Better Communication, Better Markets

Reply to: The “Why” in Wage Segregation by Samuel Hammond

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It’s neat, and smart, that you juxtaposed the two things. But it doesn’t seem like you did an adequate job of making the case for subsidizing lower productivity workers. Why would we want to subsidize lower productivity workers? This paragraph seemed to be the extent of your case…

Rising premium on quality signals like educational attainment, polarizing wages, and lower social mobility / “Coming Apart” dynamics may therefore all be symptoms of the same phenomena. For better or worse, pooling equilibria promoted a degree of churn between rungs on the social ladder, and denied the ability of imperfect signals to sort one into a low wage destiny.

I’m pretty sure that Ezra Klein isn’t going to hire me as a writer. Which makes sense… I’m a pretty terrible writer. But if he did hire me… then I’d get paid more (certainly more than Medium pays me!)… and somehow I’d also become a better writer? A much better writer? If there was solid evidence that this was indeed the case then I think that Klein would act on it. Who doesn’t love a diamond in the rough?

However, your conclusion doesn’t seem to be that Klein really needs to open his eyes and see and appreciate and understand the enormity of my raw and untapped potential… your conclusion seems to be… universal basic income.

You give up on trying to persuade Klein of my incredibly latent value and instead reach into his pocket and put his money into my hand. Thanks? My writing skills would greatly improve? Voila!? I would shine on like the crazy diamond that I truly am?

Speaking of diamonds… I don’t think that I’ve been equally productive in every romantic relationship that I’ve ever been in. Just like I don’t think that all of my relationships have been equally healthy or beneficial. If it was possible, would it be desirable to mandate a minimum benefit for relationships? I don’t think it would be. You’d be giving people an incentive to stay in less productive relationships.

What if people could get the minimum benefit even if they weren’t in a relationship? It seems obvious that this would decrease their incentive to find and start productive relationships.

No two relationships are equally productive. This isn’t just true of romantic relationships…. this is true of all relationships. The minimum wage gives workers an incentive to stay in less productive relationships. And a basic income would decrease people’s incentive to find and start productive relationships.

A good relationship depends on good communication. People’s willingness to sacrifice is a super important form of communication. Actions speak louder than words. So it’s a problem when the government decreases the goodness of communication. Like most government “solutions”, universal income would make the problem even worse.

If you truly want to help people… then you should focus on improving the goodness of communication. Can we get rid of minimum wages? At this point in time it seems a bit outside our range of effectiveness. But what about here on Medium? What if there were some coin and dollar buttons below every story?

If you liked my story, despite how poorly it was written, you could clearly communicate your valuation of my content by clicking the 50 cent button. Fifty cents would be automatically withdrawn from your digital wallet and deposited into mine. The total value of my story would increase by 50 cents. When people searched for stories the default sorting would be by their value. It would be easy to find the most valuable stories. Once I had enough money in my wallet… I could cash out and Medium would take a very fair and reasonable cut.

Wouldn’t this system increase the goodness of communication? Of course! It would eliminate the payment problem. However, there would still be the free-rider problem. So what if, for example, Netflix allowed their subscribers to use their monthly fees to communicate their valuation of the content? A while back I sat down and figured out how I might allocate one month’s worth of fees…

1. Amelie: $1.50
2. Black Mirror: $0.25
3. Castaway on the Moon: $0.25
4. Rake: $1.25
5. Shaolin Soccer: $0.50
6. Sidewalls: $0.25
7. Snatch: $0.25
8. Spaced: $1.00
9. The League: $0.75
10. The Man From Earth: $4.00


Yeah, it was really hard. Talk about opportunity cost. But I had absolutely no incentive to understate my valuations. Doing so certainly wouldn’t have decreased my monthly payment.

Wouldn’t this system (the pragmatarian model) increase the goodness of communication? Wouldn’t consumers have better relationships with content creators?

Minimum wages decrease the goodness of communication. And so would a universal basic income. Decreasing the goodness of communication makes society worse. If we want to make society better… then we need to increase the goodness of communication.

Markets are all about the goodness of communication. Improving communication means improving markets. Better communication means better markets. Right now Medium is a pretty terrible market. We can’t use our cash to communicate our valuations of each others’ stories. Facilitating payments would make Medium a much better market. If the free-rider problem is a real problem, which it probably is, then switching over to the pragmatarian model would make Medium an even better market.

How many websites are really terrible markets? Is Vox a terrible market? Of course it is. I’m sure you’ve never used your cash to communicate your valuation of any of Klein’s stories. Klein is certainly a better writer than I am… but to the extent that I understand what makes markets better… I’m certainly a much better economist than he is. He’s a great writer and a terrible economist. I’m a terrible writer and a great economist. Sounds like a match made in heaven! But he never returns my phone calls. :(

And even with those websites that do put their content behind paywalls… can subscribers use their monthly payments to communicate their valuation of the content? Nope. So they are terrible markets as well.

