The Pragmatarian Model For The Roosevelt Institute

Last month I pitched the pragmatarian model to the Roosevelt Institute...

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

Xero: Your economic analysis is quite sophisticated. But I wonder about your basics. What are your thoughts on Adam Smith’s Invisible Hand? Overrated, underrated or adequately rated?

Eric Harris Bernstein: As an analogy of the general push and pull of market forces, I think it’s brilliant. As an a priori explanation of our reality, I find it highly unsatisfactory. Seems to work as a religion, though ;)
Overrated.

Xero: Why, exactly, do you find the Invisible Hand to be highly unsatisfactory as an a priori explanation of our reality?

Bernstein: Requires a longer answer than I can really give here, but in short:

As commonly conceived, the invisible hand theorem suggests that the market directs supply (and therefore price) to the societally desired level, where tastes are properly accounted for. It is suggested this occurs naturally, and that any policy interference only disrupts that exchange.

The problem with that idea is, in reality, no market can exist without rules and without behavior that violates or complicates those rules. At the very least, you need to have rules that prevent theft, extortion, etc. Furthermore, there are a lot of factors that influence how and where the hands moves, which economic theory neither accounts for nor considers. Information asymmetries, power dynamics, the influence of money of policy, are all factors that push the hand away from the actually optimal level.

So, although it’s an important thought experiment, the notion of a free market is a fallacy. Understanding that is the first step towards making policy that moves things in an optimal level.

For more on this, I think our report Rewriting the Rules is a great start.

Xero: As the Invisible Hand is commonly conceived? It’s commonly conceived to be primarily about selfishness. But this common perception really isn’t correct. The Invisible Hand is primarily about signals…

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

People use their own money to signal the value of things. Therefore, the Invisible Hand helps us to avoid overlooking anything valuable.

However, there are certainly circumstances when people don’t use their money to signal the value of things. For example… Medium stories. But is this a failure of the Invisible Hand? No, it’s something that prevents the Invisible Hand from doing its job.

Let’s say that I somehow prevent you from doing your job at the Roosevelt Institute (RI). Clearly the RI isn’t going to reflect the work that you didn’t do. Imagine how absurd it would be for me to criticize the RI’s shortcomings that were the indirect result of me preventing you from doing your job. Imagine how absurd it would be for me to argue that you should be fired for failing to do your job. The true solution would simply be for me to allow you to do your job.

For Medium the solution is simply to give subscribers the option to spend their fees on their favorite stories. Since they are subscribing anyways, they might as well use their fees to signal the value of stories. As a result, the Invisible Hand would help us to avoid missing any valuable stories.

You linked me to Rewriting the Rules. I clicked the page and read it. You certainly brought that page to my attention. But, where is that link located on your homepage?

The space on your homepage is theoretically unlimited. But the space on your homepage isn’t equally valuable. Space at the top is more valuable than space at the bottom. It makes sense that links on your homepage should be allocated accordingly. The more valuable links should be at the top of the page. And they really shouldn’t require any horizontal scrolling… or waiting… to see them. Don’t make people scroll or wait to see the most valuable links.

The question then becomes… how do you determine the value of a link? There aren’t a lot of options…

1. Invisible Hand (IH)
2. Visible Hand (VH)
3. Democratic Hand (DH)

Right now I’m pretty sure that you don’t use the DH to determine the value of links. Even if people could vote for the links… it would only reveal how popular they were. In no way, shape or form would it reveal their value. Value in all cases is a function of willingness to pay/spend/sacrifice.

You definitely don’t use the IH to determine the value of the links… which leaves the VH. The VH is better than the IH at determining the value of links?

Imagine if donors to the RI could use their donations to signal the value of the links. In this case the IH would determine the order (relative importance) of the links. You think that this order would be inferior to the order that is currently produced by the VH?

Check out the Cato homepage. The links on their homepage aren’t ordered by the IH either.

It’s no surprise that the RI prevents the IH from doing its job. But it’s certainly an incredibly ironic issue that Cato also prevents the IH from doing its job.

Recently I brought this to Cato’s attention… Jason Kuznicki VS Adam Smith. You, me and Kuznicki are pretty much having a mental ménage à trois. I sure do love intellectual intercourse.

I’ve equally informed you and Kuznicki about the point and purpose of the IH. But I’d be super surprised if the RI allowed the IH to do its job before Cato did. Pretty much the point and purpose of the RI is to prevent the IH from doing its job. It would be a monumental pivot for the RI to allow the IH to determine the order of links on your homepage.

I also just shared the point and purpose of the IH with the LearnLiberty organization. The link is actually on their homepage. Unfortunately, it’s not because of the IH.

As you might have noticed I’m not a big fan of putting all my eggs in one basket. My idea is now in the RI’s basket, and Cato’s basket and LearnLiberty’s basket, and the New Yorker’s basket and lots of other baskets. The point and purpose of the IH is super righteous so it’s only a matter of time before some organization realizes this.

It could be your organization… but it probably won’t be. Instead it will be some other organization and then another and then another… until there are enough organizations allowing the IH to do its job that your organization can no longer avoid the truth of the matter. But by then it will be too late for your organization. Nobody will care about the RI. Once everybody can clearly see the point and purpose of the IH… then there will no longer be any scope for the RI. There will no longer be any demand for any organizations that support any scope for the VH.

If I was in your shoes, then I’d try and come up with a really good spin for allowing the IH to do is job at the RI.

“Dear supporter, it is our firm belief at the RI that the IH is horrible hogwash. We’re willing to sacrifice the RI in order to save the world from the IH. The next time that you make a donation you’ll have the option to use your donation to signal the value of our content. The IH will determine the order of the links on our homepage. Everybody will be able to clearly see that the order of the links is complete chaos. This will definitively disprove the IH once and for all!”

This is just like me going back into time and trying to persuade Mao Zedong to allow the IH to do its job… but under the guise of disproving it. I have to laugh because it’s a pretty absurd picture… but then I have to cry because I can imagine the countless lives that would have been saved if Mao had allowed the IH to do its job.

Admittedly, it’s entirely possible that I’m wrong about the point and purpose of the IH. So if you think that I’m overlooking some valuable argument against the IH doing its job… then I’m all ears.

Lots of people like to object that people don’t value money equally. But if this objection has any merit… then why allow the IH to determine the order (relative importance) of the RI and Cato? Donations to both organizations could be combined and donors could elect representatives to decide how to divide the money between the two organizations. The VH, rather than the IH, would determine the order (relative importance) of the RI and Cato.

Of course nobody in their right mind would argue for allowing the VH to determine the order (relative importance) of the RI and Cato. Therefore… I take this to mean that it’s not a genuine objection that people don’t equally value money.

I’m going to share this story with your buddy Tim Worstall. He writes for Forbes and CapX. Plus he’s a senior fellow at the Adam Smith Institute (ASI). None of those organizations allow the IH to do its job. I guess it doesn’t get any more ironic, or tragic, than the ASI not allowing the IH to do its job. Maybe Worstall can help solve this problem. He sure writes better than I do.

Bernstein: I do think you are overlooking an argument and I think I already supplied it, but happy to restate: In reality, there never has been nor never could be an unencumbered invisible hand. This is not the fault of the invisible hand — the invisible hand is just a concept — it is simply a global reality that society (and markets) require rules and regulations to function. Otherwise people could steal instead of purchase, extort instead of work or innovate, etc.

