You're Filling The Wrong Hole!!!

It is these needs which are essentially deficits in the organism, empty holes, so to speak, which must be filled up for health’s sake, and furthermore must be filled from without by human beings other than the subject, that I shall call deficits or deficiency needs for purposes of this exposition and to set them in contrast to another and very different kind of motivation. — Abraham Maslow, Toward a Psychology of Being

This means that the terraces of the Champ-de-Mars are ordered first to be built up and then to be torn down. The great Napoleon, it is said, thought he was doing philanthropic work when he had ditches dug and then filled in. He also said: "What difference does the result make? All we need is to see wealth spread among the laboring classes. - Frédéric Bastiat, What Is Seen and What Is Not Seen

 Reply to: The Magnitude of Inequality by James Kwak

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Some people’s stories don’t receive any recommendations… other people’s stories receive 1000s of recommendations. That’s infinitely more recommendations. Why do you ignore the massive inequality that’s right under your nose?

Unlike the government, Medium is not way outside your range of effectiveness. You should have no problem persuading Medium to massively reduce recommendation inequality. When it does so, we’ll all be amazed and astounded by how much the stories improve as a result. Right? With such conclusive evidence, the government will no longer be way outside your range of effectiveness.

Fortunately for everybody, Medium is way outside my range of effectiveness. If it wasn’t, then we’d all have the option to allocate our pennies to our favorite stories. Oh man, can you imagine what would happen to penny inequality? For sure it would skyrocket. I wonder though if the most popular stories would also be the most valuable stories…

Seriously though, the primary purpose of paying for things is to reveal and communicate our perception of their relative scarcity. This should be pretty intuitive. If Medium facilitated micropayments then for sure you’d allocate more pennies to rarer stories.

It is these needs which are essentially deficits in the organism, empty holes, so to speak, which must be filled up for health’s sake, and furthermore must be filled from without by human beings other than the subject, that I shall call deficits or deficiency needs for purposes of this exposition and to set them in contrast to another and very different kind of motivation. — Abraham Maslow, Toward a Psychology of Being

We’d all use our pennies to communicate which stories fill our empty holes, so to speak. This fundamental feedback would logically alter everybody’s behavior. The result would be a feedback loop…

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

Economics is all about behavior optimization. Behavior can only be optimized when our payments accurately reflect our perception of relative scarcity…

allocation = valuation

Is labor an exception to this rule? Should we disregard people’s perception of labor’s relative scarcity? Should we pretend that it’s economically impossible for any given geographic area to ever have a labor surplus? It’s impossible for Seattle to ever have too many waiters? No matter what… Seattle will always have a shortage of waiters? No matter what… students in Seattle should drop out of school and become waiters? No matter what… waiters in Los Angeles and Houston should move to Seattle? But wouldn’t that mean that Seattle’s shortage of waiters is greater than the shortage of waiters in Los Angeles and Houston?

In ants, one such behaviour is the collective food search: ants initially explore at random. If they find food, they lay down pheromone trails on their way back to base which alters the behaviour of ants that subsequently set out to search for food: the trails attract ants to areas where food was previously located. — Jo Michell, The Fable of the Ants, or Why the Representative Agent is No Such Thing

Also…

Today’s Mandeville is the renowned biologist Thomas D. Seeley, who was part of a team which discovered that colonies of honey bees look for new pollen sources to harvest by sending out scouts who search for the most attractive places. When the scouts return to the hive, they perform complicated dances in front of their comrades. The duration and intensity of these dances vary: bees who have found more attractive sources of pollen dance longer and more excitedly to signal the value of their location. The other bees will fly to the locations that are signified as most attractive and then return and do their own dances if they concur. Eventually a consensus is reached, and the colony concentrates on the new food source. — Rory Sutherland and Glen Weyl, Humans are doing democracy wrong. Bees are doing it right

It seems pretty straightforward that there’s some sort of relationship between the accuracy of communication and the benefit of behavior.

From my perspective, you’re never going to make the feedback loop more accurate by disregarding/overruling/overriding/ignoring/diminishing people’s true perceptions of relative scarcity. Of course I might be wrong.

FYI…. I did notice your scarcity. Even though we fundamentally disagree I really don’t think that your absence improved Medium. For sure you’re a liberal… but at least you’ve done some homework. You’ve read at least some Hayek. Like I’ve read at least some Samuelson.

