Dear Jag Bhalla

If you search ScientificAmerican.com for "invisible hand" you could learn that there's some guy named Jag Bhalla who is critical of the Invisible Hand.  I found his website and sent him an e-mail, which was when gmail immediately notified me that his e-mail address was broken.  So here we are.

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Karl Popper was so cool...

If I am standing quietly, without making any movement, then (according to the physiologists) my muscles are constantly at work, contracting and relaxing in an almost random fashion, but controlled, without my being aware of it, by error-elimination so that every little deviation from my posture is almost at once corrected. So I am kept standing, quietly, by more or less the same method by which an automatic pilot keeps an aircraft steadily on its course. — Karl Popper, Of Clouds and Clocks

But he wasn't nearly as cool as Adam 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

Contrary to popular belief, the Invisible Hand is not about self-interest, it's about people using their money to communicate what their interests are.  The supply is regulated by the spending signals of countless consumers.

In Friedrich Hayek's 1945 Nobel essay he reinforced the idea that markets are all about communication...

We must look at the price system as such a mechanism for communicating information if we want to understand its real function — a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. — Friedrich Hayek, The Use of Knowledge in Society

Command economies fail because, in the absence of prices, they are unable to utilize all the relevant and necessary knowledge that is dispersed among all the consumers and producers.

In 1954 the Nobel economist Paul Samuelson critiqued Hayek's essay by pointing out that, because of the free-rider problem, prices don't work so well for public goods...

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

Samuelson's basic assumption was that the optimal supply of all goods is entirely dependent on honest signals.  Again, it's about using money to communicate your interests.  The problem with a good like Linux is that you can benefit from it without having to pay for it.  Let's say that your true valuation of Linux is $40 bucks.  If you only donate $20 dollars to it, you still can fully benefit from it, but you can take the $20 bucks that you saved and use it to buy a nice steak.  The amount that you spent on Linux would be a false signal because it would be less than your true valuation of it.  On its own, your false signal isn't so much of a problem... after all... you only cheated Linux out of $20 bucks.  The issue is when everybody else does the same thing.  When everybody's contribution to Linux is a lot less than their true valuation of it, then naturally it's going to be a lot lower quality than everybody truly wants it to be.  Also, there's going to be far fewer freely available alternatives to Linux than everybody truly wants.

To be clear, the only reason that consumers have the incentive to be dishonest about their true valuation of Linux (a public good) is because they have the option to spend their money on steak (a private good) instead.  If this option was eliminated, then so too would be the incentive to be dishonest.  This was the point that the Nobel economist James Buchanan made in 1963...

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

I'll hedge my bets by sharing how other people have explained the idea of individual earmarking...

One strand of this approach-initiated in Buchanan’s (1963) seminal paper-argues that the voter who might have approved a tax increase if it were earmarked for, say, environmental protection would oppose it under general fund financing because he or she may expect the increment to be allocated to an unfavored expenditure such as defense. Earmarked taxation then permits a more satisfactory expression of individual preferences. — Ranjit S. Teja, The Case for Earmarked Taxes

Individuals who have particularly negative feelings concerning a publicly provided good (e.g. Quakers on military expenditures, Prolifers on publicly funded abortions) have also at times suggested that they should be allowed to dissent by earmarking their taxes toward other public uses. — Marc Bilodeau, Tax-earmarking and separate school financing

Imagine if Netflix gave subscribers the opportunity to use their monthly fees to help rank the content.  Would subscribers have any incentive to be dishonest? Nope. This is simply because they would not have the option to spend their fees on things like food or clothes. Subscribers would not have the option to spend their fees outside of Netflix. Therefore, how subscribers earmarked their fees would honestly communicate their true valuations of the content.  The result would be the optimal supply of content.

The most relevant economic discussion looks basically like this...

Smith: Consumers should have the freedom to spend their money to help rank goods.
Hayek: It's true, the market is the only way to utilize all the dispersed knowledge.
Samuelson: While the market does work for private goods, it fails for public goods.
Buchanan: Actually, earmarking would allow the market to also work for public goods.

So what do you think?  Have I successfully changed your mind about the Invisible Hand?  Have I efficiently eliminated one of the biggest errors that you live by?  Have I fulfilled my moral obligation to economically educate and enlighten you?

To be clear, my own beliefs in the Invisible Hand can potentially be falsified.  If Netflix gives the Invisible Hand the opportunity to regulate the content, and it didn't noticeably improve, then this would falsify my belief in the Invisible Hand.

Science is, or should be, the most fertile common ground.

Unfortunately I doubt Netflix will conduct this experiment any time soon.  Here's a potential experiment that's much more accessible.  Imagine if a bunch of people rank the following books...

The Origin Of Species
Harry Potter and the Sorcerer’s Stone
The Handmaid’s Tale
A Tale of Two Cities
50 Shades of Grey
Principia
The Bible
War and Peace
12 Rules For Life
A Theory of Justice
The Cat in the Hat
The Wealth of Nations
The Hunger Games

First the participants would vote for all the books that match their preferences.  Then they would spend their own money to quantify just how closely these books match their preferences.

To be clear, the participants would not be buying the books.  They would simply have the opportunity to spend any amount of their own money in order to reveal the size of their love for each book.  All the money they spent would help crowdfund this experiment.

How differently would voting and spending rank the books?  My hypothesis is that voting would elevate the trash while spending would elevate the treasure.  If, however, voting ranked the Wealth of Nations higher than spending did, then this would falsify my hypothesis.

The relative effectiveness of the Invisible Hand can easily, relatively speaking, be compared to the alternative ranking systems.  The fact that these tests have not been conducted is the biggest error ever.  Let's combine our forces and eliminate this error.  Together we can demolish the massively detrimental disparity between where the world is, and where it should be.

James Buchanan Deserves More Attention

Here's my comment on Sam Staley's review of Nancy MacLean's book...

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Personally, I'm a huge fan of James Buchanan so I'm acutely aware of the amount of attention he typically receives. Naturally I feel like he never receives nearly enough attention. Thanks to MacLean's book, however, there was a noticeable spike in articles about Buchanan. So in this sense, which is pretty important, I do appreciate her book. I think her bad critique of Buchanan is a lot better than no critique. Of course I would have preferred a much better critique of him... but beggars can't be choosers.

Also, in MacLean's defense, she was 100% correct that Buchanan's work is an attack on democracy. Unfortunately, as a historian she didn't really appreciate or address his economic arguments.

Even Michael Munger didn't get it. On Twitter he vehemently denied that Buchanan's work is an attack on democracy. I replied...

Please quote exactly where Buchanan said...

A. The optimal supply of public goods does *not* depend on people's true preferences.

...or...

B. Voting is more effective than spending at revealing people's true preferences.

— Pragmatarian (@Pragmatarian) January 22, 2018

Munger did not respond. If he does happen to believe that voting is better than spending at revealing preferences then what, if anything, would falsify his belief?

Let's say that the Independent Institute used voting and donating to rank economists. If voting ranked Buchanan higher than donating did, then this would falsify my belief that spending is better than voting.

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A few months ago in this forum discussion I shared this passage by Buchanan...

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. - James M. Buchanan, Order Defined in the Process of its Emergence

Here's part of the response that I received...

You're using as a defense a quote from the single worst President in American history to justify as generalizable the very quote that I picked from you as a representation of your system's generalizable failure. It is fitting that someone whose legacy is synonymous with the rabid defense of arbitrary social structures based on the conflation of holding socioeconomic power with the capacity to exercise socioeconomic power is your preferred tipple.

What would James Buchanan, the economist, have been named if his parents had used the market to rank potential names? 

Which Economic Nutshell Is Better?

It seems like I'm forever endeavoring to stuff economics into a better nutshell.  Here are two recent nutshells... the first is bigger and more technical while the second is smaller and more accessible.  Which one is better?

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Nutshell #1 (shared here)

Here's Adam Smith's Invisible Hand...

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

Contrary to popular belief, it's not about self-interest, it's about people using their money to communicate what their interests are.  The supply is regulated by the spending signals of countless consumers. 

In Friedrich Hayek's 1945 Nobel essay he reinforced the idea that markets are all about communication...

