax institutions, the budget will be expanded so long as a majority would prefer the public service to the private goods they would have to sacrifice via taxation. - James Buchanan, Richard Wagner Democracy in Deficit: The Political Legacy of Lord Keynes
The restoration of the balanced-budget rule will serve only to allow for a somewhat more conscious and careful weighting of benefits and costs. The rule will have the effect of bringing the real costs of public outlays to the awareness of decision makers; it will tend to dispel the illusory “something for nothing” aspects of fiscal choice. - James Buchanan, Richard Wagner Democracy in Deficit: The Political Legacy of Lord Keynes
Randall Bartlett makes the same point, only he uses a visual rather than an auditory metaphor. In his framework, some tax forms have higher visibility than others. Starting with perfect visibility, taxes can be arrayed in descending order of visibility. In both his analysis and ours, changes in the institutional format for extracting revenues will influence citizen perceptions of the cost of government. See Randall Bartlett, Economic Foundations of Political Power (New York: Free Press, 1973), pp. 92-95. - James Buchanan, Richard Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes
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Fully appreciating the necessity of bridging the gap between choice and cost depends entirely on fully appreciating the significance of scarcity. Society's limited resources have to be divided between its unlimited wants. In order to maximize the rationality, relevance, efficiency, benefit, value of the division, fiscal illusion must be minimized. The only way to minimize fiscal illusion is for people to personally pay, and directly feel, the full and true cost of their choices. Then, and only then, will society's limited resources be efficiently allocated.
If people want a war, whether on drugs, terror or poverty, then they should definitely have the option to shout for these things... but they should not have the opportunity to pay for these things by reaching into other people's pockets. They should only have the opportunity to reach into their own pockets. Then, and only then, when they directly confront, consider, compare and calculate the (opportunity) costs of their own money, can they possibly make rational decisions regarding the true relevance/importance/necessity/urgency of the war. When people only have the opportunity to reach into their own pockets then, and only then, will society's limited resources be optimally divided.
A few years ago Robert Kuttner wonderfully wrote this article... Karl Polanyi Explains It All...
Yet Marx, for all of his stubbornly apt insights about capitalism, is an unreliable guide to its remediation. Polanyi, with the benefit of nearly a century’s worth more evidence, has a surer sense of how markets interact with society.
Polanyi stood on Marx's shoulders. Buchanan stood on Smith's shoulders. Whose shoulders does Southwood want to stand on? Whose shoulders does the ASI want to stand on?
My belief is that I'm correctly interpreting and understanding Smith and Buchanan. But it's entirely possible that my belief is mistaken. For example, Peter Boettke has studied Smith and Buchanan far more than I have. And we certainly agree on some fundamentals...
Yet, he's never argued that Netflix should be a market. He's never endeavored to explain why the IH, rather than the VH, should determine the order (relative importance) of Netflix's content. Boettke and I both agree that it's beneficial that Netflix is in a market, but he doesn't seem to perceive the benefit of Netflix being a market. However, it's not like he has argued against Netflix being a market. He has not argued that it would be detrimental for around 100 million subscribers to divide their limited fees among the unlimited shows and movies on Netflix.
How much would the content change if 100 million people could decide for themselves how their money is spent? The amount of money spent would be exactly the same. But it would be divided differently among the content. How different would the division be?
A. The VH's division
B. The IH's division
C. The difference between A and B
Would Boettke seriously argue that C would be insignificant? If he did, then wouldn't this entirely undermine his argument against socialism? If planners can adequately figure out the movie preferences of 100 million people... then what, exactly, prevents planners from adequately figuring out the food preferences of 1 billion people?
Buchanan stood on Smith's shoulders by arguing that the IH should extend to the public sector. I endeavor to stand on Buchanan's shoulders by arguing that the IH should also extend to Netflix, the ASI, the Roosevelt Institute, the Cato Institute, the Los Angeles Times, The New York Times and countless other organizations that should be, but are not, markets. If Boettke is sure that I'm barking up the wrong tree, then of course I'd want him to share his perspective. Same thing if he's sure that I'm barking up the right tree. Same thing if he's unsure.
Boettke and I both agree that...
1. society's limited resources have to be divided among its unlimited wants
2. the omniscience assumption has to be destroyed
3. people's valuations of things must be known
When I assemble these three puzzle pieces they reveal a megareal world with markets everywhere. Boettke has the same three pieces... so how could they reveal a different world? Is he assembling the pieces differently? Does he have additional puzzle pieces?
