The Efficient Allocation Of Babies

In my thread... Game Theory For Baby Names... Bombadil sarcastically suggested that babies be allocated according to spending.  It reminded me of the first episode of the Australian show "Offspring"...

And we land in whichever family we scored. Do babies end up with the families that suit them best?  Would we be better off swapping around?  

Do the best with what you're given, kids, like the rest of us.  For better or worse, you can't choose your family. 

Efficiently Allocating Brainpower

Response to: Craigslist, Wikipedia, and the Abundance Economy by Quincy Larson

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Your grasp of programming is a LOT better than your grasp of economics! I’m the opposite. My grasp of economics is a LOT better than my grasp of programming. It’s a double coincidence of wants!

Imagine that an ant stumbles upon a giant, delicious cookie. The ant will certainly be thrilled that she made such a valuable discovery. Of course she can’t carry the entire cookie back to the colony. Instead, she willingly spends/sacrifices a considerable amount of her limited and precious calories in order to create a very strong pheromone trail all the way back to the colony. Ants at the colony will be able to easily and quickly discern that, based on the strength of her pheromone trail, it will be really worth it for them to choose her trail. Many of them will do so and the chances will be really good that they will be able to grab the cookie before a crow does.

I don’t even know if crows eat cookies.

The problem with your grasp of economics is that you see spending/sacrificing as buying.

NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO.

The point of spending/sacrificing is communicating. It’s how we communicate to others where there’s something of value. It’s how we bring valuable/important things to other people’s attention. It’s how we beneficially alter/change/modify each other’s behavior.

The gold rush was only a rush because so many people were willing to spend so much of their money on gold. Consumers’ willingness to pay such a high price for gold quickly and significantly altered the behavior of many producers.

So imagine society as a bunch of brains. What should be done with all these brains? How should they be used? How should they be allocated?

The gold rush significantly altered the allocation of society’s brains. Consumers said, “We’d truly LOVE to have more gold! We’ve proved this by our willingness to spend/sacrifice so much money!” Producers got the message loud and clear… and there was a significant change in the allocation of society’s brains. A lot more brainpower was used to try and solve the gold shortage problem.

Dr. Salk gave the polio vaccine away. That’s true. People paid barely any money for the vaccine. That’s also true. Everyone’s life is better off as a direct result of this massive free lunch? Nope. Nope. Nope.

If the amount of money that people spent on the vaccine accurately communicated their true valuation of the vaccine… then we can reasonably guess that there would have been a massive rush to cure other deadly diseases. And cancer would have been cured a long time ago.

Well… I can’t know what, exactly, would have been the result of allocating a massive amount of brainpower to curing deadly diseases.

It’s easy to see what does exist… it’s really hard to see what would have existed if people truly understood the free-rider problem (sacrifice < valuation).

I’m guessing that you aren’t aware that Wikipedia is loosely based on Friedrich Hayek’s essay? Sure, of course knowledge is dispersed… but the “minor” detail that Wales missed is the relationship between knowledge and prices. Wikipedia has a lot of brainpower. But this brainpower really isn’t being efficiently allocated because the editors really don’t know how much their edits are truly worth to other people.

The solution is simple. Let’s take Medium for example. We’d all pay a very reasonable $1/month but we’d be entirely free to choose which stories we spend our pennies on. People’s sacrifices would accurately communicate their valuations and Medium’s brainpower would be efficiently allocated.

This solution is the pragmatarian model. The Nobel economist James Buchanan deserves most of the credit for this model.

With your grasp of programming and my grasp of economics we can create something awesome. Let me know if you’re interested!

Markets: The Freedom To Reallocate Your Brainpower

Reply to reply: MMT = Moronic Monetary Theory

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So what????? we might not have enough defense to defend ourselves and we'd get killed! Do you understand that living is important? - James972

Of course I understand that living is important. You understand this as well. But what you don't understand is that our standard of living depends on how well our country utilizes all its brainpower.

Right now you think it's a good idea to prevent taxpayers from having the option to choose where their taxes go. This means that you think it's a good idea to prevent nearly all of our country's brainpower from being applied to public goods. You don't understand that blocking nearly all of our country's brainpower from the public sector is just as detrimental as it would be to block nearly all of our country's brainpower from the private sector.

Imagine that everybody on this forum was stranded on an island. Let's say that somehow you had the power to enslave all of us. If you did so, would your standard of living be better or worse? Of course it would be worse! Because by enslaving all of us you would essentially be wasting all of our brainpower. All of our significant activities would only reflect your brainpower. Our island society would only fully utilize one person's brain... your own. Maybe you would be fully utilizing our labor... but our brainpower, which is infinitely more valuable, would be entirely wasted. Our standard of living would reflect this.

Of course you object to slavery. But you object to it for moral reasons rather than for economic reasons. If you actually understood why slavery is economically stupid then you would understand why it's also economically stupid to prevent people from having the option to directly allocate their taxes.

I'm guessing that you support democracy. But are you seriously under the impression that voting fully utilizes everybody's brainpower? Do you think it takes just as much brainpower for you to decide who to vote for as it would take for you to decide how to spend your tax dollars?

To be clear... you can't utilize more than 100% of your brainpower. If you had the option to directly allocate your taxes... obviously you wouldn't be required to use 200% of your brainpower. You would simply have the option to decide how you wanted to allocate your brainpower between the private sector and the public sector. If you didn't want to allocate any of your brainpower to the public sector... then you would simply continue to allow congress to spend 100% of your taxes for you. If nobody chose the option to directly allocate any of their taxes... then the public sector wouldn't gain any brainpower.

Perhaps the closest real world situation occurred in 1978. This is when Deng Xiaoping began to gradually give foreigners the option to shop in China. Prior to 1978... nobody, not even the Chinese, had the option to shop in China. Right now, thanks to Deng Xiaoping, you have the option to shop in China's private sector. Right now you have the freedom to decide how you want to allocate your brainpower between our private sector and their private sector. We all have this same freedom. Do you think we benefit from having this freedom? I sure think so. Even though I don't allocate much, if any, of my own brainpower to shopping in China... my standard of living has definitely improved as a result of all the people who have allocated significant amounts of their brainpower to shopping in China.

Here we are allocating our brainpower to this forum. Are we better off as a result of having this option to do so? I sure think so.

The thing is... this website...

1. doesn't have a market
2. isn't a market

This website doesn't have a market because you don't have the option to spend your money on the threads and posts that you value. In other words, this website doesn't have a market because it doesn't facilitate micropayments. Should this website facilitate micropayments? Yes? No? Right now you don't have the option to spend your money on your preferred answer. Therefore, this website is not a market.

This website would be infinitely better if it had a market and it was a market. Why? Because it would be infinitely better at utilizing all our brainpower. But it's not entirely problematic that this website doesn't have a market and it isn't a market. Because, as soon as somebody does create a website that has a market and/or is a market... then we are entirely free to leave this website and participate on the website that does a better job of utilizing the brainpower of all its members.

The fact that this website is in a market means that we are entirely free to reallocate our brainpower as soon as we deem it beneficial to do so.   If you understand the benefit of people being free to reallocate their brainpower... then you should be able to understand the benefit of giving people the option to reallocate their brainpower to the public sector.

Should Women Be Allowed To Shop?

Reply to: 2.1 How to fix capitalism: part one

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You made the effort to explain that prices help guide society’s limited resources to their most valuable uses. But then you didn’t even mention the fact that prices are absent from the public sector.