We must look at the price system as such a mechanism for communicating information if we want to understand its real function — a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement. — Friedrich Hayek, The Use of Knowledge in Society

Hayek argued that command economies fail because, in the absence of prices, they are unable to utilize all the relevant and necessary knowledge that is dispersed among all the consumers and producers.

In 1954 the Nobel economist Paul Samuelson, who was a liberal, critiqued Hayek's essay by pointing out that, because of the free-rider problem, prices don't work so well for public goods...

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

Samuelson's basic assumption was that the optimal supply of all goods is entirely dependent on honest signals.  The problem with a good like Linux is that you can benefit from it without having to pay for it.  Let's say that your true valuation of Linux is $40 bucks.  If you only donate $20 dollars to it, you still can fully benefit from it, but you can take the $20 bucks that you saved and use it to buy a nice steak.  The amount you spent on Linux would be a false signal because it would be less than your true valuation of it.  Your false signal on its own isn't so much of a problem... after all... you only cheated Linux out of $20 bucks.  The issue is when everybody else does the same thing.  When everybody's contribution to Linux is a lot less than their true valuation of it, then naturally it's going to be a lot lower quality than everybody truly wants it to be.  Also, there's going to be far fewer freely available alternatives to Linux than everybody truly wants. 

To be clear, the only reason that consumers have the incentive to be dishonest about their true valuation of Linux (a public good) is because they have the option to spend their money on steak (a private good) instead.  If this option was eliminated, then so too would be the incentive to be dishonest.  This was the point that the Nobel economist James Buchanan made in 1963...

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 me hedge my bets by sharing how other people have explained the idea of individual earmarking...

One strand of this approach-initiated in Buchanan’s (1963) seminal paper-argues that the voter who might have approved a tax increase if it were earmarked for, say, environmental protection would oppose it under general fund financing because he or she may expect the increment to be allocated to an unfavored expenditure such as defense. Earmarked taxation then permits a more satisfactory expression of individual preferences. — Ranjit S. Teja, The Case for Earmarked Taxes

Individuals who have particularly negative feelings concerning a publicly provided good (e.g. Quakers on military expenditures, Prolifers on publicly funded abortions) have also at times suggested that they should be allowed to dissent by earmarking their taxes toward other public uses. — Marc Bilodeau, Tax-earmarking and separate school financing

Imagine if Netflix gave subscribers the opportunity to use their monthly fees to help rank the content.  Would subscribers have any incentive to be dishonest? Nope. This is simply because they would not have the option to spend their fees on things like food or clothes. Subscribers would not have the option to spend their fees outside of Netflix. Therefore, how subscribers earmarked their fees would honestly communicate their true valuations of the content.  The result would be the optimal supply of content. 

The expert economic discussion looks basically like this...

Adam Smith (1776): Consumers should have the freedom to spend their money to help rank goods.
Friedrich Hayek (1945): It's true, the market is the only way to utilize all the dispersed knowledge.
Paul Samuelson (1954): While the market does work for private goods, it fails for public goods.
James Buchanan (1963): Actually, earmarking would allow the market to also work for public goods.

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Nutshell #2 (shared here)


Right now, because of democracy, you assume that congress makes decisions that take my well-being into consideration. My well-being? In the private sector I have to spend so much time and energy going around using my money to inform producers what works for my well-being. I shop and shop and shop. For example, I go to the supermarket and buy some artichokes. In doing so I essentially tell Frank the farmer, "Hey buddy! Good job guy! You correctly guessed that my well-being depends on artichokes! Thanks! Good lookin' out! Here's some money! Keep up the good work!" His behavior benefits my well-being, so I have to use my cash to positively reinforce his beneficial behavior.

Now here you are with the assumption that congress somehow knows what works for my well-being despite the fact that I've never once in my life shopped in the public sector. I've never once decided to give any of my tax dollars to the EPA, NASA, the DMV or any other organization in the public sector. I've never once used my tax dollars to positively reinforce behavior that benefits my well-being. Yet, despite the fact that I've never once shopped in the public sector, congress knows what works for my well-being? Woah. This boggles my mind. It blows my mind. It puts my mind into a blender. Your assumption bears repeating with emphasis... congress knows what works for my well-being despite the fact that I've never once in my life shopped in the public sector. Your assumption is really that shopping is entirely unnecessary. If you truly believe that shopping is entirely unnecessary... then please... don't hide your insight under a bushel. Start a thread here, there and everywhere and say "Hey folks! Shopping is entirely unnecessary! It's a massive waste of everybody's limited time and energy to use our money to communicate what works for our well-being! All we need to do is infrequently vote! And occasionally write our representatives!"

Every democracy has been bundled together with a market. The market, not the democracy, is why these societies have been relatively successful. Societies always work better when we better understand each other's needs... and markets are far better at revealing our needs than democracies are. Our needs aren't simple things... they are incredible complex and dynamic. The idea that infrequently voting and occasionally writing our representatives can adequately reveal our needs is the most harmful idea that has ever existed. But it's not like I can show you all the additional prosperity we would currently be enjoying if it weren't for democracy.

However I can show you the difference between voting and spending. All we need to do is use voting and donating to rank prominent skeptics. Then you'll see the difference between voting and spending and decide for yourself which ranking better reflects your own need for skeptics.

Public Finance In A Nutshell

Here's a reply I just posted on Medium...

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“This sounds like you’ve read a lot of mises.org…”

Evidently you haven’t read mises.org or James Buchanan. Which means that you haven’t studied austrian economics or public finance.

The Nobel economist Paul Samuelson was not an austrian economist. He was a very orthodox economist who studied public finance and other subjects. Here’s what he wrote in a paper that was published in 1954…

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 A. Samuelson, The Pure Theory of Public Expenditure

The premise here is that the optimal supply of public goods depends on people’s true signals. The supply of defense won’t be optimal if you pretend that it is less important to you than it truly is. However, the only reason that you’d have an incentive to be dishonest is if you had the option to spend your money on private goods rather than on public goods. If this option was eliminated, then your incentive to be dishonest would also be eliminated…

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

Imagine if Netflix gave you the opportunity to divide your subscription dollars however you wanted among all your favorite content. Would you have any incentive to be dishonest? Nope. This is simply because you wouldn’t have the option to spend your subscription dollars on things like food or clothes. Therefore, how you divided your limited dollars would accurately reflect your true preferences.

Paul Samuelson and James Buchanan were both Nobel economists. Samuelson was a liberal economist while Buchanan was a libertarian economist. Despite their ideological differences, they both agreed that the optimal supply of public goods depends on people’s true preferences for them.

Just like it would suboptimal for the private sector to supply meat if everybody was a vegetarian… it would be suboptimal for the public sector to supply war if everybody was a pacifist.

There you go, public finance in a nutshell. Any questions?

NPR

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

The Relationship Between Importance And Validity

Here's my reply to Adam Gurri's comment on my previous entry.

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Thanks for taking the time to read the entry and comment on it.

For me the originality (or lack thereof) of Rothbard's work isn't the main issue.  The impression that you gave was that all of his work was merely "rights" arguments.  I wanted to help you appreciate that this is really not the case.  

From my perspective, the value of Rothbard's results arguments is that he correctly diagnosed the fundamental problem with government.  He understood and argued that the government is no more capable of getting the supply of defense right than it is capable of getting the supply of food right.  The same really can't be said for any minimal government libertarian (ie Milton Friedman, Hayek, Mises).

For Rothbard the "therefore" was anarcho-capitalism. I disagree with his remedy but agree with his diagnosis.  From my perspective, Buchanan's "therefore" was much better: taxpayers are given the option to earmark their taxes.  The supply of defense would more accurately reflect the true demand for defense.

You don't believe that the supply of defense should be determined by demand.  Instead, you believe that it should be determined by "defending the best *reasons* for and against doing so".  You make it sound like the debate over defense and the demand for defense are mutually exclusive. But they really aren't.

We can imagine that Samantha is a hard-core vegetarian.  Everyone else in her family loves to eat meat.  Quite frequently they have fierce debates over vegetarianism.  When they do so they exchange copious amounts of information on the topic.  For example, Samantha endeavors to introduce them to progressively better meat substitutes.  The copious amounts of information exchanged among the members results in both sides being far more informed on the topic.  At the end of the day it's still entirely up to each family member to decide for themselves how much meat to purchase.  The spending decisions are made by, rather than for, the family members.