So, for better or worse, we need to pick and write the rules that we are all going to live by, and in reality those rules affect the relative well-being of various groups. This is where organizations where Cato and the Roosevelt Institute come in, in hopes of influencing policy makers to make rules that we each respectively believe to be in someone’s best interest. (Ostensibly both groups believe they are lobbying for society’s best interest but I would argue Cato has a long history of putting forth proposals that only serve the interests of the very rich, however that is just my opinion).

I agree that market signals push prices in various directions and that this is mostly good, but you are ignoring the context in which that occurs. Not only did the signals occur within a lawful society that has certain implications, there are also many goods for which individuals are not expected to pay based on their own tastes; things like national security, police enforcement, and regulation of industry are funded out of tax revenues specifically because no one would pay for national security unless forced.

Furthermore, you have a lot of faith that if we opened every decision up to markets, we would all be a lot better off, but that assumes all market participants act in good faith and with complete information, and that there is no such thing as anti-competitive behavior, discrimination, or any other behaviors that might, as you say, prevent the invisible hand from functioning. This is not the reality we live in.

On that note, I would like to refer back to a word I used in my original post to Worstall. That word is tautology, and here is why I return to it: you define the invisible hand as the movement of signals in a completely unencumbered market where everything functions exactly as it should. Any time any individual, group, or circumstance gets in the way, you assert that this is not the invisible hand, and that if only it were, the outcome would be perfect. I agree that if you remove all barriers of anti-competitive practices, etc., market outcomes would be pretty good. I simply disagree that in the real world this reality could ever come to exist. This position is justified by basic political theorems which hold that at the very least we need rules that bar various forms of extortion and theft, and which provide for basic collective goods like defense. It is also supported by numerous instances throughout history and even recent American history of broad discrimination, which prevents people from participating in markets on equal terms. From this and much else it follows that we will never have a completely neutral unencumbered invisible hand, and that we should go about writing rules that allow markets to function in a setting that supports positive societal outcomes.

Markets are the essential floor on which society can stand but that floor must be supported by a foundation of equitable rules.

Xero: Please address the super specific example that I offered. Right now the links on the Roosevelt Institute (RI) homepage are not ordered by the Invisible Hand (IH). Should they be?

You can respond… “The links on the RI homepage should not be ordered by the IH because… X, Y and Z”.

Just in case you didn’t read the links that I shared with you, let me clarify my example.

Donors to the Libertarian Party were recently given the freedom to use their donations to signal which potential convention theme is the most valuable. Here are the top results…

$6,222 — I’m That Libertarian!
$5,200 — Building Bridges, Not Walls
$1,620 — Pro-Choice on Everything
$1,377 — Empowering the Individual
$395 — The Power of Principle

This order (relative importance) of the themes was determined by the IH. The list of themes was ordered by the IH.

The RI also has donors. Should they be able to use their donations to signal the value of the RI’s content (ie articles)? Should the IH determine the order (relative importance) of the links on the RI homepage?

Bernstein: Again, you are ignoring my analysis of the the invisible hand as it functions in the real world. I understand your point and have acknowledged it and responded substantively to the policy implications you are driving at. You have not done so with regard to my answers (for example, how do you fund government’s necessary functions without distorting market outcomes?). You are also imposing an oversimplified and condescending structure to the conversation. By doing this I think you are greatly detracting for the conversation’s value, but in the name of being a good sport, I will accept the rules you are imposting on this exchange and answer as you requested:

“The links on the RI homepage should not be ordered by the IH for several reasons. Here are a few:

1. Donors are not the only stakeholders in the Roosevelt Institute, and donations do not directly determine our priorities; allowing donations to order the links (I am taking links as a metaphor for institutional priorities overall) would imply that the staff and managers have no prerogative in interpreting our organizationals mission and making strategic decisions by prioritizing certain content. If we did that, we might very quickly become an entirely different organization. We are a nonprofit organization and our mission is not to earn the approval of people with money (if we were we would be an entirely different kind of organization, trust me) but to educate people on issues we think have important public policy implications. Donors’ interest might be driven by something else, so we have a considerable need to make decisions based on factors that are not donations. As an addendum, perhaps our nonprofit nature complicates your very clever metaphor. However, even if we were a for-profit news organization, we might see that we got the most dollars for stories about Jennifer Anniston’s love life, but we also might believe, for reasons not related to money, that it is important to cover and promote topics not related to celebrity gossip, so again — invisible hand not always the best arbiter of outcomes.

2. Our wealthiest donors could easily drown out the interests of large numbers of small donors (or important followers that do not donate). Since our mission is not simply money, but educational outreach in important issues, we would not want one or two large donors determining what every is most likely to see. A voting system might make more sense (and we do prioritize based on web hits, I believe), but even then, see #1. And on that note…

3. Donations could encourage bad or illegal work. Acknowledging for a second that the content of the website is endogenous to the donations we receive (meaning the more we receive donations in support of X, the more we look to publish more pieces like it), and assuming the staff has no prerogative to alter the priority of links and dedicatedly pursues more donations — which is pretty much the hypothetical you pose — then we can pretty quickly end up in some ethical dilemmas. For example, what if our donors are framing socialists (as many at Cato probably imagine) and push us continually towards work that is borderline defensible or outright dishonest but which, if true, supports their point? Eventually we might find ourselves publishing something like “New study shows poverty level at 99%” even if in reality it is at 10 or 20%. Without any sort of agency (and assuming we have created your libel-less libertarian utopia with no laws or rules to structure markets) then we would quickly be spewing indefensible garbage that damages society.

So no, I don’t think your system of prioritization is a good idea. Of course, on such a small scale would I object? No. But as soon as the question gets bigger it gets much more complicated (even within the context of a relatively small organization like the Roosevelt Institute).

Now that I humored you, I would love to hear how you respond to the broader societal challenge of monetizing every exchange and offering no rules or regulations to structure markets.

Xero: You don’t want your donors to use their donations to signal their demand for your specific content… because their priorities are wrong? When people go shopping for groceries… are their priorities wrong as well? If so, then why allow people to shop at all? Why allow people to decide whether they donate to the Roosevelt Institute (RI) or to Cato?

Do you see how quickly we got to the heart of the matter?

People donate to the RI because they are hungry for your content. But being all different, your donors don’t value all your content equally. They are hungrier for certain kinds of content. And you’re certain that they are hungrier for the wrong kinds of content.

And perhaps you see the RI as having a monopoly on relevant information. Kinda like the RI is the parent and the donors are very young children who are uninformed. Except this analogy doesn’t work because you’re not arguing that your donors are uninformed, you’re arguing that they are misinformed. They would demand the wrong kinds of content.

To be clear, it would be entirely optional for your donors to use their donations to signal their demand for your specific content. They would only choose this option if they have information which leads them to believe that some of your content is more valuable than other of your content.

By preventing donors from using their donations to signal the value of your content… you’re disregarding all the information that they have. How many people donate to the RI each year? 1000? 10,000? 100,000? Can you possibly comprehend how much information even 100 people have?

Admittedly, your donors aren’t experts like you. But they are all experts in some area. This is the consequence of the division of labor. I’m sure that your donors are doctors and professors and lawyers and teachers and plumbers and electricians and pilots and scientists and engineers and it’s probably a very long list. And it’s gotta be the case that your organization isn’t their only source of information.