If we truly do need prices to efficiently allocate resources… then wouldn’t it be a problem that the public sector doesn’t have them? If, on the other hand, prices truly prevent resources from being efficiently allocated…. then wouldn’t it be a problem that the private sector has them?

In the private sector… consumers shop/spend to communicate what the greater good truly is. In the public sector…consumers do not shop/spend to communicate what the greater good truly is. So which method more accurately communicates what the greater good truly is… shopping/spending… or not shopping/spending?

Here I am right now allocating my limited time to replying to your story. Even though this is the private sector… there aren’t any prices involved. Does this mean that it’s impossible for me to efficiently allocate my resources to your story? Nope… because what makes efficient (valuable) allocation possible is 1. my valuation of the alternative uses of my limited resource and 2. my sacrifice of the less valuable uses. This is how society’s limited resources are put to their most valuable uses. This is how society’s limited resources are efficiently allocated. This is how we ensure that the distribution of society’s limited resources creates the most benefit for society. 

Prices aren’t truly needed… and to focus on them distracts from what is truly needed: personal valuation/sacrifice. Society, if it’s to maximize the value it derives from its limited resources, needs you to have the freedom to accurately communicate what’s most important to you. Market communication is far more accurate than not-market communication because in a market you’re sacrificing the less valuable uses of your own limited resources. Your communication becomes incredibly less accurate when you sacrifice resources that you haven’t earned the right to sacrifice. 

The fact of the matter is that no two people are equally effective at earning the right to decide how society’s limited resources should be used. We’re all different so it should be a given that some people are better than other people at using resources. No two people are equally resourceful just like no two people are equally wasteful. Society maximizes its benefit by putting its limited resources into the best hands. Because hands aren’t all equally effective… the logical result is that some people will have a lot more influence than other people. 

The public sector doesn’t have personal valuation/sacrifice (communication) so it’s a given that far too many of society’s limited resources will end up in less effective hands. 

This doesn’t mean, however, that we need to eliminate the government. When it comes to public goods… personal communication isn’t as accurate as it is for private goods. Because… why by the cow when you can get the milk for free? It’s pretty reasonable for people not to spend their money if they don’t have to. Except for the part where spending money is the only way that people can accurately communicate what’s truly important to them. 

Producers can’t put society’s limited resources to their most valuable uses if they don’t know which uses are the most valuable. Producers aren’t omniscient. They can’t magically pull our true valuations out of a hat. Producers can only know our valuations when we communicate our valuations by spending our own money. In a world where everybody truly was omniscient… communication would be a waste of everybody’s time and energy. 

So, because of the free-rider problem, coercing people to contribute to public goods (taxation) is beneficial… but, because producers aren’t omniscient, preventing people from choosing for themselves which public goods they spend their taxes on is detrimental. 

Imagine if we prevented women from shopping for themselves in the private sector. Would the supply of private goods increase or decrease in value? Consider these two possible approaches…

Approach A: Women could give their money to any man who was willing to be their personal shopper. For example… if a woman wanted an iPhone…. she could simply give her money to her brother and he would buy the iPhone for her. Assuming of course that he had nothing better to do with his time than be her personal shopper. 

Approach B: Women would put all their money into a pool and elect 500 or even 1000 representatives (impersonal shoppers) to decide how to spend all the money. Representatives would decide, as a group, which phones are the best… they’d spend a portion of the money accordingly… and the purchased phones would be delivered directly to each and every woman who needed a new one. If women weren’t happy with their phones… then they could simply vote for different impersonal shoppers. 

The “drawback” of Approach A is that the women would still have to decide for themselves between an iPhone and all the other types of phones. And it’s really hard to figure out which phone is best! The “benefit” of Approach B is that elected representatives would do all the homework for all the women. 

Approach A would save women some time, effort and energy… but Approach B would save them a lot more time, effort and energy. Women would be able to spend all this freed-up up time, effort and energy on enjoying life! Guys would be super envious. 

In terms of creating value… how would you rank the different approaches? Maybe like this?

1. Approach B
2. Approach A
3. Approach C (Current approach)

Yet, for some reason, I’ve never once a heard any woman advocate replacing Approach C with either Approach B or Approach A. 

The reality is that Approach B would destroy immensely more value than Approach A would. Approach A is a moronic idea… Approach B is an incredibly moronic idea. It should be painfully obvious that the consequences of Approach B would be extremely detrimental. Eliminating women’s direct and personal choices as consumers would result in a gigantic decrease in the variety, quality, quantity and affordability of private goods that are important to women. How absurd would it be to blame these detrimental consequences on the invisible hand? 

Right now women can’t shop for themselves in the public sector. And neither can men. We all have to rely on Approach B when it comes to public goods. 

Yet, here you are largely blaming society’s biggest problems on the presence of the invisible hand. But in fact, all these problems are the direct consequence of the invisible hand being absent from the public sector. Blocking the invisible hand from the public sector guarantees that public funds are going to be inefficiently allocated. And of course there are going to be problems when public funds are inefficiently allocated! We could easily eliminate these problems simply by giving people the freedom to shop for themselves in the public sector (pragmatarianism). 

If Adam Smith had been able to stand on his own shoulders then he would have realized this. But it really wasn’t his job to stand on his shoulders… it’s our job. Standing on his shoulders allows us to clearly see that, whether we’re talking about private goods or public goods, what’s truly important to individuals truly matters. 

Unfortunately… you’re not standing on Smith’s shoulders. You’re sitting on his shoulders. Sitting on his shoulders is certainly better than clinging to his back though. So I’m going to recommend your story. But I sincerely hope that you make the effort to try and appreciate how the invisible hand is just as necessary for public goods as it is for private goods. 

It’s entirely possible that I’m wrong! Am I? Well…I’ve searched long and hard for a reasonable explanation of how public funds can be efficiently allocated without the invisible hand. And I have yet to find one. 

The key concept here is understanding that a good explanation for why not-markets can put tax dollars to their most valuable uses will also be a good explanation for why not-markets can put all dollars to their most valuable uses.  

Is there a shortage of unskilled labor?

Reply to: Thank you for the response.

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According to the Department of Complete and Utter Nonsense… limiting the wages of doctors to $10/hour would help a gazillion times more people than it would harm. 

Look, this is really simple…

Is there a shortage of unskilled labor?

1. Yes
2. No

If you answer “Yes” then please explain why it would be necessary to artificially increase the wages of unskilled workers. If there was a shortage of doctors… would it be necessary to artificially increase their wages? Wouldn’t their wages already be high? Wouldn’t their wages already accurately reflect/communicate the fact that doctors were in short supply? 

If you answer “No” then please explain why you’d want to artificially increase the wages of unskilled workers. If there was a surplus of doctors… why would you want to artificially increase their wages? If we had too many doctors…. why would you want to increase people’s incentive to become doctors? Can you imagine the problems with a society where everyone was a doctor? 

Picture a world with two countries. One country has no doctors. The other country has all doctors. Would you want to live in this world? If not, then why not? 

The point of prices is to help ensure that resources are efficiently allocated. If one country has a shortage of doctors while another country has a surplus of doctors… then there will be a disparity in their wages. In the country that has too many doctors (surplus)… their wages will be very low. In the country that has too few doctors (shortage)… their wages will be very high. This disparity in wages will incentivize the poorly paid doctors to move to the country where doctors are highly paid (in short supply). In a relatively short time… the disparity in wages will disappear. Prices helped facilitate the optimal (most valuable) distribution (allocation) of doctors (a resource).