The same thing would occur if...

1. Unlike her family, Samantha was a hard-core pacifist
2. People could earmark their tax dollars

The defense spending decisions would be made by them.  Right now the defense spending decisions are made for them.

The passages that I shared by Rothbard, Buchanan and Ostrom all made the case, more or less, that people should make their own defense spending decisions.  These thinkers were all against, more or less, defense spending decisions being made for the people.

Unlike these thinkers, you haven't made your position on the issue exactly clear.  It's not like there's a lot of options.  Spending decisions are either made by the people, or for the people.

"do you *really* think the validity of an argument is dependent upon how much other people are willing to pay to read it?"

Lots of people were willing to pay to read Thomas Piketty's book. Does this make the arguments in his book more valid/correct/true?  No.  It makes them more important (worthy of attention).  But it's necessary to appreciate that not everybody who purchased his book agreed with his arguments.  The same can certainly be said for MacLean's book.

So let's remove the "purchase" aspect.  People simply and solely use their money to help determine and reveal the importance of Piketty's book.  Well... it doesn't work so well when there's only one book involved.  Let's include the Wealth of Nations.  People can decide how they divide their dollars between the two books.  They aren't buying the two books, they are grading/judging the relevance/importance of the books with their own money.  How would you divide your dollars between the two books?  Does it matter?  Would it be equally or more effective if you could just vote for one of the books instead?

Let's consider the issue of voting by looking at another example.   I regularly go to plant shows.  They are usually judged by a small group of experts.  I strongly disagree with this system. It would be far better if everyone could divide their donations among all the entries.

Let's say that plant shows and dog shows were both judged using my preferred system.  Would I spend more money at plant shows or at dog shows?  I wouldn't even attend the dog shows.  So I wouldn't spend any money at them.  This is because I'm far more informed about plants.  How I divided my dollars between dog shows and plant shows would reflect how my information was divided between dogs and plants.

What if Samantha manages to rope me into going to a dog show?  Like I said, I certainly wouldn't spend any of my money to judge the dogs.  But would I vote for the best dog?  Sure.  Why not?  It wouldn't cost me anything to do so.  Most of the people at the show would be in the same boat as me.  The majority is always less informed than the minority on every conceivable topic.  So with voting/surveys it's tyranny of the ignorant.  With spending it's tyranny of the informed. With traditional judging it's tyranny of a small handful of experts without any skin in the game.

A while back I started a small informal plant society.  In September we're planning to have a small show at a member's home.  Each participant will bring one of their favorite plants.  Then we'll each use our dollars to judge the relevance/importance of each other's plants.  The money that everybody earmarks to their favorite plants will be used to promote a webpage that displays the entries sorted by their importance (as determined by spending).

If Samantha ropes you into attending this show, how much money would you spend on your favorite plants?  I'm guessing that you wouldn't spend much, which would reflect your low level of plant information/interest.  And because you wouldn't spend much, your low level of plant information wouldn't have much influence on the results/rankings.  But let’s pretend that you’re super rich.  Then, despite having low information, you could easily exert considerable influence on the results/rankings.  This is why smaller markets are always worse judges of importance than larger markets.

Is my thinking original?  That's not the right question.  The right question is... am I barking up the right tree?  Rothbard barked up a few different trees.  Some trees were really wrong ("rights" arguments, anarcho-capitalism)... but one tree was really right (the fundamental problem with government). I have to recognize and commend him for barking up a very right tree.  Of course it's possible that I'm wrong about the rightness of the tree.  But it's not like Piketty or MacLean have come even close to disproving that it's the right tree.  They don't even seem to be aware of Rothbard's best arguments, which are the same as the best arguments of Buchanan and the Ostroms.  You certainly weren't aware of Rothbard's best arguments.  But now you are. However, you really haven't clarified/defended your position on whether tax spending decisions should be made by, or for, the people. Well... you don't seem to think they should be made by the people.  But you really haven't fleshed out a case that they should be made for the people.  You should do so, if you want to avoid barking up the wrong tree.

I should probably spell out the relationship between importance and validity.  Right now we don’t know just how important Rothbard’s two papers are to society.  We don’t know the social importance of his two papers.  I know how important they are to me, but I don’t know how important they are to Peter Boettke, Alex Tabarrok or anybody else.  It’s certainly possible to see how many times Rothbard’s two papers have been cited.  But if citations/votes were a good measure of social importance, then spending/shopping/markets would be a waste of immense amounts of time, energy and brainpower.

Because Rothbard’s two papers are important to me, I have taken the time and made the effort to bring them to your attention.  So you now know that they are important to me, but you don’t know how important they are to me compared to Buchanan’s papers or the Ostrom’s papers.  So you can't easily discern how I would want you to divide your limited time and attention between all their papers.

By bringing Rothbard’s two papers to your attention, I’ve given you the opportunity to scrutinize them.  In computer lingo, you have the chance to try and debug them.  Given enough eyeballs, all bugs are shallow (Linus’s Law).  The more important Rothbard’s two papers are to society, the more attention that they should receive, the more rigorous, relentless and ruthless the inspection of their validity.

This is the relationship between importance and validity.  Because we don’t currently know the true social importance of Rothbard’s two papers, their validity isn’t being optimally checked.  The same is true of national defense.  Because we don’t know the true social importance of national defense, its validity isn’t being optimally checked.

In all cases society’s attention/brainpower has to be divided somehow among a gazillion different things.  How do we divide society’s limited resources?  By voting?  By spending?  Or do we allow the division to be determined by a small handful of experts who don’t have any skin in the game?

Murray Rothbard VS James Buchanan

Earlier today Adam Gurri and I had an extended exchange on Twitter.  What set it off was when he shared this article by Paul Crider...  Beyond the Freedom of the Void.  The article blurred the lines between positive liberty and negative liberty.  Perhaps Crider made a valid point, but I didn't quite see what difference it would make.  Gurri responded that it would help people resist anarcho-capitalism (AC).  We went back and forth for a while and eventually ended up here...

You don't assume gov is more effective than not?

— Pragmatarian (@Pragmatarian) July 26, 2017

My thinking is not nearly that categorical. In the libertarian(ish) sphere, think Ostrom, Coase, and Hayek, not Mises or Rothbard.

— Adam Gurri (@adamgurri) July 26, 2017

What do you disagree with in "The Myth of Neutral Taxation" and "Toward a Reconstruction of Utility and Welfare Economics"?

— Pragmatarian (@Pragmatarian) July 26, 2017

I don't know---I haven't read those ones.

— Adam Gurri (@adamgurri) July 26, 2017

You can't make an adequately informed decision about Rothbard/AC without reading them.

— Pragmatarian (@Pragmatarian) July 26, 2017

lol if you say so. "You're not informed enough to have an opinion unless you read THE SPECIFIC THINGS I SAY YOU HAVE TO" doesn't fly with me

— Adam Gurri (@adamgurri) July 26, 2017

Rothbard's argument that parents have no duty to feed their children tells me all I really need to know about his property rights absolutism

— Adam Gurri (@adamgurri) July 26, 2017

Oh deja vu.  In a recent post I shared this blog entry by Matt Bruenig... #NotAllLibertarians: An Illustration.  He defended his wife's attack on Rothbard's argument that parents should not be forced to feed their children.  I left this comment on his entry...

If you're going to go after Rothbard.... then it's probably a good idea to attack his strongest argument... Football Fans vs Nature Fans... rather than his weakest one. Because, if you don't attack his strongest argument... then it appears that you're incapable of doing so.

It's true that a chain is only as strong as its weakest link.  It's also true that an argument is only as strong as its weakest link.  However, it's important to understand that Rothbard's deontological arguments ("rights") and consequential arguments (results) are entirely different chains.  Destroying an argument in the "rights" chain really doesn't destroy the results chain.  If it did, then the results chains created by Ostrom and Buchanan would also be destroyed.