What’s the total amount of articles that your donors read each day? How many podcasts do they listen to each day? How many hours of news do they listen to each day? How many books do they read each month? How many books do they write each year?

Your eager willingness to disregard all the information that your donors have in their heads is why you’re at RI instead of at Cato. Except, then again, even Cato doesn’t allow its donors to use their donations to signal the value of their specific content. Sadly, Cato is also willing to disregard all the information that its donors have.

Your mission at the RI is to inform people. But your donors are certainly already informed. Or else, why would they donate to the RI? And if you’re certain that your donors are misinformed then, well, clearly you’re failing at your mission. But how can you possibly succeed at your mission when you really don’t know which information your donors are missing?

Your real mission should be to inform people… and to be informed by people. It should be a two way street. Information should always be a matter of intercourse.

If your donors aren’t buying the “right” products (fruits and veggies)… then clearly you need to help them understand what it is, exactly, about these products that make them “right”. Conversely, if they are buying the “wrong” products (cigarettes and alcohol)… then clearly you need to help them understand what it is, exactly, about these products that make them “wrong”.

“Now that I humored you, I would love to hear how you respond to the broader societal challenge of monetizing every exchange and offering no rules or regulations to structure markets.”

Well… thanks to you humoring me, we’ve already got to the heart of the matter. So really there’s no need to address anything else if we can’t peacefully resolve the issue of your willingness to disregard all the information that your donors have in their heads.

But since you have been such a good sport then, at the risk of distracting you from the main issue, I will address some of your additional concerns.

I’m pretty sure that I never said that we don’t need rules. I’m pretty sure that I’m not an anarchist. I’m actually a pragmatarian. I believe that taxpayers should be free to choose where their taxes go.

If you have information that leads you to believe that drugs being illegal is a good and necessary and beneficial rule, then you’d have the freedom to spend your own tax dollars on the enforcement of this rule. The more money that taxpayers spend on the enforcement of this rule, the more it will be enforced.

So I have absolutely nothing against rules in general. What I want to know is just how valuable each and every rule truly is. I also want society’s limited resources to be allocated accordingly.

If society doesn’t think that the rule against jaywalking is very important, then there really shouldn’t be a cop on every corner enforcing this rule. The opportunity cost would be too high.

Therefore, the amount of resources allocated to any endeavor should reflect how strongly society cares about it. In other words, supply should reflect demand. In other words, society’s limited resources should be efficiently allocated.

To be clear, there’s a difference between an “efficient” allocation of resources and a “correct” allocation of resources. An allocation can be efficient without being correct.

Right now you don’t allocate any of your time and brains to promoting pragmatarianism. Because… pragmatarianism doesn’t match your preferences. This allocation is efficient… but obviously I don’t think it’s correct. Voila! Here I am endeavoring to correctly inform you. I’m supplying you with important information that you’re obviously missing.

If we created a market in the public sector then, unlike in the for-profit sector, it really wouldn’t be one-price-fits-all (OPFA). As a result, the signals would be more accurate. The supply in the public sector would more closely match the demand than the supply in the private sector. People would get more bang for their buck in the public sector. Therefore, people would want to spend more and more money in the public sector. The tax rate would go up, the public sector would expand and the private sector would shrink. Eventually the tax rate would be 100% and there wouldn’t be any private sector.

You would never have to buy oranges. Oranges would be free for everyone. If you ever felt that there weren’t enough oranges, then you’d use your tax dollars to signal this.

Admittedly, it isn’t the easiest thing to imagine a 100% tax rate with a market in the public sector. But I do know that more accurate signals result in a more relevant supply. I also know that people always want the supply to be more relevant. Everybody wants to be as happy as a kid in a candy store. Therefore, it’s pretty reasonable to conclude that creating a market in the public sector will increase the tax rate.

But it’s not like we need to immediately create a market in the public sector. Taxpayers are essentially subscribers. Netflix also has subscribers. So does Medium. The government really isn’t the only organization with subscribers. Lots of other organizations also have subscribers. They can give their subscribers the option to use their fees to signal the value of specific content. Then we’ll see if the organizations and their subscribers benefit from commerce as communication. I’m pretty sure that more communication is better than less communication… but I could be wrong.

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

See also: 

The Pragmatarian Model For The LA Times

The Pragmatarian Model For The NY Times 

The Pragmatarian Model For The Economist 

The Pragmatarian Model For The LA Times

Today I submitted the following idea to the LA Times...

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

My friend has helped her 4th grade class to become a country...

http://classtopia.blogspot.com/

Recently a page was created to highlight their best blog entries...

http://classtopia.blogspot.com/p/blog-page_22.html

The value of the entries is determined by civic crowdfunding.  Right now the crowd is pretty small.  It consists of the students, their teacher and myself.  But in theory the crowd could be as large as everyone in the world.  Everyone could use their donated dollars to help "grade" the students' work.   If the students are going to do a lot of work anyways, then they might as well do the most relevant work.  Can you imagine if all the students in the world used their time, energy, creativity and brainpower to solve the most relevant problems?

This idea is just as relevant to newspapers.  Actually knowing the relevance/value of your stories would allow you to far better serve your readers.

Does this idea seem far-fetched?  It shouldn’t.  Grocery stores allow consumers to substantially and specifically participate in the prioritization process.   You have the wonderful and incredibly important opportunity to use your dollars to "grade" the relevance/value of the products that are available at your local grocery store.  

This last Friday the Helpful Honda folks gave a really high "grade" to Classtopia by donating 24 chromebooks.  Fox 11 was there to cover the event...

https://youtu.be/q5cPSsIvHRE

It was a pretty great overview.  But the idea definitely merits wider coverage and deeper analysis.  Either grocery stores are doing it wrong... or newspapers and schools are doing it wrong.  Which is it?  It would behoove us to figure out the correct answer sooner rather than later.

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

See also: 

The Pragmatarian Model For The NY Times (22 Dec 2016)

The Pragmatarian Model For The Economist (22 Aug 2016)

Organizations That Are Less Accommodating

Here's an e-mail that I just sent to http://www.moralmarkets.org/

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

Greetings,

I recently searched Google for "what markets are good for" and found this post...

http://blog.acton.org/archives/93307-what-good-markets-are-good-for.html

That post linked me to your website.  Please compare your homepage to this page...

http://classtopia.blogspot.com/p/blog-page_22.html

Both pages contain numerous links... but the difference is that the order (relative importance) of the links on their page is determined by the Invisible Hand (IH).

Why aren't the links on your page ordered by the IH?  Why is your website the rule rather than the exception?

http://www.learnliberty.org/
https://fee.org/
https://www.cato.org/
https://www.adamsmith.org/
http://www.heritage.org/
https://mises.org/
https://liberty.me/
http://oll.libertyfund.org/
http://reason.org/
http://reason.com/

All of these organizations preach about markets, but none of them is a market.  They all supply countless products but they don't give their donors/subscribers the freedom to determine the order of the products.

If you truly want to understand markets, then allow donors to determine the order your products.   Give your donors the freedom to specifically and substantially participate in the prioritization process.  The experience of your organization practicing what it preaches will accurately inform your preaching.

Here's my theory.  Actually knowing the value of your products will make it easier to supply more valuable products.  As the value of your products increases so will donations.  Earning more money will empower you to compete more resources away from less beneficial organizations.  It will be a virtuous cycle of value creation.  Sooner rather than later everybody will finally understand what markets are good for.