The internet has a gazillion really terrible markets. If we vastly improved these markets by applying the pragmatarian model to them, then we would all clearly see that any perceived necessity of a universal basic income was the consequence of people’s failure to understand the importance of good communication. And people’s failure to understand the importance of good communication is the consequence of my terrible writing skills.

Of course I might be wrong! I might have fallen asleep in a few econ classes or zoned out while reading a few econ books. So if you think there are any details, minor or major, that I’m missing… please enlighten me!

Helping the poor without breaking QIRE

Reply to reply: Dağhan Carlos E. Akkar

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Your goal is to help the poor. Which is a really wonderful and important goal! But you’re trying to help poor people by breaking Quiggin’s Implied Rule of Economics (QIRE)…

QIRE: society’s limited resources should be put to more, rather than less, valuable uses

When consumers spend their hard-earned money… they endeavor to spend their money on the most valuable options. This means doing their homework and shopping around. It doesn’t mean buying the first thing that they find.

So after doing lots of homework and lots of shopping around… lots of consumers decide to give lots of money to Bob. Evidently lots of consumers highly value how he is using society’s limited resources. Evidently they want him to be able to use even more of society’s limited resources. Evidently they want him to have even more influence over society’s limited resources. Evidently they want him to have even more power and control over how society’s limited resources are used.

Then what? Then you come along and decide that too many consumers gave too much money to Bob. So you… in your infinite wisdom… decide to override their spending decisions. Not fully override…. but partially override.

You don’t fully subvert the will of the people… you partially subvert the will of the people. As if their judgement is impaired… but not entirely impaired.

What do you with all the money that you take from all these consumers? Clearly you don’t give it to Bob. That would be strange. Do you give it back to these consumers? That would also be strange. Instead… you give it to poor people.

You give it to poor people… because… why? Because… you highly value how they are using society’s limited resources? Do you really though? In this scenario you really are not giving them your own hard-earned money. You’re giving them other people’s hard-earned money.

Maybe you’re under the impression that these consumers highly value how poor people are using society’s limited resources? So then you need to explain why these consumers chose to give their money to Bob rather than to poor people. You need to explain why you can’t simply persuade these consumers to give more of their hard-earned money to poor people. You need to explain why you have to rely on partially overriding their spending decisions.

In other words… you need to explain why it’s a good idea to break Quiggin’s Implied Rule of Economics (QIRE).

I’m pretty sure that you can’t explain why it’s a good idea to break QIRE. Nobody benefits, the poor least of all, when society’s limited resources are put to less valuable uses.

Fortunately for everybody, you can achieve your worthy goal of helping the poor without breaking QIRE.

The poor are poor because they are not doing valuable things with society’s limited resources. In some cases it’s because they are dumb. But I’m pretty sure that these cases are the exception rather than the rule. If you want to argue that these cases are the rule… then we can toss your argument for basic income into the garbage.

In order to help lift the poor out of poverty… you simply need to help them do more valuable things with society’s limited resources. This can be accomplished by making everybody’s valuations more accessible.

Right now, when I scroll up, here’s what I see…

“Most popular Medium stories tagged Inequality”

Medium, in all its wonderful wisdom, wants to show me three popular stories on the topic of inequality. It’s really easy to tell just how popular these stories are. The first story has 289 hearts… the second story has 131 hearts… and the third story has 90 hearts.

This is the seen. What’s the unseen? The unseen is how valuable these stories are. Medium makes it stupid easy to “like” a story… but it’s not nearly as easy to valuate a story. Medium doesn’t make it stupid easy for readers to give their pennies, nickles, dimes, quarters or dollars to their favorite stories.

What would happen if valuing a story was as easy as liking it? People’s valuations would be more accessible. The treasure map would become more accurate. This would help everybody, but especially the poor, use society’s limited resources in more valuable ways.

If Medium, Twitter, Facebook, Youtube, Flickr, Reddit, Quora and a gazillion other websites endeavored to make people’s valuations more accessible… then the treasure map would become far more accurate…. and everybody’s decisions would be far more valuable.

Let me try and make this concept as accessible as possible. Think about an Easter Egg hunt. A little kid picks up an old white piece of dog shit. You would probably tell the kid, “Hey little dude! That’s not an Easter Egg! This is an Easter Egg! See the difference?”