Is Bruenig familiar with Rothbard's results chain?  I'm not sure.  It's not like he responded to my comment.  Gurri, on the other hand, did respond to my comment.  So I know for a fact that he has not read either "Toward a Reconstruction of Utility and Welfare Economics" (1956) or "The Myth of Neutral Taxation" (1981).  He is under the impression that he doesn't need to read them because Rothbard's crappy "rights" argument is all he needs to know to make an adequately informed decision about Rothbard and AC.

Personally, my first impression of AC and Rothbard was super negative.  I detested him.  But I perfectly understood that the only way to beat him and his followers was to truly understand him.  So I took the time and made the effort to familiarize myself with his work.  Much of it was garbage "rights" arguments, but there were also some solid results arguments here and there.  By the time that I read his two papers that I mentioned earlier, I had come to the conclusion that he had correctly diagnosed the government.  His remedy though was to abolish the government.  It was quite drastic.  Effectively evaluating his drastic remedy depends on fully understanding the disease.

In 1954 the Nobel economist Paul Samuelson wrote a really short paper... "The Pure Theory of Public Expenditure".  He pointed out that it's possible to benefit from some goods without paying for them.  For example, you can benefit from environmental protection (EP) even if you don't help pay for it.  Why buy the cow when you can get the milk for free?  The problem is... if you, and too many other people, don't pay for EP, then not enough will be supplied.  The amount supplied will be less than the amount that everybody truly wants.   So we can't expect people to voluntarily donate enough money to EP.  Therefore... taxes.  You don't have a choice whether you pay for goods like EP.  Paying taxes though doesn't reveal your valuation of EP. What Samuelson did was simply assume that planners would be able to adequately guess your true valuation of EP.

The Nobel economist James Buchanan agreed with Samuelson that the free-rider problem reasonably justifies taxation.  But as far as Samuelson's assumption of omniscient planners was concerned, Buchanan strongly disagreed.  In 1963 he wrote "The Economics of Earmarked Taxes".  He argued that earmarking would allow taxpayers to honestly reveal their true valuations of public goods.  Say that your valuation of EP is $1000 of your tax dollars.  If you only earmark $100 tax dollars to EP it doesn't mean that you'll be able to spend the difference on private goods (ie clothes).  It means that you'll have $900 tax dollars to earmark to other public goods (ie national defense)... which you value less than EP.  Therefore, there's absolutely no incentive to give a false signal.

In his 1956 paper Rothbard wrote, "Individual valuation is the keystone of economic theory."  This is entirely consistent with Buchanan.  Both thinkers strongly agreed that it's absurd to assume that planners can correctly divine or adequately predict people's valuations.  Also from Rothbard's paper...

The prime error here is the assumption that the preference scale remains constant over time. There is no reason whatsoever for making any such assumption. All we can say is that an action, at a specific point in time, reveals part of a man’s preference scale at that time. There is no warrant for assuming that it remains constant from one point of time to another. - Murray Rothbard, Toward a Reconstruction of Utility and Welfare Economics

We can compare it to Buchanan in 1982...

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. - James Buchanan, Order Defined in the Process of its Emergence

Rothbard thoroughly understood that valuations can't be adequately/accurately conveyed by surveys/voting...

One of the most absurd procedures based on a constancy assumption has been the attempt to arrive at a consumer’s preference scale . . . Through quizzing him by questionnaires.  In vacuo, a few consumers are questioned at length on which abstract bundle of hypothetical commodities they would prefer to another abstract bundle, etc. Not only does this suffer from the constancy error, no assurance can be attached to the mere questioning of people. Not only will a person’s valuations differ when talking about them than when he is actually choosing, but there is also no guarantee that he is telling the truth. - Murray Rothbard, Toward a Reconstruction of Utility and Welfare Economics

Buchanan obviously agreed.  He certainly never said, "Planners aren't omniscient, therefore voting."  No economist in their right mind would argue that the optimal supply of defense can be determined by direct democracy.  Otherwise they'd have to argue that the optimal supply of milk can also be determined by direct democracy.

In the absence of people's valuations of government goods, many people will end up paying a lot of money for goods that they really don't value.  Here's Rothbard in 1981...

But this argument generates far more difficulties than it solves. It proves too much in many directions. In the first place, how much of the deficient good should be supplied? What criterion can the State have for deciding the optimal amount and for gauging by how much the market provision of the service falls short? Even if free riders benefit from collective service X, in short, taxing them to pay for producing more will deprive them of unspecified amounts of private goods Y, Z, and so on. We know from their actions that these private consumers wish to continue to purchase private goods Y, Z, and so on, in various amounts. But where is their analogous demonstrated preference for the various collective goods? We know that a tax will deprive the free riders of various amounts of their cherished private goods, but we have no idea how much benefit they will acquire from the increased provision of the collective good; and so we have no warrant whatever for believing that the benefits will be greater than the imposed costs. The presumption should be quite the reverse. And what of those individuals who dislike the collective goods, pacifists who are morally outraged at defensive violence, environmentalists who worry over a dam destroying snail darters, and so on? In short, what of those persons who find other people's good their "bad?" Far from being free riders receiving external benefits, they are yoked to absorbing psychic harm from the supply of these goods. Taxing them to subsidize more defense, for example, will impose a further twofold injury on these hapless persons: once by taxing them, and second by supplying more of a hated service. - Murray Rothbard, The Myth of Neutral Taxation

Here's Buchanan in 1968...

Over time, any individual in the community will expect this rule to produce unfavorable results in particular instances, results that run counter to his own preferences. Public-goods projects which he urgently desires may not be undertaken because a majority of his fellow citizens does not agree with his evaluation. Or, conversely, he may be required to contribute to the costs of projects that he considers to be worthless. - James Buchanan, The Demand and Supply of Public Goods

Buchanan and Rothbard both agreed that the forced-rider problem is a real problem.  They also agreed that fiscal illusion is a real problem.  Here's Rothbard in 1981...

A second important point is that, in contrast to the market, where consumers pay for received benefits (or, in nonprofit organizations, where members pay for psychic benefits), the State, like the robber, creates a total disjunction between benefit and payment. The taxpayer pays; the benefits are received, first and foremost, by the government itself, and secondarily, by those who receive the largess of government expenditures. - Murray Rothbard, The Myth of Neutral Taxation

Here's Buchanan in 1967...

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

Let's compare their thoughts on congestion.  Here's Rothbard in 1974...

If there is an increased demand for a privately-owned good, consumers pay more for the product, and investors invest more in its supply, thus "clearing the market" to everyone's satisfaction. If there is an increased demand for a publicly-owned good (water, streets, subway, and so on), all we hear is annoyance at the consumer for wasting precious resources, coupled with annoyance at the taxpayer for balking at a higher tax load. Private enterprise makes it its business to court the consumer and to satisfy his most urgent demands; government agencies denounce the consumer as a troublesome user of their resources. Only a government, for example, would look fondly upon the prohibition of private cars as a "solution" for the problem of congested streets. Government's numerous "free" services, moreover, create permanent excess demand over supply and therefore permanent "shortages" of the product. - Murray Rothbard, The Fallacy of the 'Public Sector'

Here's Buchanan in 1955...

The answer to the whole highway problem lies in “pricing” the highway correctly. The existence of congestion on our streets and highways is solely due to the fact that we do not charge high enough “prices” for their use. This is one of the main functions of price in our free enterprise economy… [p]rice relieves potential congestion around our meat counters, our motels, and our models. Why do we shun its usage in the case of highway services?  - James Buchanan, Painless Pavements: Highways by High Finance

Rothbard and Buchanan agreed on many things.... individual valuation, prices, fiscal equivalence and the forced-rider problem.  They both understood the point and purpose of markets so it shouldn't be a surprise that they both came to the same correct conclusion that the fundamental problem with government is that it isn't a market.  The solution to this problem is where the two thinkers diverged.  Rothbard's solution was to abolish the government while Buchanan's was to repair it.  Here's Rothbard in 1974...

Government, in short, acquiring its revenue by coerced confiscation rather than by voluntary investment and consumption, is not and cannot be run like a business. Its inherent gross inefficiencies, the impossibility for it to clear the market, will insure its being a mare's nest of trouble on the economic scene. - Murray Rothbard, The Fallacy of the 'Public Sector'

As far as I know, this is the closest he came to critiquing the idea of repairing the government.