In that scenario, in order to keep it simple, we assumed a fixed supply of doctors. But in reality… the supply of doctors is not fixed. People can study to become doctors… and doctors can go into other fields. 

Whether people go into a field and/or stay in a field depends largely on wages. If there’s a shortage of people in a certain field, then we need wages to incentivize people to go into that field and/or stay in that field. If there’s a surplus of people in another field, then we need wages to encourage people to go into fields that have higher wages (shortages of people). 

The beauty of markets is that wages adjust automatically…

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

Regarding the congressional budget report PDF document that you shared… I searched it for the word “shortage”. Guess how many results there were? ZERO. 

When congress can be bothered to come up with some evidence that America is suffering from a shortage of unskilled labor then, and only then, will I be willing to entertain the notion that perhaps a minimum wage is the solution rather than the problem. 

Now here’s something that’s going to blow your mind. The government doesn’t make decisions because they’re economically sound. It makes decisions because they are politically popular. And it’s rarely ever the case that politically popular decisions will be economically sound. 

The only other possible explanation is that the government is entirely fucking clueless about basic economics. 

Maximizing Opportunities By Clarifying Demand Diversity

Reply to: Appreciate the response

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1) If you don’t accurately communicate your valuations of your relationships… then you run the risk of losing these people to the competition. More competition means more risk which means more incentive to accurately communicate valuations. More competition is a good thing. Hence the value of minimizing barriers to entry. Smaller barriers to entry means more employers which means more competition for labor. And with more competition for labor… the more you undervalue your employees… the more likely it is that they will be swooped up by the competition. 

2) Resources should be placed in the most beneficial hands… regardless of where those hands are located. We’re only going to truly maximize progress when we start thinking “humanity” rather than “nationality”. Hillary Clinton said something about the harm of keeping talent on the sidelines. Unfortunately, she thinks that this is only true of local talent. In reality though, the more countries that catch up with America… the more America will benefit. Just like the more kids that are energetically searching for Easter Eggs (beneficial discoveries/improvements)… the more Easter Eggs that will be found.

3) There’s no sound economic argument for a minimum wage. It’s never a good idea to input lies (garbage) into the equation that determines how society’s limited resources are used. There will always be harmful repercussions that tear through the economy like a tsunami. We need resources to shift when conditions change. Preventing resources from shifting doesn’t make the change in conditions go away… it just increases the size of the disparity and the shock when the adjustment is finally made. Imagine if we could prevent little earthquakes… would we want to do so if it meant that we were guaranteed to be hit with a big earthquake not too far down the road? Nooooo. We can forever eliminate recessions and depressions simply by allowing resources to freely adjust to changing conditions. 

4) If improving the standard of living was as simple as mandating higher wages… then the entire world would already have an extremely high standard of living. The standard of living can only be improved when resources are more efficiently allocated. There shouldn’t be any problem with robots “stealing” jobs anymore than there should be a problem with people in China “stealing” jobs. When the competition for labor is maximized… then people will have all sorts of beneficial alternatives to choose from. A closed door isn’t a problem when there’s a multitude of open doors. 

In 1978… when Deng Xiaoping gradually began opening China up to foreign investment… China had a massive surplus of labor. Would mandating a high minimum wage have helped lift millions and millions of Chinese people out of poverty? No, it would have made it less likely that foreigners would have risked their capital, time, energy and expertise “opening doors” for people in China. Thank goodness that China didn’t arbitrarily make its labor more expensive. Because China had a massive surplus of labor (aka cheap labor)… it was profitable enough for more and more foreigners to build factories in China. This increased the demand and competition for labor… which naturally pushed wages up. 

Correlation doesn’t mean causation. Higher wages are correlated with a higher standard of living… but they most definitely are not the cause of a higher standard of living. It was the more efficient allocation of resources which improved the standard of living. And the more efficient allocation of resources was only possible because wages in China accurately communicated that there was a massive surplus of labor. 

It’s really important to understand that demand is incredibly diverse. People want food? True. People want all the same type of food? Not true. So by clarifying demand and minimizing the barriers to entry… we maximize opportunities not just for consumers… but for workers as well. 

With command economies (our public sector)… humanity’s diverse demands are incredibly diminished…which of course diminishes opportunities. If we could apply demand diversity to public goods as well as private goods… then opportunities would skyrocket. Just like opportunities skyrocketed in China when Deng Xiaoping opened up China’s private sector to foreign capital, time, energy and expertise. We can easily open up our public sector to “foreigners” simply by allowing people to choose where their taxes go. Will people allocate their taxes differently? Of course… and that difference will drive a Cambrian explosion of different opportunities.

The Inefficient Allocation Of Labor

Reply to: Minimum Wage — Treating the Symptoms

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Check out this passage by J.S. Mill…

The fact itself, of causing the existence of a human being, is one of the most responsible actions in the range of human life. To undertake this responsibility — to bestow a life which may be either a curse or a blessing — unless the being on whom it is to be bestowed will have at least the ordinary chances of a desirable existence, is a crime against that being. And in a country either over-peopled or threatened with being so, to produce children, beyond a very small number, with the effect of reducing the reward of labour by their competition, is a serious offence against all who live by the remuneration of their labour. — J.S. Mill, On Liberty

Compare it to this passage by Adam Smith…

Every colonist gets more land than he can possibly cultivate. He has no rent, and scarce any taxes to pay. No landlord shares with him in its produce, and the share of the sovereign is commonly but a trifle. He has every motive to render as great as possible a produce, which is thus to be almost entirely his own. But his land is commonly so extensive that, with all his own industry, and with all the industry of other people whom he can get to employ, he can seldom make it produce the tenth part of what it is capable of producing. He is eager, therefore, to collect labourers from all quarters, and to reward them with the most liberal wages. But those liberal wages, joined to the plenty and cheapness of land, soon make those labourers leave him, in order to become landlords themselves, and to reward, with equal liberality, other labourers, who soon leave them for the same reason that they left their first master. The liberal reward of labour encourages marriage. The children, during the tender years of infancy, are well fed and properly taken care of, and when they are grown up, the value of their labour greatly overpays their maintenance. When arrived at maturity, the high price of labour, and the low price of land, enable them to establish themselves in the same manner as their fathers did before them. — Adam Smith, Wealth of Nations

Conditions improve when we efficiently allocate resources. But in order for resources to be put to their most valuable uses, we need prices to accurately communicate demand (valuations)…

The market economy should have natural mechanisms to limit inequality. If housing is very expensive in coastal California, more firms should build houses. If Mickey Mouse toys and Barbie dolls are profitable, more companies should produce those toys. If some professions make more than others, people should move into the higher-paying professions. — Scott Sumner, Kevin Erdmann, Here’s What’s Driving Inequality

Workers should move to the states with the highest wages and businesses should be created in the states with the lowest wages.

Unfortunately, this isn’t an easy concept. Here’s Scott Sumner again…

Why would a Conservative government sharply increase the minimum wage, in a budget that in many other respects favored small government? The minimum wage is currently 6.50 pounds/hour, and 9 pounds/hour is almost $14/hour in US terms. Also recall that average incomes in the UK are lower than in the US. It can’t be just politics, as they just had an election, and are 5 years away from the next one.