Consider this passage from Deirdre McCloskey's book... "The Applied Theory Of Price"

Geoffrey Hellman wrote for the New Yorker magazine for a long time and had incessant quarrels with its editor, Harold Ross, about how little Ross paid a man of Hellman’s seniority. Ross insisted that he paid what each piece of writing was worth: 

“You say that you have been here eighteen years and are not treated better than a good writer a couple of years out of college would be, so far as pay for individual articles is concerned… My firm viewpoint is that we ought to pay what a piece is worth, regardless of age, race, color, creed, financial status or any other consideration. I don’t know how, in an enterprise of this sort, one in my position can take into consideration anything beyond the actual value of the things.”

One person (the editor) determined what the products (articles) were worth.  One person can certainly know how much an article is worth to him... but unless he's a mind-reader he really can't "divine" how much an article is worth to me.

Does it matter how much an article is worth to me?  Does it matter how relevant my idea is to your reality?

Your organization uses its resources.  But its resources are actually society's resources.  All resources are society's resources.  Society's resources are limited.  So if you want to use more of society's resources, then give society the wonderful and beautiful and precious opportunity to supply your organization with specific and substantial feedback on how you are using its limited resources.  If you allow society to substantially participate then I'm guessing that society will be happy to empower you to take resources away from organizations that don't allow society to substantially participate.

Let me conclude with this rather racy but really relevant passage...

Creating a fulfilling relationship with a cold, silent piece of silicone takes such imaginative effort that sex dolls will always be a minority taste. But a relationship with a robot that moves and speaks, with artificial intelligence so it can talk to you and learn what you want it to be and do, is a far more marketable proposition. - Jenny Kleeman, The race to build the world’s first sex robot 

It's far more marketable to be really responsive to the priorities of your supporters.

Please let me know if you have any questions or concerns.

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

I really wasn't happy with this sentence...

If you allow society to substantially participate then I'm guessing that society will be happy to empower you to take resources away from organizations that don't allow society to substantially participate.

Ughh.  After I sent the e-mail I found the right word...

If you allow society to substantially participate then I'm guessing that it will be happy to empower you to take resources away from organizations that are far less accommodating.  

Accommodating!!!  

My life can be defined in terms of my consistent failure to find the right words.  The right words are incredibly elusive.  So when I do manage to find one then it feels like some sort of small but significant victory.  Honestly it's the main reason that I'm publicly sharing this e-mail.  Now bring on the accolades and the parades!  Accommodate the heck out of me!!!

The Prioritization Process

My reply to David Eil's reply...

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

If Medium gives subscribers the option to spend their fees on the most relevant stories, and each month you spend on average $4 dollars on economics stories and $1 dollar on cat stories, then it would be reasonably to conclude that, in your little corner of the world, economics stories are more relevant than cat stories. If on average I spend $4 dollars on economics stories and $1 dollar on epiphyte stories, then it would be reasonably to conclude that, in my little corner of the world, economics stories are more relevant than epiphyte stories.

Thanks to our spending decisions, you and I would be far better informed about what’s more or less relevant in each other’s little corner of the world. Except, all the subscribers would be using their fees to signal which types of stories are more or less relevant in their little corners of the world. So we’d all be far better informed what’s more or less relevant in all our little corners of the world. Knowing the actual value of stories would help everybody make far better informed reading and writing decisions.

When everybody makes far better informed reading and writing decisions, then this will quickly and vastly improve the variety and quality of choices on the menu. The choices on the menu would be far more relevant to all our different realities. As a result, we’d all be as happy as a kid in a candy store.

Here’s Samuelson’s passage again…

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

Yeah, this is about economics. But it is also about communication… and the problem with transmitting inaccurate information. It’s about the problem with fake news. If the amount of money that we spend on economics stories inaccurately communicates our demand for them, then of course the supply of economics stories will be suboptimal. For sure we’d prefer it if the supply of economics stories was optimal, therefore our communication should be accurate.

Just like with Medium, Netflix does not give subscribers the option to spend their fees on the most relevant content. Subscribers are not given the opportunity to substantially participate in the prioritization process. I don’t have the opportunity to use my fees to accurately communicate just how relevant economics shows are. As far as I know, there’s only one economics show on Netflix and it’s tragically terrible. Needless to say, I’m really not as happy as a kid in a candy store.

You can’t prevent everybody from substantially participating in the prioritization process and expect the supply of products to accurately reflect everybody’s priorities.

First we prioritize how we spend our limited money and then, and only then, will the supply of products accurately reflect our priorities.

I’m interested in knowing what your priorities are. You should be interested in knowing what my priorities are. We should all be interested in knowing what each other’s priorities are. We should all be interested in having the most accurate treasure maps.

Coercion And Consequences

Comments on: Finding Liberty Between Vulnerability and Coercion by Adam Gurri

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

Xero: The products at the grocery store aren’t equally relevant to my reality. Fortunately, I get to pick and choose which products I spend my money on. I have the chance to use my money to let the store know which products are the most important to me. The store offers me, and everyone else, the opportunity to substantially participate in the prioritization process. In other words, the store is a market.

The products (shows/movies) on Netflix aren’t equally relevant to my reality. Unfortunately, I don’t get to pick and choose which products I spend my fees on. I don’t have the chance to use my money to let Netflix know which products are the most important to me. Netflix does not offer me, or anyone else, the opportunity to substantially participate in the prioritization process. Netflix is not a market.

Coercion can be defined as preventing people from substantially participating in the prioritization process. With this definition, the government really does not have a monopoly on coercion. Netflix also engages in coercion.

However, the fact of the matter is that hardly anybody wants Netflix to be a market. So the real issue isn’t “delicately balancing” anything. The real issue is figuring out the rules of coercion. When is it beneficial to disregard how relevant things are to people’s reality? When is it beneficial to prevent people from substantially participating in the prioritization process? When does coercion truly make the world a better place for everyone?

Gurri: Coercion is making someone do something against their consent. Netflix certainly does not coerce anyone.

Xero: Netflix certainly doesn’t force me to subscribe. But if I choose to subscribe… does this mean that I necessarily consent to Netflix spending my money on products made by Michael Moore?

The government doesn’t force me to stay in the US. I certainly have the freedom to move to Canada. If I choose to remain in the US and pay taxes…. does this mean that I necessarily consent to the government spending my money on the drug war? If the government asked me… “Hey guy, do you consent to having your tax dollars spent on the drug war?”… my answer would be… “F no!!!”

The government and Netflix don’t care how relevant their specific products are to my reality. But I don’t choose to exit from their services because the alternatives sure aren’t any better. Also, in the case of the government, exit certainly isn’t cheap or easy…

Yes, you can change citizenship, but it takes years of paperwork, many thousands of dollars, and requires a total uprooting of yourself and all your work/family/friend connections. It’s a herculean labor even for those for whom it goes smoothly, and the hard experiences of so many immigrants demonstrates how exercising that choice rarely generates a smooth passage thereafter. So we live caught between that rock and the hard place of living under a government that may have nothing to do with how we want to live or be governed. – Ada Palmer, The Dystopian Question and Minorities of One

Preventing people from substantially participating in the prioritization process has a serious consequence. The consequence is a big disparity between the world we live in and the world that we want to live in.

Gurri: When you give Netflix your money, your consent no longer enters into how they use it.

When you do not give the US your money, they fine you or send you to jail. That’s coercion. If you don’t pay Netflix, they just cancel your service. The parallel simply doesn’t hold.