Ok, now let's jump over to Vincent Ostrom and Elinor Ostrom.  Here they are in 1971...

PPB analysis rests upon much the same theoretical grounds as the traditional theory of public administration. The PPB analyst is essentially taking the methodological perspective of an "omniscient observer" or a "benevolent despot." Assuming that he knows the "will of the state," the PPB analyst selects a program for the efficient utilization of resources (i.e., men and material) in the accomplishment of those purposes. As Senator McClelland has correctly perceived, the assumption of omniscience may not hold; and, as a consequence, PPB analysis may involve radical errors and generate gross inefficiencies. - Vincent Ostrom and Elinor Ostrom, Public Choice: A Different Approach to the Study of Public Administration

No surprise, they agree with Rothbard and Buchanan that it's a problem to assume that government planners are omniscient.

Here's what the Ostroms wrote in 1999 about individual valuation...

Whereas the income received for providing a private good conveys information about the demand for that good, taxes collected under the threat of coercion say little about the demand for a public good or service.  Payment of taxes indicates only that taxpayers prefer paying taxes to going to jail.  Little or no information is revealed about user preferences for goods procured with tax-supported expenditures.  As a consequence, the organization of collective consumption units will need to create alternative mechanisms to prices for articulating and aggregating demands into collective choices reflecting individuals' preferences for a quantity and/or quality of public goods or services. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

Let's compare it to Rothbard in 1981...

We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection—for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State's police protection a net harm rather than a benefit. But one thing we do know: If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue. - Murray Rothbard, The Myth of Neutral Taxation

Also...

Since "benefits" are subjective, we cannot measure anyone's benefit on the market either, but we can conclude, from a person's voluntary purchase, that his (expected) benefit was greater than the value to him of the money given up in exchange. If I buy a newspaper for 25 cents, we can conclude that my expected benefit is greater than a quarter. But since taxes are compulsory and not voluntary, we can conclude nothing about the alleged benefits that are paid for with them. Suppose, in analogy, that I am forced at gunpoint to contribute 25 cents for a newspaper and that that newspaper is then forcibly hurled at my door. We would be able to conclude nothing about my alleged benefit from the newspaper. Not only might I be willing to pay no more than 5 cents for the paper, or even nothing on some days, I might positively detest the newspaper and would demand payment to accept it. From the fact of coercion there is no way of telling. Except that we can conclude that many people are not getting 25 cents' worth from the paper or indeed are positively suffering from this coerced "exchange."   Otherwise, why the need to exercise coercion? Which is all that we can conclude about the "benefits" of taxation. - Murray Rothbard, The Myth of Neutral Taxation

The Ostroms also agreed with Rothbard and Buchanan that fiscal illusion is a problem.  Here the Ostroms are in 1999....

The working out of financial arrangements between collective consumption units and production units is one of the most difficult problems faced by entrepreneurs in the public economy.  Without market prices and market transactions, the act of paying for a good generally occurs at a time and place far from the act of consuming the good: individual costs are widely separated from individual benefits.  Yet a principle of fiscal equivalence--that those receiving the benefits from a service pay the costs for that service--must apply in the public economy just as it applies in a market economy.  Costs must be proportioned to benefits if people are to have any sense of economic reality.  Otherwise beneficiaries may assume that public goods are free goods, that money in the public treasury is "the government's money," and that no opportunities are foregone in spending that money.  When this happens the foundations of a democratic society are threatened.  The alternative is to adhere as closely as possible to the principle of fiscal equivalence and to proportion taxes as closely as possible to benefits received. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

Here's Elinor Ostrom in 2005...

There are two principle means to assess equity: (1) on the basis of the equality between individuals' contributions to an effort and the benefits they derive and (2) on the basis of differential abilities to pay.  The concept of equity that underlies an exchange economy holds that those who benefit from a service should bear the burden of financing that service.  Perceptions of fiscal equivalence or a lack thereof can affect the willingness of individuals to contribute toward the development and maintenance of resource systems. - Elinor Ostrom, Understanding Institutional Diversity

Rothbard, the Ostroms and Buchanan would perfectly agree...

1. The efficient allocation of resources depends on everyone's valuations
2. Neither taxation nor voting adequately/accurately reveals people's valuations
3. Government planners can't adequately/accurately divine or predict people's valuations

These three things mean that the government won't optimally supply any goods.  Here are the Ostroms in 1999...

Because most public goods and services are financed through a process of taxation involving no choice, optimal levels of expenditure are difficult to establish. The provision of public goods can be easily over-financed or under-financed. Public officials and professionals may have higher preferences for some public goods than the citizens they serve. Thus they may allocate more tax monies to these services than the citizens being served would allocate if they had an effective voice in the process. Under-financing can occur where many of the beneficiaries of a public good are not included in the collective consumption units financing the good. Thus they do not help to finance the provision of that good even though they would be willing to help pay their fair share. - Vincent Ostrom and Elinor Ostrom, Public Goods and Public Choices

We can see exactly where the Ostroms converge with Buchanan and diverge from Rothbard.  Rothbard was certain that the only way to give citizens an effective voice was to abolish the government.

Rothbard allocated a lot of time and intelligence to trying to abolish the government.  What if he had redirected his limited resources to trying to repair the government?  What if he had thrown the full weight of his support behind the solution offered by Buchanan and the Ostroms?

In any case, it should be really straightforward that it's stupid for Bruenig, Gurri and anybody else to attack Rothbard's weakest argument.  They should attack his strongest arguments.

On Twitter, Gurri has been sharing many critiques of Nancy MacLean's book Democracy In Chains.  In her book she attacks Buchanan.  But does she attack his strongest arguments?  No.  Unfortunately she doesn't.  Instead she attacks things like his association with the Koch brothers.  I certainly appreciate that she chose to attack Buchanan, but it would have been far more beneficial if she had actually attacked his strongest arguments.

Part of the problem is that there really isn't a market for arguments.   There isn't a system in place for people to use their money to publicly help determine/reveal the strength of an argument/paper.  I tried to explain this to Gurri a few months ago... Commerce As Communication.  In that entry I shared a potential solution that could be used for the Liberal Currents website.  In my example I even included "The Myth Of Neutral Taxation".  Evidently my explanation wasn't that effective though because Gurri didn't see the benefit of turning his website into a market.

Admittedly, it's entirely possible that I'm misreading Rothbard, Buchanan and the Ostroms.  But it's certainly the case that Gurri hasn't even read Rothbard's best work.  And by "best" I mean that it closely corresponds with much of the work done by Buchanan and the Ostroms.  These more credible thinkers shared many of Rothbard's concerns about the government.  Can Gurri make an adequately informed decision about Rothbard or AC without actually having read his best work?   Well... in this entry I have shared several of the most relevant passages.  They should be enough to help Gurri see Rothbard and AC in a new light.

Let's imagine that Rothbard, Buchanan and the Ostroms are 100% correct about the fundamental problems with the government.  In this case, Rothbard will be widely recognized for his role in helping to uncover the truth.  The immense importance of this truth will eclipse Rothbard's mistakes.

What about Gurri?  He should help to uncover the truth.  The more responsible he is for doing so, the greater his place in history.

Now let's imagine that Rothbard, Buchanan and the Ostroms are 100% incorrect about the fundamental problems with the government.  In this case, Rothbard will be counted among the many people who spent their entire lives barking up the wrong trees.

What about Gurri?  He should help to uncover the truth.  The more responsible he is for disproving Rothbard, Buchanan and the Ostroms, the greater his place in history.

Public Finance For Andy Seal

Comment on: The Controversy over Democracy in Chains by Andy Seal

********************

In 1954 Paul Samuelson wrote "The Pure Theory of Public Expenditure".  He recognized the inherent problem with public goods.  You can benefit from national defense without paying for it, so you might as well pretend to have less interest in it than you truly do (false signal).  Therefore, taxation should be compulsory.  But then Samuelson simply assumed that planners would do an adequate job of correctly guessing your true valuation of defense.  He assumed omniscience.