So I’ll definitely appreciate your thoughts on the topic of disregarding people’s perception of relative scarcity. Please ignore my snark/sarcasm and do your best to try and persuade me that I’m barking up the wrong tree! My life is way too short to spend barking up the wrong tree!

[Update Feb 3, 2018]

Saw this tweet and it reminded me of the Maslow quote...

Genius Optical Illusions To Promote Pet Adoption pic.twitter.com/NXHqXesRsR

— The Human Experience (@thehumanxp) February 2, 2018

[Update 3 March 2020]

Snippet of lyrics from Little Girl (With Blue Eyes) by Pulp...

Little girl (with blue eyes)
There's a hole in your heart
And one between your legs
You've never had to wonder
Which one he's going to fill
In spite of what he said

Workers: Beggars or Choosers?

My comment on John Cochrane's blog entry: Summers and the nature of policy advice

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I remember way back in the day... when I was in the army infantry... my buddies and I would sit around discussing how easy it was for ugly army chicks to hook up with good looking army dudes. It wasn't because the ugly chicks were particularly charming... nope... it was simply because of supply and demand. I have no idea what the actual ratio was... but it sure seemed like there was at least 100 guys for every girl. Guys were a dime a dozen. And, as the saying goes, beggars can't be choosers. Ladies had the upper hand... they could quickly and easily replace guys on the slightest whim.

Can you imagine if Larry Summers had been there? "Hey!  I have an idea!  The army should make it harder for women to join!"  Even the dumbest guy in the entire army would have instantly recognized just how massively moronic Summers' idea was.

Maybe the problem is formalism?  Summers didn't join the army infantry right after high school. Instead, he went to some university... got a PhD... and now he uses so much technical jargon that regular folks aren't able to instantly recognize just how massively moronic his ideas are. I wouldn't be surprised if he was related to Paul Samuelson.

Eh, Samuelson did get the free-rider problem right. And it's not like we can get rid of technical jargon... "that one problem where people have an incentive to lie about how much they value things like national defense and it results in the wrong amount of defense being supplied."  Well... since I'm here... if you get a chance I'd appreciate a second opinion on my argument that the free-rider problem is equally applicable to democracy.

Getting back on topic... Scott Sumner recently wrote this paragraph about employers having the upper hand...

Regardless of how you feel about monetary policy, it's clear that if employers feel they have a "captive audience" of workers, who are terrified of losing their jobs, it would be easier for the employer to crack the whip and drive the employees to work extremely hard. One advantage of a healthy job market is that workers have more power to negotiate pleasant working conditions.

To reinforce my comparison...

[Justice Anthony Kennedy] ignores the fact that polygamy imposes real costs, by reducing the number of marriageable women. Suppose a society contains 100 men and 100 women, but the five wealthiest men have a total of 50 wives. That leaves 95 men to compete for only 50 marriageable women. - Richard Posner, Supreme Court Breakfast Table

Heh... half the ladies be gold diggers?  Posner's been listening to too much Kanye West. Anyways, if we did legalize polygamy... and Posner's estimate turned out to be correct... then Summers' bright idea would be to make it harder for American guys to marry foreign ladies.  "Hey!  Let's send all the foreign ladies to Mars!"

You say that Summers is a smart guy... but he wants to help workers by building up, rather than tearing down, barriers to entry. He wants there to be more workers and less employers.  He prefers barrierism over builderism.  How is that smart? Not only is it bad for workers... but it's also bad for consumers. It also increases instability/volatility. The economy has more eggs in fewer baskets.


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Out of curiosity... I searched Google for the title that I chose for this entry... Workers: Beggars or Choosers?   Here's a snippet from one of the results...

Labour advocates say there are no publicly traded manufacturers in China that get this yet. Some will eventually figure it out. Until they do, companies like Yum! Brands Inc, which invests in employee development at its KFC and Pizza Hut fast-food restaurants, offer a better alternative. - Alexandra Harney, China's migrant workers: from beggars to choosers

This made me chuckle when I read it.  Isn't it funny that labor advocates are the most qualified to run businesses... yet they rarely do so... which is why we need labor advocates!