Here you are reading this story of mine. Do you think it’s an old white piece of dog shit? Or do you think it’s an Easter Egg? If you think it’s an Easter Egg… just how much do you value it? I’m not a mind reader. Nobody’s a mind reader. We can only know your valuation of this story if you communicate your valuation to us. And, as the saying goes… actions speak louder than words (Tabarrok’s Rule).

We will truly eliminate poverty when everybody does a much better job of making their valuations far more accessible.

Consumers Are The Conductors Of Commerce

Reply to: Welfare recipients aren’t taking all your money. Business owners and investors are.

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If Bob, the greedy owner of a bakery, pays the least amount possible to his employees… then it stands to reason that he strives to pay the least amount possible for flour, bowls, ovens and all the other “inputs” he needs to operate his business. Do you know how many different inputs Bob needs to run a bakery? I sure don’t. 

The thing is… flour, bowls, ovens and nearly all the other inputs that Bob needs are produced by other business owners. Yet, despite the fact that Bob endeavors to pay these other business owners the least amount possible, they also manage to rake in the profits. 

So what is it, exactly, that makes Bob’s employees so exceptional? Why do they, unlike everybody else that Bob pays, fail to rake in the profits?

If we dug a little deeper then we’d discover that the businesses who supply Bob’s inputs aren’t equally profitable. So the real question is… why is there a disparity in profitability? 

Let’s take flour for example. The more businesses that supply flour… the higher the competition… and the lower the profits. 

The point of profits is to tell people what to do…

Low flour profits = “Hey people, don’t start a business that supplies flour”
High flour profits = “Hey people, please start a business that supplies flour”

If Bob is paying really high prices for flour… then he’s basically trying to incentivize more people to supply flour. 

But if Bob is able to pay a lot of money for flour… then perhaps it’s because people are paying him a lot of money for his baked goods. 

Consumers are the conductors of commerce. Like the conductor of an orchestra… consumers wave their money around and producers supply the most beautiful music. 

Not everybody is equally good at following the conductor. Yet, here you are arguing that the music will sound even more beautiful if the people who fail to follow the conductor are paid more. 

People who ignore the directions of consumers should be paid more? People who ignore profits should be paid more? 

We need minimum wages because… increasing the supply of unskilled workers is always good for the economy? Just like increasing the supply of flour is always good for the economy? Just like increasing the supply of flutes is always good for the symphony? 

Poverty exists because people, such as yourself, don’t understand the point of market signals. Whose fault is it that you don’t understand the point of market signals? 

Surely it can’t be your fault. It’s got to be my fault. 

Maybe a military metaphor would help? Profits say, “follow me!” and producers reply, “lead the way!”

When I was stationed in Panama I spent a lot of time in the jungle with a compass and a map. Land navigation works better when the compass and map are accurate. 

I kinda stole the compass comparison…

The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. — Ludwig von Mises, Omnipotent Government

When I wasn’t in the jungle, I ran a race across the Bridge of Americas, participated in a few sprint distance triathlons and rode a bike from the Pacific coast to the Atlantic coast. I also had sex. A lot of sex. Even with some white chicks in the Air Force. 

Here’s an excerpt from your most popular blog entry…

Sex isn’t something you do to someone else. It’s something you do together; it’s a dance. Good tango dancing requires the dancing partners to read each other, communicate with each other and play off each other.

Nowadays, “intercourse” is synonymous with “sexual intercourse”. Back-in-the-day, if I had said, “the economy is intercourse with everybody”, then nobody would have jumped to the conclusion that the economy is a massive orgy. 

One of the main characters in the show Heroes is a mind reader. Spoiler alert: he’s really good at sex. 

In real life nobody is a mind reader. Nobody is omniscient. Hence the value of communication. Hence the value of accurate communication. Hence the value of accurate market signals. Hence the problem with inaccurate market signals…

The only alternative to a market price is a controlled or fixed price which always transmits misleading information about relative scarcity. Inappropriate behavior results from a controlled price because false information has been transmitted by an artificial, non-market price. — Mark J. Perry, Why Socialism Failed

Ever had a threesome? Do you think adding another person to the mix makes accurate communication less or equally or more important? 

Even though I really like that song by Stereo Total… I’ve never even spent a single penny on it. 

The free-rider problem is a problem because again, nobody’s a mind reader. How can Stereo Total know whether they should continue, or discontinue, their behavior if I don’t accurately communicate to them how much benefit I derive from their behavior? 

It behooves us to positively reinforce beneficial behavior. And benefit is entirely in the eye of the beholder. 

Right now you’re giving your labor away. Clearly you’re under the impression that people should have the freedom to sell their labor for $0.00 dollars an hour. But you’re also under the impression that people shouldn’t have the freedom to sell their labor for any amount between $0.01/hour and $7.25/hour.