The reason that I haven't purchased MacLean's book is because everything that I've read about it leads me to believe that she thinks that the other 1954 thing... "Brown v. Board of Education" was somehow more relevant to Buchanan and the formation of public choice than Samuelson's paper.

You've read MacLean's book... did she even mention Samuelson's paper?  Did she mention anything about the fact that the biggest economic defense of our current system of government is based on the assumption that planners are omniscient?

Buchanan had absolutely no issue with Samuelson's view on the inherent problem with public goods and the need for compulsory taxation.  But when it came to his assumption of omniscience, Buchanan had a very big issue.

In 1963 Buchanan wrote "The Economics of Earmarked Taxes".  He argued that taxpayer earmarking would eliminate the incentive to give false signals.  Since you are paying taxes anyways, if you were given the opportunity to earmark your taxes, then the amount of your tax dollars that you earmarked to defense would accurately reflect your valuation of defense.  Say that your valuation of national defense is $1000 of your tax dollars but you only earmark $100 tax dollars to national defense.  It doesn't mean that you'll be able to spend the difference on private goods (ie clothes, food). It means that you'll have $900 tax dollars to earmark to other public goods (ie education, healthcare)... which you value less than national defense. Therefore, there's absolutely no incentive to give a false signal.

MacLean is correct that Buchanan's work is anti-democratic.  Unfortunately, as a result of her economic ignorance, she thinks that his work is inspired by racism and/or the ultra-wealthy.  No.  Seriously?  No.  His work is inspired by his very serious concern about the assumption of omniscience.  If this absurd assumption is abolished, then the conclusion really can't be direct democracy.  No economist in their right mind is going to argue for voting on the amount of money to spend on defense.  Because if that was sane, then we might as well vote on the amount of money to spend on milk.  Except, if voting is used to allocate all resources, then money itself would be pointless.

Buchanan is our Goliath.  MacLean is not your David.  But at least she tried.  If she hadn’t, it’s doubtful that you would have written anything about Buchanan.

Target Rank

I really love Kung Fu Hustle.  In this scene, the main character doesn't want to fight an entire crowd.  He figures his chances of winning are much higher if he fights one-on-one.  Especially if he can choose a weak opponent.  The problem is that he initially underestimates every opponent that he picks.

This scene came to mind today after I read Sarah Skwire's article... MacLean Is Not Interested in a Fair Fight...

Several times a week, I go to my taekwondo school, put on a helmet, a chest protector, shin guards and arm guards, yell loudly, and spar with people who are half my age and sometimes twice my size.

Maybe Skwire would choose to spar with Bruce Lee, but would she choose to fight him?  What about Goliath?  There wasn't a single solder in the Israelite army that chose to fight Goliath.  Everyone could clearly see that he was a beast.  His challenge went unanswered for 40 days.  Then a shepherd named David arrived at the camp to deliver some food.  He accepted Goliath's challenge and beat him.

Maybe every solider in the leftist army is too scared to fight James Buchanan.  If so, there are a few exceptions.  At the top of the list is Nancy MacLean.  But I'm pretty sure that she made the classic error of underestimating her opponent.  Evidently his Nobel prize didn't effectively signal his intellectual strength.

In my previous post, I shared how the Libertarian Party (LP) gave donors the opportunity to use their donations to rank potential convention themes...

$6,327.00 - I’m That Libertarian!
$5,200.00 - Building Bridges, Not Walls
$1,620.00 - Pro Choice on Everything
$1,377.77 - Empowering the Individual
$395.00 - The Power of Principle
$150.00 - Future of Freedom
$135.00 - Life, Liberty and the Pursuit of Happiness
$105.00 - Rise of the Libertarians
$75.00 - Free Lives Matter
$42.00 - Be Me, Be Free
$17.76 - Make Taxation Theft Again
$15.42 - Taxation is Theft
$15.00 - Jazzed About Liberty
$15.00 - All of Your Freedoms, All of the Time
$5.00 - Am I Being Detained!
$5.00 - Liberty Here and Now

Should FEE.org give donors the opportunity to use their donations to rank libertarian thinkers and their ideas?

The idea that taxation is theft seems to be pretty popular.  This is what we can see.  What we could not see was the true social importance of this idea.  Thanks to the LP, we can all now clearly see that this idea isn't very important to society.  How would it compare to the idea of the Invisible Hand?  Unfortunately, the LP didn't include it.

How many leftists have overestimated the social importance of the idea that taxation is theft?  Here's Matt Bruenig attacking this idea in 2012... Income taxes are voluntary.  This fight did not benefit either side.  It was an extremely stupid fight.  It was the equivalent of Don Quixote tilting at windmills.

Here's what Bruenig wrote in a 2015 blog entry...

Every time you attack libertarianism, libertarians respond by saying you haven’t actually attacked libertarianism. You’ve only attacked one libertarian or one perspective, but that’s not the right one to look at it. You are engaging in a straw man argument. And so on. It never ends. You can’t ever deliver a square blow against it because your description of it is never correct, no matter what you say. - Matt Bruenig, #NotAllLibertarians: An Illustration

In a comment I responded...

If you're going to go after Rothbard.... then it's probably a good idea to attack his strongest argument... Football Fans vs Nature Fans... rather than his weakest one. Because, if you don't attack his strongest argument... then it appears that you're incapable of doing so.

Here's a similar comment that I left on Noah Smith's 2012 blog entry...

Show me a single post where Quiggin, Krugman or any other liberal economist has shredded the opportunity cost concept. If they aren't shredding the opportunity cost concept...then they aren't shredding libertarian economics. If they aren't shredding libertarian economics...then what are they shredding? Their own straw men? How is that competent?

John Quiggin responded...

"If they aren't shredding the opportunity cost concept...then they aren't shredding libertarian economics"

You're obviously in the market for my book (in early draft) Economics in Two Lessons, which aims to cover a wide range of public policy issues in two points

1. Opportunity cost is what matters
2. Sometimes market prices reflect opportunity costs and sometimes they don't

If you regard Point 2 as being "libertarian economics", then we are on the same page.

In 2010 Quiggin wrote...

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Fourth, while I don’t see much, if any, benefit in engaging with actually existing conservatism, that doesn’t mean that we should ignore conservative, and libertarian, ideas. You don’t have to be an unqualified admirer of writers like Burke, Popper or Hayek to concede that they made valid criticisms of the progressive ideas of their day, and to seek a better way forward. Some examples of the kind of thing I have in mind

Popper’s critique of historicism. After thirty years in which teleological claims of inevitable triumph have been the stock in trade of Fukuyama and his epigones, the left should surely have been cured of such ideas, but their centrality is evident in the very use of terms like “progressive”. It’s important to recognise that beneficial change is not an automatic outcome of “progress”

Burke and his successors on the need for beneficial reform to be “organic”, in the sense that it reflects the actual historical evolution of particular societies, rather than being based on universal truths that are applicable in all times and places

Hayek on the impossibility of comprehensive planning. No planner can possess all relevant information or account for all possible contingencies. We need institutions that respond to local information and that are robust enough to cope with unconsidered possibilities. In some circumstances, but certainly not all, markets fit the bill. - John Quiggin, After the dead horses

***********

The multitude of thinkers on both sides have produced many ideas.  But all these ideas, and their producers, aren't equally important to society.  Their true social importance has to be determined and known in order to facilitate the most beneficial battles.

Correctly determining the social importance of thinkers and their ideas obviously must involve society.  This is because no planner, or committee, can have all the relevant information about the social importance of anything.  The larger the group, the more information it will have, and the closer it will get to determining the true social importance of ideas/individuals.

The question is... should social importance be determined by voting or spending?

Reddit is based entirely on voting.  We can go to the libertarian group and sort the ideas/individuals by votes.  My verdict is that lots of libertarians will vote for stupid things.  Why not?  It doesn't cost them anything to do so.  Bringing (opportunity) cost into the equation is the only way to maximize intelligence.  Libertarians will fully utilize their brains when, and only when, they are given the opportunity to divide their limited dollars among the unlimited libertarian ideas/individuals.

The market works because consumers decide how to divide their limited dollars among their unlimited desires.  The LP used the market to rank its potential convention themes.  The donors decided how to divide their limited dollars among the different themes.