A few months back a commenter suggested that the new German minimum wage was aimed at cutting immigration from poorer EU members such as Romania and Bulgaria. Britain is also seeing a fairly large wave of immigration from Eastern Europe, and the Conservative Party seems to be increasingly opposed to high levels of immigration. Could this be aimed at slowing immigration? — Scott Sumner, Britain’s new minimum wage: Is there a hidden agenda?

Higher wages in one country would decrease the incentive for workers to move there? What about higher wages in one county?

Garcetti said county adoption of the minimum wage proposal would put the Los Angeles area “past the tipping point.” He predicted other cities would follow suit to avoid losing the most qualified workers to higher-wage areas. — Abby Sewell, Jean Merl, Sarah Parvini, Business concerns stall minimum wage vote by L.A. County board

What about immigration in terms of unions?

Typically, the most vocal opposition to changes in immigration laws that would permit more low-skilled immigration comes from labour unions representing blue-collar workers. In the United States, for example, the AFL-CIO has traditionally taken a very tough stance in favour of restrictive immigration laws and border control measures aimed at stemming illegal immigration into the country from Mexico. — Michael J Hiscox, Global Political Economy

What about immigration in terms of businesses?

American business and farm associations have taken a very different position, often lobbying for more lenient treatment of illegal immigrants and for larger quotas in various non-immigrant working visa categories. — Michael J Hiscox, Global Political Economy

Mandating price changes and restricting immigration guarantees that resources will be inefficiently allocated. Garbage in, garbage out.

A minimum wage guarantees that labor will be inefficiently allocated. It also guarantees that businesses will be inefficiently allocated.

When, as in J.S. Mill’s passage, there’s a surplus of labor (and all the associated problems)… the last thing that we should do is mandate a wage increase. Mandating a wage increase will have two main consequences…

1. Decrease the incentive for people to move elsewhere
2. Decrease the incentive for people to start businesses

We really want businesses to be created where they are most needed… but this really can’t happen when we prevent wages from accurately communicating need.

In short… the true solution is to maximize the demand for labor. This involves minimizing everything that makes it less likely that somebody will start a business.

Let me know if you have any questions. And welcome to Medium!

Rights vs Results

Reply to: I Agree with Milton Friedman! by James Kwak


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This is kinda a strawman. A “rights” based argument for property ownership is an extremely flimsy argument. Is it even an argument? The bible says, “thou shall not steal”. That’s not an argument… it’s a divine decree.

From the economic perspective… the issue really isn’t “rights”… it’s “results” (aka abundance).

Bob calls himself a “maker”. Should Bob keep his money? From the economic perspective… the answer depends on whether taking his money increases or decreases abundance.

If you want to argue that Bob has skills… then taking his money will decrease abundance. If you want to argue that Bob doesn’t have skills and just got lucky… then why are you also arguing that we should take his money? Perhaps you’re actually arguing that Bob is always lucky?

If you want to argue that Bob is always lucky… then your redistribution argument would have some logical basis. But it sure wouldn’t have any economic basis. Taking money from Lucky Bob would decrease abundance. This is because Lucky Bob consistently manages to invest in beneficial ventures. For example, he invested in Uber from the get go. Did you? I sure didn’t.

Getting back to the bible… the most relevant story is the parable of the talents. Taking gold from the most skilled and giving it to the least skilled would certainly decrease abundance.

In terms of fighting poverty… decreasing poverty depends on increasing opportunity. And increasing opportunity depends on increasing abundance. Abundance is a function of how society’s limited resources are used.

Moreover, what is a resource today may cease to be one tomorrow, while what is a valueless object today may become valuable tomorrow. The resource status of material objects is therefore always problematical and depends to some extent on foresight. An object constitutes wealth only if it is a source of an income stream. The value of the object to the owner, actual or potential, reflects at any moment its expected income-yielding capacity. This, in its turn, will depend on the uses to which the object can be turned. The mere ownership of objects, therefore, does not necessarily confer wealth; it is their successful use which confers it. Not ownership but use of resources is the source of income and wealth. — Ludwig Lachmann, The Market Economy and the Distribution of Wealth

Also…

Taxes upon transfer, besides the mischief of pressing upon capital, are a clog to the circulation of property. But, has the public any interest in its free circulation? So long as the object is in existence, is it not as well placed in one hand as in another? Certainly not. The public has a perpetual interest in the utmost possible freedom of its circulation; because by that means it is most likely to get into the hands of those, that can make the most of it. Why does one man sell his land? But because he thinks he can lay out the value to more advantage in some channel of productive industry. And why does another buy it? But because he wishes to invest a capital, that is lying idle, or less productively vested; or because he thinks it capable of improvement. The transfer tends to augment the national income, because it tends to augment the income of the two contracting parties. If they be deterred by the expenses of the transfer, those expenses will have prevented this probable increase of the national income. — J.B. Say, A Treatise on Political Economy

Markets work because it’s up to consumers to decide how well producers are using society’s limited resources. Consumers, with their infinite variety, preferences and circumstances, are the ultimate judges. Aka “consumer sovereignty”. It’s up to consumers to decide, for themselves, whether Bob has adequately earned their money.

Let’s review…

If Bob is skilled, and you take money from him, then you’re subverting the true will of the people. You’re also decreasing abundance which decreases opportunity which increases poverty. If, on the other hand, Bob just got lucky… then there’s no point in taking money from him. Chances are just as good that his money will circulate soon enough on its own.

So I’m against taxes because I’m for abundance. Actually, I’m not against taxes per se… I’m against the absurdity of allowing congresspeople to allocate them. If 500 government planners were better than an entire nation of people at allocating for abundance… then socialism would have worked. The absolute absurdity of our age is the belief that socialism somehow manages to succeed for the public sector despite the fact that it fails for the entire economy. Socialism fails just as much for public goods as it does for private goods. Taking consumer choice out of the equation will always have logically detrimental consequences.


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Reply to: The False Tradeoff Between Efficiency and Equity by Haynes Goddard


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The heart of efficiency isn’t just opportunity cost… it’s also the choices we make… which depend largely on our preferences and circumstances.

A vegetarian looks at a menu and rules out any dishes that contain meat. Then she looks at the prices and imagines how much value she’d derive from the alternative uses of her money. She also recalls the last time that she had each dish. Perhaps she also counts calories and considers nutritional value… or lack thereoff.

After an immense amount of computation/calculation…most of which occurs as a background process… she filters out all the other options and orders a salad. The waiter brings her a steak. It’s a non sequitur because the conclusion (steak/supply) doesn’t follow from the premise (her vegetarian preference).

It’s an inefficient allocation of resources.

As we can see, efficiency is easily and reasonably defined by the supply’s distance from a consumer’s demonstrated preference.

Except, you’re not defining efficiency in terms of consumer preference. You’re just throwing opportunity cost out there without any recognition or acknowledgement of all the other relevant parts. This vagueness allows you to argue that efficiency is a type of fairness.

Efficiency really isn’t fairness. Efficiency is the most valuable uses of society’s scarce resources. And value is a function of choice, sacrifice, preference, circumstance….which can all be rolled into “demand”. How well supply matches demand is a matter of efficiency.

Fairness disregards demand. Fairness is voters reaching into each other’s pockets. Fairness is an argument made by people who think that abundance is a function of taking rather than trading. Fairness is about diverting scarce resources away from more valuable uses. Fairness is a function of economic ignorance.