Xero: When you do not give the US your money, they fine you or send you to jail… because you’re using goods (roads, defense, etc) that you aren’t paying for. You’d be punished for stealing. Same thing if you somehow used Netflix without paying for it. I don’t know if anybody has necessarily gone to jail for stealing cable but some people have certainly been caught and punished for doing so.

So the parallel does hold. And again, whether we’re talking about Netflix or the government, the actual and real issue is that the products are not equally relevant to your reality. Is it beneficial when the money that you earn is spent on products that aren’t at all relevant to your reality? Is it beneficial when you’re prevented from substantially participating in the prioritization process?

Whether we’re talking about Netflix or the government… ideally you should be as happy as a kid in a candy store. There should be a gazillion products that are extremely relevant to your reality. But this ideal won’t be realized if you can’t pick and choose which products you spend your money on.

Basically, it’s less than useless to talk about coercion without considering the tangible consequences of coercion. Just like it’s less than useless to talk about theft without considering the tangible consequences of theft.

Gurri: Well I agree with your conclusion, but as usual you took a highly eccentric path to get there, hahaha.

When Nassim Taleb Is A Beautiful Fly On Every Wall

Feel free to use Medium to comment on this story... The Importance Of Accurate Feedback Loops

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

In a recent blog entry I had no problem admitting that the economist Paul Romer broke my intellectual heart when he didn't show any interest in solving this pretty puzzle.  *sigh*  Oh well.  It's time to move on and take another risk.  I'm in the mood for intellectual love.

What about Nassim Taleb?  A while back I really enjoyed his book The Black Swan.   Recently I discovered and enjoyed his stories on Medium.   In this story...  How To Legally Own Another Person.... guess what I found?  I found a very pretty puzzle!

After being rejected by Romer... I feel some... errr... performance anxiety as I sit here trying to figure out how I'm going to paint this puzzle for Taleb.  I fear that the puzzle that I paint won't be pretty enough for him to truly appreciate!  So I must dig deep and utilize as much of my crazy creativity as I can capture.

I know that Taleb appreciates a good story.  The problem is that I'm a terrible story teller.  Why am I so terrible at telling stories?  I don't know.  But I'm not going to let this "minor" detail stop me from telling Taleb a story.  Let's see... where to begin...

Dylan Matthews VS Miles Kimball

Dylan Matthews, a liberal proponent of a universal basic income (UBI), recently interviewed Robert Greenstein, a liberal opponent of UBI... An expert on fighting poverty makes the case against a universal basic income.  Most of the lengthy piece is pretty useless but Matthews did bring up one point that had the potential to produce some substantial discussion...

One reason I write a lot about basic income is not that I think it’s going to pass soon, but because I think giving cash aid to poor people, including the nonworking people, is a very good thing, and I view it as part of my job as a writer with a platform to try in some small way to change public opinion on that. 

And the way that basic income has caught on as an idea makes me think it’s a vehicle through which people, particularly the kind of high-income people with jobs that give them enough freedom to read articles about basic income all day, can come to think, "Maybe poor people aren’t lazy; maybe we should trust them to spend money as they see fit." 

Do you think there’s any value in basic income as a persuasive tool that can translate to more sympathy for comparatively modest expansions of the safety net?

Greenstein started by saying, "I certainly agree with that goal" but then he immediately veered off into strategy.

Do these guys truly believe that we should trust poor people to spend money as they see fit?  If so, then these guys should truly believe that we should eliminate democracy.

Poor people already spend money.  Poor people have the freedom to choose how they spend their money.  Poor people get to decide whether they want more food, clothes or entertainment.  It's called consumer sovereignty.  Clearly the premise of consumer sovereignty is that people should be trusted to spend their money as they see fit.

What's the premise of democracy?  Does it have the same premise as consumer sovereignty?  Nope.  The premise of democracy is that voters should be able to overrule consumer sovereignty.  The government collects taxes and elected representatives have the freedom to spend the money as they see fit.

There's a clear conflict between democracy and consumer sovereignty.  So anybody who is truly a proponent of consumer sovereignty must logically oppose democracy.

In a recent blog entry... Democracy is Not Freedom... the economist Miles Kimball wrote...

No way of making decisions is perfect. And of course judges, too, make mistakes. But since democracy has no magic that makes democratic decisions always correct, we should not be afraid of a constitutional system that sometimes has judges overrule democratic decisions if we find that it works well in practice. 

Kimball says that sometimes judges should be able to overrule voters.  Why didn't he argue against voters overruling consumers?

Matthews says that he supports consumer sovereignty.  Why didn't he argue against voters overruling consumers?

Matthews really doesn't seem to realize that his argument for UBI is also an argument against democracy.   So here I am pointing it out to him.  Will he acknowledge this fact?  Or will he try and ignore it?  Will he bravely run away from logical consistency?

Kimball is correct that no way of making decisions is perfect.  But has he ever considered replacing voting with spending?

Under Pressure

Reply to reply: An Economic Explanation For the Evolution Of Intelligence

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

TomFoolery, do cats look both ways before they cross a street?  Cars certainly put a selection pressure on cats.  This pressure shifts the population of cats to some degree in some specific direction.  To what degree?  And in what direction?   (see... Evolution via Roadkill).

Each year a flock of introduced parrots eats the figs on my neighbor's tree here in Southern California.  These parrots then fly around and poop the fig seeds out.  Some of these seeds germinate... and a few of the seedlings mature and bear fruit.  Parrots put a selection pressure on fig trees in California.  This pressure shifts the population of fig trees to some degree in some specific direction.  To what degree?  And in what direction?

Hummingbirds are only native to the Americas.  What would happen if they were introduced to Africa?  The hummingbirds would pollinate some flowers and not others.  Hummingbirds would put a selection pressure on plants in Africa.  This pressure would shift the population of plants in Africa to some degree in some specific direction.  To what degree?  And in what direction?

Honey bees are not native to the Americas.  They have pollinated some flowers and not others.  The honey bees put a selection pressure on plants in America.  This pressure has shifted the population of plants in America to some degree in some specific direction.  To what degree?  And in what direction?

Consumers are allowed to shop in the private sector.  They give their money to some producers and not others.  Consumers put a selection pressure on producers in the private sector.  This pressure has shifted producers in the private sector to some degree in some specific direction.  To what degree?  And in what direction?

Consumers are not allowed to shop in the public sector.  What would happen if they were allowed to shop in the public sector (aka pragmatarianism)?  Consumers would give their money to some producers and not others.  Consumers would put a selection pressure on producers in the public sector.  This pressure would shift producers in the public sector to some degree in some specific direction.  To what degree?  And in what direction?

For humans... I argued that complex carrying put a significant degree of pressure on our ancestors in the direction of greater intelligence.  I can see this same pressure possibly eventually resulting in raccoons and monkeys being as intelligent as we are.  But this same pressure isn't relevant to the other animals that you mentioned.  I've shared a few thoughts on octopuses here.

Every species has individuals that are exceptional in different ways.  Some individuals are exceptionally fast/slow, tall/short, weak/strong, colorful/drab, intelligent/dumb and so on.  In order for these exceptions to become the rule... there has to be some pressure that makes them the rule.

If you, or anybody else, is interested... here's a playlist of different animals carrying things.

Consumer choice limits the influence of irrational people

Context: The Demand For Defense?