FEE should give donors the opportunity to decide how to divide their limited dollars among the unlimited libertarians ideas/individuals.  How donors divide their dollars between Buchanan and Rothbard would signal how they want leftists to divide their forces between the two economists.  This would minimize the chances of unintentionally attacking strawmen.  We would all know the social importance of Rothbard and his ideas.  So if Bruenig attacked the least important idea, it's not like he could claim ignorance of importance.

In my blog entry about Evonomics I mentioned that leftists are the first to love the fact that Thomas Piketty's book was a bestseller.  They believe that this provides conclusive evidence that his ideas about inequality are very important to society.  So they might accept the validity of ideas/individuals being ranked by donors.

It's rather fascinating to compare the two ranking systems.  Both systems are markets... but they are different types of markets.  With the book market, the consumers are purchasing the book.  Doing so doesn't necessarily mean that they believe that its ideas are important.  But with the bee market, the consumers wouldn't purchase the book.  Instead, they'd spend their money to help determine the social importance of its ideas.  Doing so would obviously mean that they believe that the ideas are important.

Deirdre McCloskey read Piketty's book.  She might have purchased it.  If she did, her purchase clearly doesn't count as an endorsement of his ideas.  She strongly disagrees with his ideas.  This means that she wouldn't make a donation to help improve their social standing.

So as far as determining the true social importance of ideas/individuals... the bee market would be far more trustworthy than the book market.

I suppose "bee market" probably isn't the best term.  I'm not referring to the buying and selling of bees.  The context should have made that obvious.  But without the proper context, the term "bee market" might cause a bit of confusion.  Then again, just how much discussion is there about the buying and selling of bees anyways?

Just in case you haven't read my post about Evonomics, I use the term "bee market" because bees spend their precious calories in order to signal the importance/profitability/value/relevance of flower patches.  The longer and harder a bee dances, the more calories it burns, the more important the flower patch.  The bees don't buy a valuable flower patch.  They spend their calories to help direct more attention to it.  It's essentially crowdfunded advertising.

The efficient allocation of society's attention depends on knowing the social importance of things.  Right now we don't really know the true social importance of Buchanan and his ideas.  We know that he produced many books and even more papers.  We know that he won a Nobel prize.  But we certainly have no idea how society would divide its donations between all the Nobel prize winners.  Therefore, we don't know the true social importance of Buchanan and his ideas.

From my perspective, MacLean made quite a few mistakes.  But her target choice was not one of them.  Buchanan is an intellectual beast.  Right now it's pretty much her versus him.  It's a one-on-one fight.  Should it be?  I don't think so.  I think it should be a many-on-one fight.  All the liberals in the world should attack Buchanan.  It's a numbers game.  The more liberals that attack him, the greater the chances that the modern day equivalent of a shepherd will use the intellectual equivalent of a slingshot to defeat him.

However, it's entirely possible that my perspective is wrong.  Maybe I'm overestimating Buchanan's importance.  This is why it's so important to correctly determine his social importance.  FEE should give libertarians the opportunity to do so.  Will Quiggin want to participate?  Well I'm not sure if he'd want to donate to FEE.  What's the left equivalent of FEE?  Jacobin?

To be honest, I don't necessarily see Jacobin creating a market anytime soon.  I'd guess that Crooked Timber would do so way before Jacobin.  I was actually rather surprised by what Henry Farrell and Steven Teles wrote about MacLean.  My impression of Farrell is him being way more leftist.  Perhaps he was really balanced by Teles?

The LP already created a market to rank some ideas.  It was an ephemeral market... but I think it's a given that other libertarian organizations will start to create bee markets.  Hopefully they'll do so sooner rather than later.  When they do so, pro-market resources will be far more efficiently allocated.  Leftists will finally appreciate what markets are good for.  Then again, it's entirely possible that I'm overestimating the importance of markets.

Show Me The Economic Case For Democracy

Nancy MacLean is a liberal professor whose new book, Democracy In Chains, makes the case that James Buchanan's work is anti-democratic.  He's my second favorite economist so I really appreciate the fact that she has given him so much attention.  As far as I know, no other liberal has written a book that is primarily, or even significantly, about Buchanan.

MacLean is 100% correct that Buchanan's work is anti-democratic.  Unfortunately, from what I've read about her book, she doesn't attack, or even acknowledge, his economic arguments against democracy.  This is why I haven't purchased her book.  But then again, I do love the fact that she has helped to direct so much attention to him.  So I probably should purchase her book if for no other reason than to positively reinforce her decision to put a spotlight on Buchanan.  I want the spotlight to be as big and bright as possible!

Even though I'm confident that Buchanan's work is anti-democratic, it's entirely possible that I'm wrong.  Recently Michael Munger published a response to MacLean's book... On the Origins and Goals of Public Choice.  He did not agree with MacLean that Buchanan's work is anti-democratic.  Here's the recent twitter exchange between Munger and myself...

With much appreciation for remarkably fast work of my friends at @IndependentInst , my essay on DEMOCRACY IN CHAINS https://t.co/RnKzdRBuus

— Michael Munger (@mungowitz) June 30, 2017

How central to Buchanan's work is fiscal equivalence (FE)? How compatible are FE and democracy?

— Pragmatarian (@Pragmatarian) June 30, 2017

Buchanan was primarily a contractarian constitutionalist. Now, he preferred democracy. But ANYTHING people agreed was thereby justified.

— Michael Munger (@mungowitz) June 30, 2017

Buchanan preferred democracy?  Let's get historical...


1776...

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

1835...

Again, it may be objected that the poor are never invested with the sole power of making the laws; but I reply, that wherever universal suffrage has been established the majority of the community unquestionably exercises the legislative authority; and if it be proved that the poor always constitute the majority, it may be added, with perfect truth, that in the countries in which they possess the elective franchise they possess the sole power of making laws. But it is certain that in all the nations of the world the greater number has always consisted of those persons who hold no property, or of those whose property is insufficient to exempt them from the necessity of working in order to procure an easy subsistence. Universal suffrage does therefore, in point of fact, invest the poor with the government of society. - Alexis de Tocqueville, Democracy in America

1846...

The last point for consideration is the supposed disposition of the people to interfere with the rights of property.  So essential does it appear to me, to the cause of good government, that the rights of property should be held sacred, that I would agree to deprive those of the elective franchise against whom it could justly be alleged that they consider it their interest to invade them. - David Ricardo, Observations on Parliamentary Reform

1861...

It is also important, that the assembly which votes the taxes, either general or local, should be elected exclusively by those who pay something towards the taxes imposed. Those who pay no taxes, disposing by their votes of other people's money, have every motive to be lavish, and none to economize. As far as money matters are concerned, any power of voting possessed by them is a violation of the fundamental principle of free government; a severance of the power of control, from the interest in its beneficial exercise. It amounts to allowing them to put their hands into other people's pockets, for any purpose which they think fit to call a public one; which in some of the great towns of the United States is known to have produced a scale of local taxation onerous beyond example, and wholly borne by the wealthier classes. That representation should be coextensive with taxation, not stopping short of it, but also not going beyond it, is in accordance with the theory of British institutions. But to reconcile this, as a condition annexed to the representation, with universality, it is essential, as it is on many other accounts desirable, that taxation, in a visible shape, should descend to the poorest class. In this country, and in most others, there is probably no labouring family which does not contribute to the indirect taxes, by the purchase of tea, coffee, sugar, not to mention narcotics or stimulants. But this mode of defraying a share of the public expenses is hardly felt: the payer, unless a person of education and reflection, does not identify his interest with a low scale of public expenditure, as closely as when money for its support is demanded directly from himself; and even supposing him to do so, he would doubtless take care that, however lavish an expenditure he might, by his vote, assist in imposing upon the government, it should not be defrayed by any additional taxes on the articles which he himself consumes. It would be better that a direct tax, in the simple form of a capitation, should be levied on every grown person in the community; or that every such person should be admitted an elector, on allowing himself to be rated extra ordinem to the assessed taxes; or that a small annual payment, rising and falling with the gross expenditure of the country, should be required from every registered elector; that so every one might feel that the money which he assisted in voting was partly his own, and that he was interested in keeping down its amount.  