There’s nothing false about the tradeoff between efficiency and equity. There’s a very distinct and concrete tradeoff. We either have efficiency and abundance or equity and scarcity. These two things are diametrically opposed.

To be clear… because of the free-rider problem… taxation can increase efficiency… if, and only if…taxpayers are free to choose where their taxes go.

Beautiful = Very Efficient Allocation Of Resources

Reply to comment:  Economic arguments as stalking horses

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Jumble of words? I inefficiently allocate words? Are you accusing me of violating Quiggin's Implied Rule of Economics?

QIRE = Society's resources (ie "words") should be put to more, rather than less, valuable uses

QIRE = Society's resources (ie "sounds") should be put to more, rather than less, valuable uses.

My gf was loudly chewing and I was unable to concentrate. I was like, "Hey! Would you mind not violating QIRE?!"

She ignored me... as usual. So I started playing this song... Peacock Tail by Boards of Canada.

Oh shit. It's so beautiful.

Beautiful = very efficient allocation of resources

Would you agree that Peacock Tail is so beautiful? Or do you think it's a jumble of sounds? Do you want to argue that Boards of Canada violate QIRE?

For me, Peacock Tail is heaven. But the rest of life... not so much. There's a big disparity.

You know where BoC are from? Scotland. You know who else was from Scotland? Adam Smith. Adam Smith allocated words like BoC allocates sounds.

The Wealth of Nations = Peacock Tail

Unfortunately, I'm not from Scotland. I'm from California. This is my excuse for jumbling words.

Does Noah Smith jumble words? Well... he's written quite a few blog entries. But I sure don't see heaven in them. He wants the government to do a lot... but there's no assurance that the government will put society's resources to their most valuable uses.

Either Noah's hiding a huge assumption... or he's hiding a huge answer. But why would he hide a huge answer?

Here's Adam Smith's answer...

"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."

Oh shit! So beautiful!

Hey Noah Smith! What about the government? Is there ever a faulty distribution? If so, then how is it altered? By voting? We should trust people's words? Even Paul Samuelson realized that we can't trust people's words.

After 911... what was the demand for war? Do you know? If so, how? If not, then why don't you care that you don't know?

The world will be a lot closer to heaven when enough people understand the problem with not knowing the demand for war.

Debugging Scott Alexander And Paul Krugman

Alt Title1:  Make Money vs Kill Humans
Alt Title2:  Faulty Analysis by Intelligent People
Alt Title3:  Debugging Two Intellectuals With One Entry

Scott Alexander - No Physical Substrate, No Problem
Paul Krugman - The Fiscal Future I: The Hyperbolic Case for Bigger Government

Alexander fears that AIs will become too powerful while Krugman hopes that the government will become more powerful.

Alexander argues that an AI will decide to get rich and then decide to kill us.  Krugman argues that we need a bigger government because people make poor decisions.

The bug in their analysis is that they don't really grasp the simple concept of garbage in, garbage out.  Every entity, whether it's a human, a robot, a company or a government... makes decisions based on information.  If the information is garbage, then the decisions will be garbage.

When a businessman makes a business error…a bad mistake, you'll look back and say, gee, what did I do wrong.  I made a bad decision.  I made a wrong decision. What do you mean by that? Do you mean that you made a mistake in arithmetic?  You mean your computer kicked out the wrong answer?  No, that's not what you mean. You mean you fed the wrong data into the computer.  That's what you mean.  You figured wrong.  You opened a hardware store in a place where nobody buys hardware. You went to law school in a country where nobody litigates (not this country).  That's where you make a mistake. You made a mistake where you assess the future wrongly.  You got a wrong picture of what you were choosing between.  That's a business mistake. 

And what's a correct decision.  A correct decision is one where you saw correctly.  You saw right.  You saw what the future held...more or less. Nobody's got a PhD in prophecy.  You can peer ahead and have a hunch for the future and act and if you act right...and if you're an entrepreneur... that means you see things right more of the time than you don't. - Israel M. Kirzner, Competition and Entrepreneurship

Krugman supports a minimum wage.  A minimum wage feeds the wrong data into society's allocation computer.  Here's an illustration from my entry... Jeff Madrick vs The Invisible Hand

Krugman: The world economy is a system -- a complex web of feedback relationships -- not a simple chain of one-way effects
Krugman: Wages, prices, trade, and investment flows are outcomes, not givens
Krugman: Wages are a market price--determined by supply and demand
Krugman: Money still talks — indeed, thanks in part to the Roberts court, it talks louder than ever
Krugman: Raise minimum wages by a substantial amount
Krugman: The price of labor--unlike that of gasoline, or Manhattan apartments--can be set based on considerations of justice, not supply and demand, without unpleasant side effects
Krugman: Your decision to stay in school or go out and work will shape your lifetime career
Krugman: Now, the fact is that people make decisions like these badly
Krugman: Bad choices in education are the norm where choice is free
Krugman: He and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day

Think about driving somewhere.  You want to change lanes... so you use your blinker to communicate your desire.  Somebody cuts you off... so you communicate your displeasure by honking at them and/or giving them the middle finger.  You see break lights on the cars in front of you.  What does this communicate to you?  It communicates that you need to stop.  Same thing when you see a stop sign or a red light.  A green light, on the other hand, communicates that you need to go.  When you see the sign for a street that you need to take... you take it.  You hear a siren behind you and see the flashing lights in the review mirror... what do you do?  If it's an ambulance then you get out of the way.  If it's a police car then you start hoping that you're not the target.

Safely arriving at your destination depends on a considerable amount of communication.  Would clearer communication make it easier or harder for you to get to your destination?

One doesn't need to be Thomas Gradgrind to be interested in the rules underlying the English language, or to believe that good communication and understanding depend on clarity.  Grammar is not just about learning sentence construction: it's about speaking clearly and plainly and cutting through obfustication. But even aside from that, and most importantly of all, good grammar will help you get laid. - Hadley Freeman, Humanity's future depends upon good grammar

When Paul Krugman advocates for minimum wages... he's advocating for more, rather than less, obfuscation.  A minimum wage really doesn't clarify the demand for labor... it obscures the demand for labor.

We can either clarify demand... or we can obscure it.  We can either make it easier to understand and respond to each other's demands/concerns... or we can make it harder.

Here's an illustration from my entry... Scott Alexander vs Adam Smith, J.S. Mill, Alex Tabarrok, Don Boudreaux, David Friedman, Murray Rothbard, Jason Brennan, Elizabeth Warren, Geoffrey Brennan, Loren Lomasky

If gays are going to foot vote... then what information do they need to make a correct decision?  They need to know what the demand is for gays here, there and everywhere.  When gays make poor foot voting decisions... then it's because their information was garbage.

Same thing when libertarians attack the wrong targets.  Here's the illustration from my entry... S Is Never Going To Shrug...at this rate...

In this illustration vulgar libertarians are tilting at windmills.  They are wrongly attacking taxes, public goods, welfare and fiat money.  Why are they barking up the wrong tree?  It's because their information is garbage.  If their information wasn't garbage, then they would be attacking the assumption of omniscience.

Right now we can't choose where our taxes go.  The monetary expert Scott Sumner can't use his tax dollars to communicate his concerns.  Here's the illustration from my entry... Scott Sumner vs The Fed

With our current system, no matter how bad the Fed's policies are... it would never be rational for Scott Sumner to encourage people to boycott the Fed.  This is because people can't choose where their taxes go.  Scott Sumner can't encourage us to boycott the Fed... but he can encourage us to boycott Disneyland.  We can't use our money to communicate with the DoD.... but we can use our money to communicate with McDonald's.  As if it's more important to clearly communicate with Ronald McDonald than it is to clearly communicate with Barack Obama.