In this post I've endeavored to share, and elaborate on, the puzzle pieces that are entirely absent from Southwood's critique of public choice. His critique doesn't reflect the relevance of the fact that Buchanan's public choice is solidly founded on the reality of scarcity. As a result of Southwood's oversight, he is under the impression that "public choice doesn’t explain much at all." Actually, public choice explains a lot. But in order to fully appreciate the immensity of what public choice explains, it's entirely necessary to fully grasp the most elementary economic problem. You first have to know and understand what the problem is before you can effectively evaluate a potential solution.
But it's entirely possible that my interpretation and understanding is incorrect. My understanding of Smith has certainly influenced my understanding of Buchanan. So I encourage Southwood to contact Boettke and ask for his perspective on the topic. Ideally we should all put our heads together and figure out what markets are good for.
From my perspective, there's more than enough evidence that proves what markets are good for. But since there's so much disagreement about the topic, it seems clear that we need more evidence. The ASI becoming a market would provide additional evidence to help us figure out what markets are good for.
My belief is that I'm correctly interpreting and understanding Smith and Buchanan. But it's entirely possible that my belief is mistaken. For example, Peter Boettke has studied Smith and Buchanan far more than I have. And we certainly agree on some fundamentals...
I wonder how much progress could be made in political economy if the best and the brightest among economists, such as Raj Chetty, would take seriously the admonition of Hayek, Buchanan, and Elinor Ostrom that the assumptions of omniscience and benevolence must be rejected if we are going to make progress and develop a robust theory of political economy. - Peter Boettke, AEA Richard T. Ely Lecture --- Raj Chetty, "Behavioral Economics and Public Policy"
Yet, he's never argued that Netflix should be a market. He's never endeavored to explain why the IH, rather than the VH, should determine the order (relative importance) of Netflix's content. Boettke and I both agree that it's beneficial that Netflix is in a market, but he doesn't seem to perceive the benefit of Netflix being a market. However, it's not like he has argued against Netflix being a market. He has not argued that it would be detrimental for around 100 million subscribers to divide their limited fees among the unlimited shows and movies on Netflix.
How much would the content change if 100 million people could decide for themselves how their money is spent? The amount of money spent would be exactly the same. But it would be divided differently among the content. How different would the division be?
A. The VH's division
B. The IH's division
C. The difference between A and B
Would Boettke seriously argue that C would be insignificant? If he did, then wouldn't this entirely undermine his argument against socialism? If planners can adequately figure out the movie preferences of 100 million people... then what, exactly, prevents planners from adequately figuring out the food preferences of 1 billion people?
Buchanan stood on Smith's shoulders by arguing that the IH should extend to the public sector. I endeavor to stand on Buchanan's shoulders by arguing that the IH should also extend to Netflix, the ASI, the Roosevelt Institute, the Cato Institute, the Los Angeles Times, The New York Times and countless other organizations that should be, but are not, markets. If Boettke is sure that I'm barking up the wrong tree, then of course I'd want him to share his perspective. Same thing if he's sure that I'm barking up the right tree. Same thing if he's unsure.
Boettke and I both agree that...
1. society's limited resources have to be divided among its unlimited wants
2. the omniscience assumption has to be destroyed
3. people's valuations of things must be known
When I assemble these three puzzle pieces they reveal a megareal world with markets everywhere. Boettke has the same three pieces... so how could they reveal a different world? Is he assembling the pieces differently? Does he have additional puzzle pieces?
In this post I've endeavored to share, and elaborate on, the puzzle pieces that are entirely absent from Southwood's critique of public choice. His critique doesn't reflect the relevance of the fact that Buchanan's public choice is solidly founded on the reality of scarcity. As a result of Southwood's oversight, he is under the impression that "public choice doesn’t explain much at all." Actually, public choice explains a lot. But in order to fully appreciate the immensity of what public choice explains, it's entirely necessary to fully grasp the most elementary economic problem. You first have to know and understand what the problem is before you can effectively evaluate a potential solution.
But it's entirely possible that my interpretation and understanding is incorrect. My understanding of Smith has certainly influenced my understanding of Buchanan. So I encourage Southwood to contact Boettke and ask for his perspective on the topic. Ideally we should all put our heads together and figure out what markets are good for.
From my perspective, there's more than enough evidence that proves what markets are good for. But since there's so much disagreement about the topic, it seems clear that we need more evidence. The ASI becoming a market would provide additional evidence to help us figure out what markets are good for.
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