See also:

• Minimum Wage Vicious Cycle
• Knowing The Real Disparities In Profitability
• The Inefficient Allocation of Labor
• Maximizing Opportunities By Clarifying Demand Diversity
• Maximizing Demand For Labor By Minimizing Barriers To Entry
• Consumers Are The Conductors Of Commerce
• Minimum Wages vs Minimum Employees
• Is there a shortage of unskilled labor?
• A Surplus Of One-Armed Workers
• Liberals Hate Mexicans More Than Donald Trump Does

Maximizing Demand For Labor By Minimizing Barriers To Entry

Reply to: What Does America Really Want?

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Average citizens are the real job creators, it’s high time we started to take responsibility and demand change.

Average citizens are not job creators. And that’s the problem. To be perfectly blunt, you are the reason why average citizens are not job creators.

In order for average citizens to become job creators… it has to be stupid easy and profitable to start a business and employ people. But nearly everything you support as a liberal makes it harder and less profitable to start a business. Basically, you firmly support the construction of high barriers to entry.

Because barriers to entry are so high, it’s nearly impossible for average citizens to test out their business ideas. Everybody has at least one business idea. Everybody is capable of finding room for improvement. But most of these improvements aren’t made because average citizens are daunted and thwarted by the high barriers to entry. 

Now here’s the key part. High barriers to entry have logically detrimental consequences. These detrimental consequences are the very reason that you support constructing higher barriers to entry. But by supporting higher barriers to entry… you simply make the problem even worse. So we get stuck in a very vicious cycle.

The higher the barriers to entry… the fewer the employers. When the barriers to entry are high enough… there are far fewer employers. And when there are far fewer employers… there’s far less competition for labor. And when there’s far less competition for labor… labor will be poorly rewarded (beggars can’t be choosers). You think it’s a problem that labor is poorly rewarded… but unfortunately for everybody, you think that the solution is to make the barriers to entry even higher… which only makes the problem even worse.  

Maximizing the demand for labor is truly the best way to help workers. But in order to maximize the demand for labor, the barriers to entry have to be minimized. Doing so will make it easier and more profitable for average citizens to become employers. Maximizing the quantity of employers will maximize the demand for labor. 

When the competition for labor is maximized…then any worker that isn’t happy with their compensation or working conditions will easily be able to find a better opportunity. Or… they’ll easily be able to start their own profitable business… which will increase the supply of better opportunities (builderism).

Everybody substantially benefits when there’s an abundance of open doors. So please do everybody a favor and think things through. Regulations meant to protect and benefit workers might sound good… but is more red tape truly going to open more doors? The average citizen doesn’t have a law degree… so do you really want to make a law degree a necessary requirement for successfully starting a business and employing people? 

Let me break it down for you. If it’s stupid easy for the average citizen to successfully start and operate a profitable business then there’s no point in minimum wages, unions and countless regulations meant to protect and benefit workers. Because if any worker isn’t happy enough… then they can simply and easily just start their own business. 

So which one is it? Is it stupid easy to start a profitable business? Or… do we need the government to protect and benefit workers? Because it really can’t be both. 

If you want to maintain that it’s necessary for the government to protect/benefit workers… then you’re admitting that it’s too difficult for the average citizen to start a profitable business. But how can any economy truly thrive when, as a result of government intervention, it’s too difficult for most people to start a profitable business? How can workers substantially benefit when there’s a scarcity of open doors? How can below average citizens substantially benefit when the demand for their labor is minimized by maximally high barriers to entry? 

On the off-chance you’re actually interested in learning more…

The Inefficient Allocation Of Labor
Maximizing Opportunities By Clarifying Demand Diversity

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!

Subsistence Agriculture vs Sweatshops

Nobody would consider working in a sweatshop to be a "good" option.  So what does it mean when people choose that option?  It clearly indicates that working in a sweatshop is their "best" available option.  That tells us something about their other available options.  For example...here's a photo I took of a young girl in Afghanistan gathering dung for a stone wall...

When liberals attack owners of sweatshops...they are attacking the people who give other people "better" options.  That's not how you help people...that's how you screw both the people who need help and the people who are truly helping them.  If liberals genuinely wanted to help people...then they would provide them with "better" options.  For example...they could start air-conditioned factories.

Are air-conditioned factories really a "better" option than sweatshops?  That should be up to employees and consumers to decide.  But we certainly don't make any progress...and we certainly do not help people...by allowing the government to dictate who business owners hire and how much they pay them.

For more on this concept see...Biting the Hand that Employs You