With our current system... a bigger government increases demand opacity.  This means that more people will make even worse decisions.  With more garbage in, we get more garbage out.

The immense Soviet efforts to mobilize economic resources were hardly news. Stalinist planners had moved millions of workers from farms to cities, pushed millions of women into the labor force and millions of men into longer hours, pursued massive programs of education, and above all plowed an ever-growing proportion of the country's industrial output back into the construction of new factories. - Paul Krugman, The Myth of Asia's Miracle

There's nothing inherently wrong with society's limited resources being massively mobilized.  The issue is whether the allocation decisions are based on actual demand.  If the allocation decisions are based on accurate information... then the consequences will be beneficial.  If, on the other hand, the allocation decisions are not based on accurate information... then the consequences will be detrimental.  Garbage in, garbage out.

If Scott Alexander wants to paint plausible scenarios of robots making really bad decisions... then he really needs to show some basic understanding of the garbage in, garbage out concept.  If he truly understands this concept then he'll explain where the robots got their bad information from.  Alexander will clearly communicate to us exactly what information led robots to the decision to make money... and exactly how that information changed so that the robots then decided to kill humans.  But if Alexander can truly understand the garbage in, garbage out concept... and how it relates to demand... then he's going to adjust his intelligence allocation by addressing the clear and present danger of governments preventing millions and millions of people from using their tax dollars to clearly communicate their concerns/demand.

The economist Don Boudreaux recently wrote about truth vs lies...

Market-determined prices – those that are neither set nor constrained by government diktat – reflect underlying economic realities. Prices are the results of those realities. Prices – even those that are set or constrained by government diktat – also have consequences; prices affect and direct economic decision-making. So while prices that are set or constrained by government diktat affect and direct economic decision-making no less than do market-determined prices, only the latter does so in ways that are consistent with underlying economic realities. The reason is that only market-determined prices tell the truth about underlying economic realities; minimum-wage rates and other prices that are set or constrained by government diktat lie about underlying market realities. Such government-determined prices thus cause people to act on misinformation – on economic lies. And people who are misinformed and misled will not make decisions that improve underlying economic realities; quite the opposite.

Let's be truthful about the market though.  With this goal in mind... here are a couple illustrations from my entry... Accurately Communicating Value

In this illustration I'm buying the book Toleration from the author... Andrew Cohen.  Hopefully it's clear in this illustration that I'm lying.  I'm paying far less money than I value his book.  The amount that I'm paying isn't accurately communicating how much I value his book.  Garbage in, garbage out.

In this illustration I'm also lying.  I'm paying far more money than I value his book.  The amount that I'm paying isn't accurately communicating how much I value his book.  Garbage in, garbage out.

In the first illustration I'm getting a really great deal.  In the second illustration I'm really being ripped off.  And in both illustrations I'm lying.  I'm falsely reporting the underlying economic realities.  I'm miscommunicating my demand for books on the topic of tolerance.  I'm feeding bad information into the allocation computer.  I'm sending the wrong message to producers.  In the first illustration I'm sending the message that there's a surplus.  But the truth of the matter is that, in that scenario, I honestly believe that there's a shortage.  In the second illustration I'm sending the message that there's a shortage.  But the truth of the matter is that, in that scenario, I honestly believe that there's a surplus.  False messages adversely effect the future supply.

In both scenarios the amount of money that I'm paying for Cohen's book isn't accurately communicating the amount of value that I derive from his book.  The logical consequence is that society's limited resources will not be put to their most valuable uses.  Garbage in, garbage out.

Even though markets have plenty of room for improvement... the information that they supply is vastly superior to the information supplied by governments.   Vegetarians aren't going to order steaks like pacifists have to order war.

One of the most significant events in human history will be when the majority of people realize the value of knowing the actual demand for war.

There are multitudes with an interest in peace, but they have no lobby to match those of the 'special interests' that may on occasion have an interest in war. - Mancur Olson

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. The seasons during which the ability of private people to accumulate was somewhat impaired would occur more rarely, and be of shorter continuance. Those, on the contrary, during which the ability was in the highest vigour would be of much longer duration than they can well be under the system of funding. - Adam Smith, Wealth of Nations

Don't Give Evil Robots A Leg To Stand On!

What happened here?  Either I got lazy and didn't finish the drawing... and/or I kinda liked how this picture doesn't make much sense.

Whenever I get the chance I simply "mooch" my previous drawings.  Here's the drawing from my previous post... Visualizing The Economics of Education...

Which was mooched from the drawing in this post... In Which Our Anarchist Hero Jeffrey Tucker Proves The Point Of Taxation...

And here's the drawing from AI Safety vs Human Safety...

Comment on .... Futarchy and Unfriendly AI

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This is kinda like how futarchy works... STAR WARS or STAR TREK… we let the swarm decide!  The difference is that the outcome would be a lot more accurate with futarchy.  Why?  Because people would be putting their money where their mouths are.

As I pointed out here... AI Safety vs Human Safety... nobody, that I know of, has applied the best method we have for controlling humans (the market) to robots.   Which isn't too surprising since AI largely falls under the scope of computer science.  But it's the "safety" aspect that also falls under the scope of economics.  The development of an evil AI is most definitely an inefficient allocation of society's limited resources.

With futarchy we could bet on which organization/company is most likely to develop harmful AI.  We could also bet on which organization is most likely to develop beneficial AI.  Then we could shift our money from the former to the latter.

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Don't give evil robots a leg to stand on!!!

Jeff Madrick vs The Invisible Hand

Thanks to Donald J. Boudreaux, I learned of Jeff Madrick's article... Why Economists Cling to Discredited Ideas.

Why, for example, do so many economists oppose increases in the minimum wage?

Wages have two very important functions...

1. Compensate
2. Communicate

These two things are impossible to separate.  So when liberals change the compensation they change what's communicated.  A minimum wage communicates that the demand for unskilled labor is higher than it truly is.  As a result, people end up with the wrong answers to the fundamentally important question... "should I stay or should I go?"

Should I stay in school... or should I go get a job?
Should I stay in Mexico... or should I go to America?

When people stay when they should have gone... or go when they should have stayed... the logical result is the inefficient allocation of labor.

If we eliminated minimum wages... then wages would more accurately communicate the supply/demand for labor in any given area.  Workers would move to areas with higher wages and manufacturers would move to areas with lower wages.

But in a recession, worried people ignore these market signals.

Recessions wouldn't occur if liberals understood the point of value signals.

Individual behavior does not aggregate to general efficiency.

How can it when liberals use the government to spread misinformation?

Moreover, widespread assertions that free-market reforms led to enormous reductions in global poverty foundered on a hard fact: Most of the reduction occurred in China, and to a lesser degree in India—countries that did not adopt the Washington Consensus.

Deng Xiaoping decreased the visible hand's sphere of influence.  Please see...

• Builderism
• Pushing For A Pubmar

First, nations need space to develop their own industries and institutions. This might require subsidies and other supports that violate trade agreements.

A couple fundamentally basic premises...

1. People like to trade
2. Public goods, ie a bridge, can facilitate trade

The point of governments is to make it easier for people to trade with each other.  In other words, the point of governments is to facilitate communication.