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

Galloism: This is just a restatement of a number of assertions without proof. We do not see any significant tie between wealth and rationality, and as a result do not support a pragmatarian system. We do not think that resources will be more rationally located, and the exceptions will not disappear ever - but you can nip them in the bud with a 100% estate tax. Do you support a 100% estate tax to limit the number of irrational people with significant wealth?

Xero: The very point of markets is that they do an excellent job of limiting the influence of irrational people. I'm sure that you'd agree that Don Quixote was pretty irrational. He spent considerable time and energy attacking windmills because he thought that they were giants. I have no problem assuming that you wouldn't have voluntarily given your money to Quixote. This choice of yours would have helped to limit Quixote's influence.

Consumer choice limits the influence of irrational people. Right now we don't have consumer choice in the public sector. This is a problem because it gives irrational people more influence over really important things like national defense, environmental protection, education, healthcare and so on. The solution is simply to create a market in the public sector by giving people the freedom to choose where their taxes go.

German taxpayers weren't free to choose where their taxes went. Without this limit on the influence of irrational people... Germany ended up with an extremely influential Quixote... Hitler.

German taxpayers are still not free to choose where their taxes go. Neither are Chinese taxpayers. Or Russian taxpayers. Or American taxpayers. There isn't a single country where taxpayers can choose where their taxes go. In the absence of this limit in any public sector... it's only a matter of time before we end up with another extremely influential Quixote. Just because we beat the last extremely influential Quixote really doesn't guarantee that we'll beat the next one.

Clarifying The Demand For Defense

Merry Christmas.  Here's my reply to: effectively directing the bulk of government spending

... and some relevant passages.

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

After 9/11, if taxpayers had been free to directly allocate their taxes, then defense would have received even more funding than it actually received?  Even though the DoD failed to do its job... not only would taxpayers have rewarded the DoD... but they would have rewarded it more than congress did?

The bottom line up front: Taxpayers are the people least likely to spend the wrong amount of money on defense.  In other words, taxpayers are the people most likely to correctly discern whether any given expenditure will provide a real or imaginary advantage.

Perhaps the best place to start would be to compare federal income tax receipts (source) with the amount of money that defense actually received (source)...

The numbers are in billions.  Here's the chart data along with defense as a percentage of income tax...

Is this right?  I'm not 100% confident that I did this correctly.  If it is correct....then, in order for taxpayers to have spent more money on defense than defense actually received... it would have been necessary for them to spend, on average, more than 55% of their taxes on defense.  Does that sound plausible?

Right now people can't choose where their taxes go.  This means that we don't know the demand for public goods.  I refer to this as demand opacity.  Even though we don't know the demand for defense... I'm pretty sure that taxpayers wouldn't have spent as much money on defense as congress did.

Let's consider some of the relevant economic concepts...

Amazon vs America

Reply to: Damn Right Amazon Runs a Fucking Deficit and So Should America

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

The public sector. The public sector. The public SECTOR. The public SECTOR. The public SECTOR. The fucking public SECTOR. The mother fucking public SECTOR.

You: Hey, there are some companies, in the private SECTOR, and they run a deficit. They borrow a ton of money! Look how well they are doing! Therefore, let’s run the entire public SECTOR just like how some individual companies in the private SECTOR are run. 

It’s ok for companies to borrow lots of money. Because… if some companies make stupid spending decisions then we, the consumers, give our money to whichever companies are making smart spending decisions. We can choose not to give our money to Amazon. We have the freedom to spend our money elsewhere. It’s entirely up to each and every one of us to decide entirely for ourselves whether or not Amazon is making too many mistakes. Consumer choice is what keeps Amazon on its toes. Our freedom of choice is what Amazon thinks about when deciding how they should spend the money that they earned and borrowed. 

Borrowing in the private sector is ok because of consumer sovereignty. You know what you’re left with when you take away consumer sovereignty? Whatever your left with IS NOT a market. You’re left with a not-market. 

Not-markets have different feedback mechanisms. Like voting. The government wants to borrow a shit ton of money and spend it on an unnecessary war. Then what? Then we, the voters, have to use our votes to try and replace whichever numskulls are in charge borrowing/spending a shit ton of money. 

In the public sector we infrequently use votes to try and replace the leaders who are making terrible spending decisions. In the private sector we frequently move our money to whichever leaders are making the best spending decisions. 

This isn’t a subtle distinction. But here you are completely ignoring this distinction and, as a result, you come to a completely moronic conclusion. 

Here I am giving you feedback. It’s negative feedback. You wrote a shit story. Lots of other people also gave you feedback. But they gave you positive feedback by *hearting* your story. If Medium facilitated micropayments… then how much money would those people have given you? You don’t know. You’re not mother fucking omniscient. 

The point of markets is to clarify demand. People are free to spend their own hard-earned money and when they do so it reveals the truth of their preferences and priorities. Not-markets do not clarify… they obscure… which is why they invariably waste massive amounts of society’s limited resources. Which is why it’s massively moronic for the government to run a deficit. And why it’s fundamentally important that people be free to choose which government organizations they give their taxes to (pragmatarianism FAQ).

Let me try and put my main point in a nutshell… 

In order for deficit spending to work as well for America (one country) as it does for Amazon (one company)… leaving America would have to be as easy as leaving Amazon. Leaving America and moving to Canada would have to be as easy as moving your money from Amazon to Barnes and Noble. 

With Amazon we have easy exit. With America we do not. Therefore, deficit spending for America is incredibly stupid. When consumers can’t easily boycott mistakes in the public SECTOR… then we want the public SECTOR to be as small as possible. 

Coffee Tastes Like Politics

Comment on: Libertarianism And The Politics Of Everything by Will Wilkinson

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

Coffee tastes like politics?  Yuck!  No wonder I don't drink the stuff!

You spend your money on coffee... I do not spend my money on coffee.  We spend our money differently because we have different preferences.  Human diversity is the basis of consumer choice.  Consumer choice is economics.  Economics is the opposite of politics.  Economics is the opportunity cost of politics.

If coffee was in the realm of politics... then one of us would have to get screwed.  Either my money would be spent on coffee... despite the fact that I can't stand the stuff... or your money wouldn't be spent on coffee... despite the fact that you love the stuff.  Would you really want coffee to be in the realm of politics?  No?  Then why in the world would you want anything to be in the realm of politics?  

Politics only exists because people don't understand economics.  If people understood economics then they would clearly see the absolute absurdity of allowing a small group of elected officials to spend everybody's taxes.

The next time that you drink coffee... don't think about politics.  Think about how you're pretty happy with your coffee despite the fact that I'm entirely free not to spend any of my money on coffee.  

To be clear... the free-rider problem is a real problem... so we need the public sector... but we really don't need it to be a political realm.   Libertarianism is the belief that we need to kick most public goods out of the public sector.  Pragmatarianism is the belief that we need to kick politics out of the public sector.

John Quiggin vs Weeds

John Quiggin is my second favorite liberal.  He's writing a book about opportunity cost!  How cool is that?  Over at Crooked Timber he's been sharing excerpts from his book so that people can share their feedback.  This is also really cool.

Here's his latest excerpt... Income redistribution: Where should we start?

Even though I love the general topic... his treatment is missing something.  The word "lackluster" comes to mind.  So does "drab".  But what, exactly, is it missing?  It's one thing to taste some soup and realize that there's something missing.  It's another thing entirely to be able to specify the missing ingredient.  Actually, nearly every dish could use more garlic!