However this may be, I regard it as required by first principles, that the receipt of parish relief should be a peremptory disqualification for the franchise. He who cannot by his labour suffice for his own support, has no claim to the privilege of helping himself to the money of others. By becoming dependent on the remaining members of the community for actual subsistence, he abdicates his claim to equal rights with them in other respects. Those to whom he is indebted for the continuance of his very existence, may justly claim the exclusive management of those common concerns, to which he now brings nothing, or less than he takes away. As a condition of the franchise, a term should be fixed, say five years previous to the registry, during which the applicant's name has not been on the parish books as a recipient of relief. To be an uncertificated bankrupt, or to have taken the benefit of the Insolvent Act, should disqualify for the franchise until the person has paid his debts, or at least proved that he is not now, and has not for some long period been, dependent on eleemosynary support. Non-payment of taxes, when so long persisted in that it cannot have arisen from inadvertence, should disqualify while it lasts. - J.S. Mill, Considerations on Representative Government

1896...

If once the lower classes are definitely in possession of the power to legislate and tax, there will certainly be a danger that they may behave no more unselfishly than those classes which have so far been in power. In other words, there will be danger that the lower classes in power may impose the bulk of all taxes on the rich and may at the same time be so reckless and extravagant in approving public expenditures to which they themselves contribute but little that the nation’s mobile capital may soon be squandered fruitlessly. This may well break the lever of progress. — Knut Wicksell, A New Principle of Just Taxation

1933 (regarding)...

As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. — Loren Lomasky, Geoffrey Brennan Democracy and Decision

These thoughts, by such well-respected thinkers, are anti-democratic.  But perhaps it doesn't necessarily mean that their work was anti-democratic?

In 1954 the Nobel economist Paul Samuelson wrote a paper that correctly recognized that private goods and public goods are different. People can benefit from national defense, for example, even if they don't help pay for it. If the amount of money that people spend on national defense does not accurately reflect their true valuation of it, then the wrong amount will be supplied. So the problem is not that people wrongly value national defense. The problem is false signals. Samuelson correctly argued that taxation is necessary and that the government should supply public goods. However, he simply assumed that government planners would be able to correctly guess the true signals.

Samuelson's assumption did not sit well with Buchanan. In 1963 he wrote a paper that argued that, since people are paying taxes anyways, if they are given the opportunity to earmark their tax dollars to specific public goods, they'd have no incentive to give false signals. If your valuation of national defense is $1000 of your tax dollars, but you only earmark $100 tax dollars to national defense, it doesn't mean that you'll be able to spend the difference on private goods (ie clothes, food). It means that you'll have $900 tax dollars to earmark to other public goods (ie education, healthcare)... which you value less than national defense. Therefore, there's absolutely no incentive to give false signals.

From my perspective, Buchanan's paper is blatantly and obviously anti-democratic.  Why is it anti-democratic?  Because it's pro-market.  When markets expand, the alternatives contract.

Right now Netflix is in a market, but it is not a market.  Subscribers can vote for specific content, but they aren't given the opportunity to decide how to divide their limited subscription dollars among the unlimited content.  If Netflix did become a market, then people's spending decisions would logically subvert their voting decisions.  It wouldn't matter how many "thumbs up" a show received, all that would matter is how many subscription dollars it had received.  So it's logically absurd to prefer markets and democracy.

However, I acknowledge that Buchanan's one paper might not be truly representative of his work.  Let's zoom out...

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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 Public 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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Am I cherry picking?  Maybe.  But it's a fact that democracy and markets can't be equally effective at creating a bridge between choice and cost.  Take prohibition for example.  The majority voted for it.  Evidently lots of people wanted it... so they got it.  However, the amount of money spent on prohibition was not determined by voters, it was determined by government planners.

A = society's valuation of prohibition
B = the amount of money spent on prohibition
C = the difference between A and B

If Munger wants to argue that C is insignificant, then he should see markets as a massive waste of time and energy.  It's pointless for everybody to decide how much money to spend on milk when government planners already know the answer.

If Munger wants to argue that C is significant, but B is more socially beneficial than A, then not only should he see markets as a massive waste of time and energy, he should see that they provide the wrong answer.  It's incredibly undesirable for everybody to decide how much money to spend on milk when their answer is less correct than the answer already known by planners.

MacLean perceives that Buchanan's work is anti-democratic.  Munger has an infinitely better grasp of Buchanan's work than MacLean does.  Yet, for some reason, Munger doesn't perceive that Buchanan's work is anti-democratic.

From my perspective, Buchanan's work is anti-democratic because it's pro-truth.  Buchanan and Samuelson both agreed that false signals are a problem.  However, Samuelson was perfectly fine simply assuming that planners would have no problem correctly guessing the true signals.  Buchanan rejected Samuelson's assumption.  Buchanan correctly understood and endeavored to explain that true signals are a function of individual choices being directly informed/influenced by personal (opportunity) costs.

In his response/review, Munger wrote...

For Buchanan, “politics” is a means for groups to overcome the transactions costs of negotiating and enforcing agreements in groups too large to foster Coasian (Coase, 1960) bargaining arrangements.

It helps to break prohibition down into two questions...

1. Should alcohol be illegal?
2. How much money should be spent on prohibition?

The second question is only asked if the first question is answered affirmatively.  Coasianism is relevant to the first question, but it's really not relevant to the second one.  The second question can only be correctly answered by a market in the public sector.  Just like this question, "how much money should be spent on sci-fi shows?" can only be correctly answered by a market in Netflix.

So what does Munger mean that coasianism doesn't work for large groups?  Imagine that Munger and I are the only two people answering the first question.  He answers "yes" but I answer "no".  Voting wouldn't work... but arm-wrestling would.  So would coasianism.  We'd both get our phones out and open the coasian app.  He'd enter how much he'd be willing to pay for his preferred outcome and I'd enter how much that I'd be willing to pay for my preferred outcome.  After we had both entered our amounts, the app would show us each other's amounts.  If his amount was $100 dollars while my amount was only $25... then he would win.  Alcohol would be illegal for a year.  Since I didn't get my way, I wouldn't have to pay $25 dollars.  Instead, I would receive the $100 dollars that he was willing to pay.  Clearly the decision was made by facilitating a mutually beneficial trade.  The decision was made by a market.  It was made by a different type of market.  It was made by a coasian market.  It was made by coasianism.

Coasianism doesn't have an upper limit on the number of participants.  It works just as well for 2 billion people.  There might be technical issues to overcome but they don't diminish the desirability of coasianism.

With coasianism, people's choices are obviously informed/influenced by their consideration/comparison of the (opportunity) costs.  So Buchanan's work is relevant to coasianism.  But Buchanan didn't really focus on coasian markets.  His focus was on buchanian markets.

Coasianism should be used to decide whether alcohol should be illegal.  If coasianism determines that alcohol should be illegal, then there's the question of how much money to spend on prohibition.  This question should be answered by buchanianism.  Each and every taxpayer would consider/compare the (opportunity) costs of prohibition, and earmark their own tax dollars accordingly.

Each of the two questions is answered by each and every person having the chance to consider/compare/calculate the (opportunity) costs.

Making decisions without knowing/comparing/feeling the (opportunity) costs is really stupid.  Therefore, democracy is really stupid.  Buchanan was not stupid.  Munger isn't stupid either.  Neither is MacLean.  Munger and MacLean can both understand why democracy is so stupid.  But it should be easier and faster for him to do so given that he has a lot more economics under his belt.

Of course it's entirely possible that I'm wrong about everything.  Munger can certainly make the case that I'm wrong about Buchanan.  I'd be interested to see his case.  But I'd be far more interested to see his case for democracy.  When, exactly, is it beneficial for people to be clueless about costs?  When, exactly, is it desirable for people to have no idea what they will have to sacrifice for the things they want?


[update]

Please quote exactly where Buchanan said...

A. The optimal supply of public goods does *not* depend on people's true preferences.

...or...

B. Voting is more effective than spending at revealing people's true preferences.

— Pragmatarian (@Pragmatarian) January 22, 2018