Mainstream economics has no strong theory of government, except that it is a corrector of market failures (which are presumed to be rare).

Public choice is an extremely strong theory of government... but it's painfully true that it's not mainstream.

The nation needs a positive theory of government, which recognizes how valuable social policies and public investment have been, and how much more of them we need.

In the absence of a pubmar... how can we possibly know just how beneficial any government intervention has been?  How can we ensure that government intervention does not violate Quiggin's Implied Rule of Economics?

Please see...

• The Truth About Infrastructure Projects?
• The Inadequacy Of The Opportunity Cost Concept
• Optimal Government Intervention
• Why I Love Your Freedom

But the nation won’t grow without more government.

China didn't grow as a result of more government... it grew as a result of less government.  Until we create a market in the public sector... it's safer to err on the side of less government.

The dominance of bad mainstream thinking, which leads to resistance to public investment, has been especially damaging because it undermines the foundation of future prosperity.

Progress depends on difference.

From these assumptions, however, it logically follows that an economy is almost always self-adjusting—and the politically conservative assumption that government interference is almost always bad becomes axiomatic.

It will continue to be axiomatic until we ensure that the government doesn't violate Quiggin's Implied Rule of Economics.

By its very nature, a firm belief in the invisible hand means a faith in laissez-faire policies: reduced taxes and regulation.

Less taxes and regulation means more invisible hand.  More invisible hand means more difference.  More difference means more progress.

The less government, the better.

Yup, until we create a market in the public sector.

The dominating policy ideas of the invisible hand have failed.

Nope, any real failure stems directly from liberals failing to understand the importance of value signals.

Neglect of public investment in infrastructure, clean energy, and education, a consequence of Say’s Law–type thinking, has undermined the nation’s foundation.

The government, by diminishing difference, has undermined the nation's foundation.

The Inefficient Allocation Of Competence

Reply to thread: Epiphytes and Economics

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Dywyddyr, it's verging on balls? LOL You guys have strange expressions.

Right now you can't shop in the public sector. Is this a good thing?

Case Incompetent

In this case, then perhaps at first glance it might seem like a good thing that we block you and your bollocks from the public sector. At second glance though... if you're incompetent... then what are the chances that you're going to have a lot of money to spend in the public sector? If each year you have $1,000,000 to spend in the public sector... then I'm going to wonder if you're really that incompetent. If, on the other hand, you only have $100 to spend in the public sector... then do we really need to worry about keeping you out of the public sector? How much damage are you going to be able to do with $100? What are you going to be able to spend it on that's so bad? Are you and every other incompetent person in the country going to spend $100 on the same exact public good? It's strange to imagine incompetent people all spending their taxes on the same exact public good. In order to worry about this scenario we'd have to also strangely imagine that competent people wouldn't adjust their own spending accordingly.

Case Competent

In this case, it wouldn't seem like such a good idea to prevent you from having the option to shop in the public sector. If you're competent... then you're not going to shop in the public sector if you don't really need to. Just like a competent farmer isn't going to shop at a clothing boutique if he doesn't really need to. In case you missed it, shopping in the public sector is entirely optional. You would still have the option to have congress/parliament/whoever spend your taxes for you.

Conclusion

In neither case does it make sense to prevent you from shopping in the public sector.

If we look at the fact that our current system prevents 99.999% of people from shopping in the public sector... then this prevents a lot of competence from helping to determine the supply of public goods. It's the epitome of throwing the baby out with the bath water.

Are there any consequences when we block most our country's competence from the public sector? Sure, we end up with too many competent people being underemployed for lack of better options.

Blocking competence from determining the allocation of resources logically results in the inefficient allocation of competence. To put it differently... if society's resources are stupidly allocated... then it's a given that intelligence is going to be misallocated. To put it more accessibly... if we elected 500 of the country's stupidest people to control the power of the purse... then a lot of smart people would end up doing really stupid things.

So to say that we should prevent people from shopping in the public sector because some competent people don't have as much influence/money as they really should... is like saying that we should prevent people from eating right and exercising because too many people are unhealthy.

Cause: blocking competence from the public sector
Effect: inefficient allocation of competence (competent people being underemployed)

Cause: preventing people from eating right and exercising
Effect: too many unhealthy people

If there aren't any adverse effects of preventing competent people from shopping in the public sector... then there shouldn't be any adverse effects of preventing competent people from shopping in the private sector. Except, you know the latter isn't true... so why do you think the former is?

Opinions (Shouting) vs Values (Spending)

Comment on: Wars on Everything by Anthony Gregory

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It's probably not intentional but, unfortunately, you give the impression that shouts accurately convey demand. People will shout for all types of things...they'll shout for more regulations...they'll shout for more assistance for the poor...they'll shout for walls to be built to keep immigrants out...they'll shout for free lunches. It doesn't cost anything for people to shout or shake their fists...so how can these things accurately convey demand?

The efficient allocation of resources doesn't depend on opinions...it depends on values. Cheap talk surveys...and polls...and voting...communicate people's opinions...not their values. In order to accurately determine what people truly value, they have to be free to put their own money where their mouths are. Therefore, spending, not shouting, accurately conveys demand.

Creating a market in the public sector would solve the preference revelation problem. Clarifying the demand for public goods would show us that the vast majority of people, when confronted with the alternative uses of their own tax dollars, would decide that war wouldn't be worth the cost.

Let's Embrace David Friedman's New Dining Custom

Comment on David Friedman's blog entry A New Dining Custom

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@PowerChild...I'm chuckling because you listed the eating accessories for David. Was that really necessary? Do you think David is a stranger in a strange land? He's not familiar with our bizarre customs and strange devices? Oh no, I'm still chuckling. I wonder if David copied the list for future reference. I can imagine that the next time he sits down to eat he'll whip out your list to make sure that he is fully accessorized. :D

It reminds me of a facebook group messaging discussion that a few of my friends and I were participating in.  Two ladies were discussing vibrators.  One is a fan of them while the other never uses them.  Here's the relevant snippet...

Jennifer Connelly: Pocket rocket is great it goes brerrrrrrrrrddr
Lol
Natalie Portman: I'm familiar with the device
I just don't need it

I think David is familiar with our eating devices...which is why it's funny that you listed them.  hehe.  Never mind me I'm just being ridiculous.

@Simon, yes! You're drunk! Me too! Not really though.

My database has four entries with the word "marriage"...one by Edward Burnett Tylor, one by Frédéric Bastiat, one by Friedrich Nietzsche and one by this fine fellow...

It is one thing to postulate universal rationality in human decision-making; it is another thing (and, in our view quite unjustified) simply to assume as an empirical matter that all human decisions are at all times universally arranged in equilibrium patterns. (To assume that no married person could change mates and become better off thus appears as a totally unjustified and unrealistic assumption, thoroughly undermining the usefulness of the "economic approach" to the marriage "market".) - Israel M Kirzner, The Driving Force of the Market: Essays in Austrian Economics

Regarding David's dinner ...is there a seating arrangement that would have provided the maximum amount of value?  Well...it stands to reason that no two seating arrangements are equally valuable.  David can't possibly derive the same exact amount of value from two different people.  Therefore, some arrangements are more valuable than other arrangements.  But the only way to determine the most valuable arrangement is to give people the opportunity to determine how much value they derive from each and every person there.  With this in mind...I support David's new dining custom.  And I'm not just supporting it because I want David to endorse pragmatarianism.  Nope.  Not even a little bit.