As I was quickly scrolling through the comments... I noticed quite a few from a reader named Plume.  This is nothing new.  He is a very frequent commenter.  His comments boil down to "socialism good, capitalism bad".

What was new though was that Plume received some significant pushback from another commenter...

I know that I, at least, would be very glad if every thread even remotely related to economics didn’t devolve into an extended discussion of Plumism, or Pluminomics, or whatever it is we keep getting long dissertations on. There are lots of good topics here to be discussed, but I don’t see this as one of them. I’m almost certain that I’m not alone. I believe that it’s still free to start a blog, and perhaps starting a new one devoted just to Plumism would be a good choice for those interested in the subject. - Matt  

 Somewhat surprisingly... a few comments later... Quiggin wrote...

Plume, I agree with other commenters here. From now on, for my post, can you limit yourself to one comment per post per day.

This is the missing ingredient!  In fact, it's not just one ingredient... it's two ingredients...

Missing ingredient #1: People do different things with society's limited resources... and different people value different things differently.  This fundamentally basic but incredibly important concept is largely, or entirely, missing from Quiggin's analysis.  But there it is plain to see in the comments section!  How can any conclusion regarding the distribution/redistribution of society's limited resources possibly be correct when it doesn't take into account this essential economic truism?

Missing ingredient #2: Accessible scenarios that help convey the relevant economic concepts!  I'm pretty sure that I've read every excerpt that Quiggin has shared... and I don't think that he's ever offered an accessible scenario.  Then again... my memory isn't that great.  Then again... a really good scenario is really hard to forget!

For example...

Following a three-hour time-off-for-personal-exploration period, an excited Sylvia returns to the campsite and announces: "I've stumbled upon a huge apple tree, full of perfect apples." "Great," others exclaim, "now we can all have apple sauce, and apple pie, and apple strudel!" "Provided, of course," so Sylvia rejoins, "that you reduce my labour burden, and/or furnish me with more room in the tent, and/or with more bacon at breakfast." Her claim to (a kind of) ownership of the tree revolts the others. - G.A. Cohen, The Socialist’s Guide to Camping

It's a very simple and accessible story that wonderfully illustrates Cohen's point.  Of course I don't agree with his point... but I really admire how well he conveyed it.

Quiggin's book is the liberal sequel to Hazlitt's book... Economics In One Lesson... which was all about Bastiat's beautiful essay... What Is Seen and What Is Not Seen.  When it comes to accessible economic scenarios... nobody holds a candle to Bastiat.  He really set the standard that every economist should strive to meet.

When James Goodfellow gives a hundred sous to a government official for a really useful service, this is exactly the same as when he gives a hundred sous to a shoemaker for a pair of shoes. It's a case of give-and-take, and the score is even. But when James Goodfellow hands over a hundred sous to a government official to receive no service for it or even to be subjected to inconveniences, it is as if he were to give his money to a thief. It serves no purpose to say that the official will spend these hundred sous for the great profit of our national industry; the more the thief can do with them, the more James Goodfellow could have done with them if he had not met on his way either the extralegal or the legal parasite. - Frédéric Bastiat, What Is Seen and What Is Not Seen

A few other people have shared some noteworthy scenarios...

Now suppose that Wilt Chamberlain is greatly in demand by basketball teams, being a great gate attraction. (Also suppose contracts run only for a year, with players being free agents.) He signs the following sort of contract with a team: In each home game, twenty-five cents from the price of each ticket of admission goes to him. (We ignore the question of whether he is "gouging" the owners, letting them look out for themselves.) The season starts, and people cheerfully attend his team’s games; they buy their tickets, each time dropping a separate twenty-five cents of their admission price into a special box with Chamberlain’s name on it. They are excited about seeing him play; it is worth the total admission price to them. Let us suppose that in one season one million persons attend his home games, and Wilt Chamberlain winds up with $250,000, a much larger sum than the average income and larger even than anyone else has. Is he entitled to this income? Is this new distribution D2 unjust? If so, why? There is no question about whether each of the people was entitled to the control over the resources they held in D1; because that was the distribution (your favorite) that (for the purposes of argument) we assumed was acceptable. Each of these persons chose to give twenty-five cents of their money to Chamberlain. They could have spent it on going to the movies, or on candy bars, or on copies of Dissent magazine, or of Monthly Review. But they all, at least one million of them, converged on giving it to Wilt Chamberlain in exchange for watching him play basketball. If D1 was a just distribution, and people voluntarily moved from it to D2, transferring parts of their shares they were given under D1 (what was it for if not to do something with?), isn’t D2 also just? If the people were entitled to dispose of the resources to which they were entitled (under D1), didn’t this include their being entitled to give it to, or exchange it with, Wilt Chamberlain? Can anyone else complain on grounds of justice? - Robert Nozick, Anarchy, State, and Utopia

Quiggin will probably disagree with Nozick's point like I disagree with Cohen's point... but perhaps Quiggin will appreciate how well this scenario conveys Nozick's point.  And if Quiggin wants to argue in favor of redistribution... it would behoove him to explain, preferably by using an equally accessible scenario, how doing so does not subvert the true will of the people as revealed by the decisions that they make as consumers.

Here's another one...

Consider the following analog to Block's gardening problem. Let there be an island that contains all the known stock of Austrian Pure Snow trees. The island is inhabited by a religious sect, the first to mix their sweat and blood with the island's soil, thus satisfying Rothbard's principle of "original ownership." They worship these trees as if they were God. Never would they let them be tampered with in any way. Unknown to anyone, these trees contain an ingredient that is a sure cure for cancer, and when this is discovered a question of the ownership of this ingredient, unavailable elsewhere, arises. The religious sect will in no way, for any compensation, allow that ingredient to be extracted. Is it "evil and vicious" to believe that it would be preferable for someone else to own the right to this ingredient, requiring instead that the religious sect purchase the inviolability of this ingredient? Might not "our most cherished and precious property rights" be still more cherished and precious if the private ownership of this new resource was not confined to those who own the rest of the island? Would the answer be much different if this ingredient not only was known to the island dwellers, but was precisely that part of the trees that they worshiped? Would the answer be different if the islanders were very poor? - Harold Demsetz, Ethics and Efficiency in Property Rights Systems

As a nature lover... I appreciate all the trees in this scenario.  And, as an economics lover... I appreciate the ownership dilemma.  Although... the scenario falls apart a bit when we consider the fact that trees have seeds.  It's hard to imagine that some group wouldn't be willing to sell one seed for any price.

Here's the most recent noteworthy scenario that I've run across...

If Robinson Crusoe and Friday are on an island, and Crusoe grows seven pumpkins and Friday grows three pumpkins, Crusoe hasn’t grabbed a bigger piece of (pumpkin?) pie. He has simply created more wealth than Friday, leaving Friday no worse off. It is dishonest to say Crusoe has “taken” 70 percent of “the island’s” wealth. - Don Watkins, Turning the Tables on the Inequality Alarmists

Short and sweet.   It's unfortunate that Watkins can't keep his story straight... Limit Socialism To California.

My favorite recently-dead economist James Buchanan wasn't exactly known for his scenarios... and perhaps this is part of the reason that he is so incredibly under-appreciated.  Consider this scenario...

At some basic psychological level of choice, the demand of the citizen for more police protection by the municipality reflects the same drive as his demand for additional door locks from the local hardware store. 