China Please Read This Before Canada

Comment on: Quartz article: Is China going to be #1?

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Will China be the first country to truly understand that demand can't accurately be determined without a market? Maybe? Probably not though.

The Canadian government has mandated cable unbundling. They'll probably unbundle themselves next. It will be embarrassing when Canada spanks us because they allow their citizens to pick and choose which public goods they spend their taxes on.

Of course I'll blame you. Why? Because you never wrote a single post about the significance of the opportunity cost concept! You're like the poster boy for why physics majors should never become economists.

Naw, it's not your fault. Watch...

Step 1: Opportunity cost
Step 2: ?
Step 3: Efficient allocation of resources

There's no economic term for step 2. That's probably not your fault. Is it my fault? I guess. Why? Because I studied International Development Studies. I studied why China got beat by the Asian Tigers. I learned why all the efforts of "developed" countries to help developing countries failed so miserably.

Resources can't be efficiently allocated if they aren't allowed to freely flow in the most valuable directions. And the value of any given direction can't be determined without knowing the true values of citizens. And true value can only be determined when each and every individual has the freedom to decide between having their cake and eating it (opportunity cost).

I honestly hope that China reads this before Canada does.

The Provision of Public Goods is Suboptimal

1. Our current system is based on the assumption that congresspeople are omniscient (source)
2. The political process does not adequately communicate the preferences of citizens (source)
3. Therefore, the provision of public goods is suboptimal

How, then, are demand functions revealed? It would be disingenuous, to say the least, in an exercise whose object is to discover how demand is revealed, to assume that, ex ante, centers of power know the preferences of consuming households. We must then begin our analysis of the forces that motivate citizens to reveal their preferences by focusing on a fundamental information problem. I therefore assume that as a consequence of imperfect information concerning the preferences of citizens, centers of power will provide, except by accident, goods and services in quantities that will be either larger or smaller than the quantities desired by consuming households at the taxprices they confront, and I show that these departures from optimality inflict utility loses on these households. - Albert Breton, Competitive Governments: An Economic Theory of Politics and Public Finance

There are many problems with this public good argument. The most glaring problem that should be noted immediately is that, assuming that education indeed cannot be provided optimally by private means, what in the world would move someone to believe that government can better determine the optimal amount? Buchanan (1975) correctly notes that many economists, as soon as they believe that they have diagnosed a public good, fail to consider critically the role that government can play: "It was as if the alternatives for public choice were assumed to be available independently from some external source; there was no problem concerning the behavior of [government] suppliers and producers." - Andrew Young and Walter Block, Enterprising Education: Doing Away with the Public School System

One aspect of public goods that prevents the government making efficient decisions is the government's lack of knowledge of households' preferences and willingness to pay for public goods. - Gareth D. Myles, Public Economics

Prices must also play a more important role as a mechanism for revealing the true demand for - and therefore, indicating the efficient supply of - public infrastructure. The current disconnect between payment by users and services provided by specific infrastructure assets has led to too much public capital in some sectors and too little in other sectors. - Harry Kitchen, Physical Infrastructure and Financing

Thus, the revised definition allows us to see that public goods do not only face the long recognized risk of under-provision; they may also suffer from mal-provision – providing positive utility only for some and for others nothing, or sometimes even, only costs. A way to reduce the risk of such mal-provision could be to grant all concerned population groups a more direct say in selecting and shaping public goods, i.e. to better match publicness in consumption with publicness in decision-making. More issue-specific policy dialogue among all concerned actors and stakeholders could help achieve that. - Inge Kaul, Public Goods: Taking the Concept to the 21st Century

Because of the coercive nature of government activity, two additional results come forth. First, by voluntarily purchasing an item on the market, an individual demonstrates that he values the item more than the money price. But in paying taxes, he makes no such demonstration. The government does not know, as a business does, the value individuals place on its activity. Since government cannot obtain the information and incentive by demonstrated preferences of individuals, they cannot efficiently serve individuals. - Jeffrey Herbener, Austrian Methodology: The Preferred Tax Type

One cause of inefficiency in the provision of collective goods is familiar from the theoretical writings in welfare economics and public finance, but rarely mentioned in the PPB or cost-benefit literature. That is the difficulty of getting consumers to reveal their preferences concerning a collective good or externality, and preferences must of course be known to determine how much it is optimal to provide. - Mancur Olson, Evaluating Performance in the Public Sector

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

Nevertheless, the classic solution to the problem of underprovision of public goods has been government funding - through compulsory taxation - and government production of the good or service in question. Although this may substantially alleviate the problem of numerous free-riders that refuse to pay for the benefits they receive, it should be noted that the policy process does not provide any very plausible method for determining what the optimal or best level of provision of a public good actually is. When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money? There is a whole economic literature dealing with the willingness-to-pay methods and contingent valuation techniques to try and divine such preference in the absence of a market price doing so, but even the most optimistic proponents of such devices tend to concede that public goods will still most likely be underprovided or overprovided under government stewardship. - Patricia Kennett, Governance, globalization and public policy

One problem with the government's redistributional activities is that because the government is not run by an omniscient and benevolent despot, but rather by democratic decision-making, there is no underlying principle that determines how redistribution will occur. Rather, as Stigler noted, benefits are transferred to those with political power. This leads interests to engage in rent-seeking, with the attendant political costs. And because benefits go to those with political power rather than to those who, according to some justification, deserve them, it is unlikely that the ultimate result of government redistributional activity will satisfy any reasonable criteria for efficiency or equity. Meanwhile, the rent-seeking and political costs remain. - Randall G. Holcombe, Taxation, Production, and Redistribution

If a revenue source is earmarked but has no logical connection with the expenditure function it supports, then from an efficiency perspective the amount of the public service supplied will almost certainly be either too great or too small. - Richard M. Bird and Thomas Tsiopoulos, User Charges for Public Services: Potentials and Problems

Since these policies are bundled together and voters cannot evaluate them individually, the election margin cannot reveal which of these interpretations is correct, nor can the election reveal the specific amount of resources voters want to devote to each of the three policy areas. Yet for political parties to allocate resources to satisfy social preferences, parties must determine which interpretation accurately describes voters’ preferences. For if a party were elected to power because voters wanted the party to alter foreign policy—but not any of the other policies—and the party did not realize this, the party could allocate resources in ways that did not reflect social preferences. - Samuel DeCanio, Democracy, the Market, and the Logic of Social Choice

Voting and other democratic procedures can help to produce information about the demand for public goods, but these processes are unlikely to work as well at providing the optimal amounts of public goods as do markets at providing the optimal amounts of private goods. Thus, we have more confidence that the optimal amount of toothpaste is purchased every year ($2.3 billion worth in recent years) than the optimal amount of defense spending ($549 billion) or the optimal amount of asteroid deflection (close to $0). In some cases, we could get too much of the public good with many people being forced riders and in other cases we could get too little of the public good. - Tyler Cowen, Alex Tabarrok, Modern Principles of Economics

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

Nevertheless, even without perfect knowledge, the government must decide whether or not to provide the public good. It also must decide how much of the public good it should provide. Finally, the government must decide, all without guaranteed information, on a tax schema. Under such circumstances, it is not possible for the government to reach an optimal solution and a Pareto distribution of taxes for the public good. - Wilfried Eecke, Ethical Dimensions of the Economy