Even with such a simple analogy, however, care must be taken lest the similarities be pushed too far. The person who wants to purchase a new lock goes to the local hardware store, or to several stores, surveys the array of alternatives offered for sale, along with the corresponding array of prices, makes his purchase, and is done with it. It should be evident that the person’s act of implementing his demand for additional police protection is quite different. The citizen must communicate his desires to his elected political representative, his city councilman, who may or may not listen. If he does listen, the councilman must then take the lead in trying to convince a majority of his colleagues in the representative assembly to support a budgetary adjustment. But what about quality and price? Almost anyone would desire more police protection of high quality if this should be available to him at a zero price. At one level of reaction, the citizen must understand that additional public services can be secured only at the price of either reductions in other services or increases in taxes. How can he indicate to his political representative just what quantity-quality-price mix is most preferred? And how can his political representative, in trying to please his constituents, determine this mix? - James Buchanan, Richard Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes

The scenario works... but it doesn't exactly stick.  Buchanan didn't even give the person a name!

Ok, so what is Quiggin's book missing?  Based on the drafts that Quiggin has shared... his book is missing two things.  First, it doesn't really address the fact that people value things differently.  Second, it doesn't have any accessible scenarios/stories.  My dollar vote is for a scenario involving Australia's wonderful epiphytic orchids.

While I'm at it... I should point out that the solution to the comment problem really isn't to limit Plume's comments.  The solution is to create a market in the comment section!  Quiggin could spend his pennies on whichever comments he values most.  Everybody else could do the same.  Then, if people wanted to, they could sort the comments by their value.  The most valuable comments would be at the top of the comment section and the least valuable comments would be at the bottom of the comment section.

If we think of Quiggin's blog entry as a home... then the comment section would be the garden.  Plume is a weed that grows everywhere in the garden.  He takes up way too much space in the garden.  The thing is... it's a really big garden... and not all the space is equally valuable.  The most valuable space is closest to the house.  So the problem really isn't that Plume is taking up too much space... the problem is that he's taking up too much valuable space.  All the valuable space that Plume takes up could be used for far more valuable plants.  Sure, Quiggin could manually limit the amount of valuable space that Plume occupies... but a far more effective approach would be for Quiggin to give more water, food and love to the plants that he values most.  They would grow more vigorously and, as a result, they would crowd out Plume and all the other weeds.  Pretty soon all the most valuable space in the garden would be occupied entirely by the most valuable plants.  The garden would still have weeds... but they would be located in the most remote part of the very big garden.

This is how and why markets work.  Consumers can't pull weeds... but they can help nourish the most beneficial plants.  The logical result of consumer choice is that resources are unevenly distributed among the unequally beneficial plants.  Redistribution might seem fair... but it simply provides more valuable space to less valuable plants.

Nobody truly benefits when society's limited resources are placed in less beneficial hands.  In other words, the opportunity cost of fairness is way too high.

Artificial Barriers To Entry: Humanity's Berlin Wall

Reply to: How (Not) To Be a Capitalist

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

You argue that nobody is better off when they trade with Martin Shkreli… but you also argue that plenty of people choose to trade with him (which is why he’s raking in the profits). 

The first time that you traded with Shkreli he ripped you off. Shame on him. But if you traded with him a second time… then shame on you. If you continued to trade with him… then here are a couple of very different conclusions…

1. you’re irrational
2. you’re benefiting

Are you irrational? If so, then you really shouldn’t be blaming Shkreli. Are you benefiting? If so, then you really should be thanking Shkreli. 

Markets wouldn’t work so well if most people continued to make trades that weren’t beneficial. The fact of the matter is that consumers want to maximize their profit just as much as producers do. The only difference is that we can’t see or measure the amount of profit that consumers derive from a trade. But, because market trades are entirely voluntary, when consumers continue to make the same trades…. we can reasonably guess that they are profiting from doing so. It’s an entirely different story when consumers don’t have the freedom to exit. In the absence of consumer choice, the only thing that we can reasonably guess is that producers have little, if any, incentive to benefit consumers. Destroying the direct connection between payment and performance has logically detrimental consequences. 

Even though your economic analysis is logically flawed… you’re right that there’s a problem. Rent-seeking is certainly a part of it. The thing is… your definition of rent-seeking is incredibly wrong. Rent-seeking really is not when people charge what the market will bear. Where did you get the idea that it was? Being able to price gouge is the reward that people receive for correctly foreseeing future conditions. We really want people to have the maximum incentive to be in the most valuable place at the most valuable time. If there are a lot of people drowning and only one lifeguard… then it’s a really bad idea to reduce the incentive for other people to become lifeguards. Evidently you didn’t learn in econ 101 that incentives matter. You should try and get a refund. 

Rent-seeking is actually when people use the government to cheat. The minimum wage is the result of rent-seeking. It’s rent seeking when unions use the government to block competition. Just like it’s rent-seeking when corporations use the government to block competition. 

Forcing drug companies to comply with extensive government regulations is a huge part of the reason that drugs are so expensive. Costly compliance creates a very high barrier to entry… and a very high barrier to entry means a lot less competition… and a lot less competition means higher prices, smaller quantities and lower qualities. Drug companies want compliance to be costly… and voters want to be protected from defective drugs. So, unfortunately, it’s a win-win situation for congress to create the maximum amount of red-tape possible. 

Therefore, the real problem is democracy. Voters think that they are getting a free lunch when they vote for politicians who promise to ensure drug safety. Instead of getting a free lunch, voters simply make drugs a lot more expensive. Saving one life really isn’t such a great deal when it costs 1000s of lives. 

People vote to make it a lot harder to become a lifeguard and then they turn around and complain that so many people are drowning. 

The solution is to allow taxpayers to choose where their taxes go (pragmatarianism). When taxpayers consider the opportunity costs of drug safety compliance… they will decide that they have much more beneficial trades to make with the government. Big pharma will cry big tears when the barrier to entry is knocked down just like the Berlin Wall was. Once the barrier is down… competition will skyrocket and this will ensure an abundance of affordable and effective drugs. 

Drug companies will still want to cut corners… but a fully functioning market with maximum competition will quickly and severely punish any companies that cost, rather than save, lives. 

Regulations are just rules… and rules are necessary. This doesn’t mean though that all rules are equally necessary. The only way to ensure that rules truly create the most benefit for society is to create a market in the public sector. Are you going to voluntarily spend your hard-earned money on rules that harm you? Not if you’re rational. Generally speaking… rational people have more money to spend than irrational people. This is because being in the right place at the right time is more profitable than being in the wrong place at the wrong time. Thank goodness! So if you’re rational… then chances are good that you’re going to have more influence…. which you’ll use to support the most beneficial rules. If circumstances change and a rule becomes less beneficial… then you’ll have the freedom to quickly use your taxes to communicate to the rest of society that the rule has become less necessary. 

It’s important to understand that benefit is entirely in the eye of the beholder. Just like it’s important to understand that incentives matter. Just like it’s important to understand that every allocation requires the sacrifice of alternative allocations.

So is it beneficial for you to reply to my reply? I have absolutely no idea. But if you do reply…. assuming that nobody forced you to do so… and assuming that you’re reasonably rational… then I’ll logically conclude that any benefit that you foresaw must have been large enough to incentivize you to spend your time sharing your thoughts on my thoughts on your thoughts.