J. S. Mill was one of the best libertarians ever. But he was under the impression that people shouldn’t have the freedom to sell themselves into slavery. I wonder if he was also under the impression that people shouldn’t have the freedom to commit suicide. 

I think it’s very possible to regret selling yourself into slavery. But in theory it shouldn’t be possible to regret committing suicide. Well… unless you go to Hell. 

You and I were both free to enter into the military and, after we completed our contract, we were free to exit from the military. More specifically… you were free to enter into and exit from the Chair Force and I was free to enter into and exit from the Army Infantry. 

The military isn’t for everybody just like the infantry isn’t for everybody. And society works a lot better when people are free to decide for themselves what is, and isn’t, for them. 

Personally, I have a pretty high tolerance for relatively miserable conditions. From the soaking wet jungles of Panama to the frozen slopes of the Andes to the scorched deserts of Afghanistan… I didn’t just survive… I thrived.

Who are you, or anybody else, to prevent me from deciding for myself which conditions/compensations are, or are not, optimal for me at any given point in time? 

You don’t know me like I don’t know you. Nobody can ever know me as well as I know myself. So why are you so willing to impose your own personal standards on me and everybody else? Is it simply because you don’t appreciate the point of accurate market signals? Or does it stem in some part from a failure to adequately appreciate the immense diversity of preferences and circumstances? 

Right now I’m not earning more. I could be earning more… but I’m not. I’m choosing to partially ignore the conductor in order to dance more to the beat of my own drum. Clearly I think sacrificing some comfort is worth taking more of this tricky, terrific and terrifying trip to discover and eliminate the bottleneck in progress. 

See also: Worker/Employer Ratio

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!

Poverty Depends On Disregarding Demand

Reply to: The REAL Story of Wealth Creation

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I appreciate and share your concern regarding poverty… but your story is fundamentally flawed. According to your story…

1. capitalism is to blame for poverty
2. both began around the 1700s

Except, here’s Aristotle discussing poverty…

It is also advantageous for a tyranny that all those who are under it should be oppressed with poverty, that they may not be able to compose a guard; and that, being employed in procuring their daily bread, they may have no leisure to conspire against their tyrants. The Pyramids of Egypt are a proof of this, and the votive edifices of the Cyposelidse, and the temple of Jupiter Olympus, built by the Pisistratidae, and the works of Polycrates at Samos; for all these produced one end, the keeping the people poor. — Aristotle, The Politics

Aristotle lived from 384 to 322 BC… a full 2000 years before you claim that poverty and capitalism began.

In order to understand the ACTUAL cause of poverty and the REAL story of wealth creation… let’s borrow the pyramids.

Imagine an ancient Egyptian market. Bob has an idea to bake bread. Consumers benefit from bread so they voluntarily give him their money in exchange for his bread. Peter, on the other hand, has an idea to build pyramids. Consumers don’t benefit from pyramids so they do not voluntarily give him their money in exchange for his pyramids. Does this prevent Peter from building pyramids? No. But it does effectively prevent Peter from building very large pyramids.

As we already know, Egypt has several very large pyramids. Clearly they were built outside of the market. Massive amounts of society’s limited resources were mobilized and allocated…. regardless of the demand. The size of the pyramids did not reflect the size of the demand. There was an epic disparity between supply and demand.

Poverty depends on disregarding demand. You disregard demand. You disregard consumers’ valuations. You think that the most valuable allocations of society’s limited resources can be determined by taking consumers’ valuations out of the equation. You’re a proponent of exclusive valuation. Therefore, you’re inadvertently responsible for the prevalence of poverty.

When people such as yourself definitively discontinue their disregard for demand... then, and only then… will poverty be destroyed. Once we no longer waste massive amounts of limited resources on the modern day equivalent of pyramids… then there will be a Cambrian explosion of better opportunities. The inherent diversity of demand will no longer be diminished by being diverted to a narrow range of less beneficial endeavors. Instead, a fully diverse demand will freely flow to find and support the widest possible variety of the most valuable discoveries.

In order to truly undam demand, people must be free to choose where their taxes go. The supply of public goods would be determined by the demand for public goods.

Right now we don’t know the demand for war. We have never known the demand for war. Creating a market in the public sector (pragmatarianism) would clarify the demand for war. Will everybody be happy with the answer? Probably not, but how can we effectively improve the answer when we don’t even know what it is?

Demand opacity is just as applicable to conservation. Just recently a white rhino died. The director of the zoo where the rhino had been living had this to say…

It is a terrible loss. Nabiré was the kindest rhino ever bred in our zoo. It is not just that we were very fond of her. Her death is a symbol of the catastrophic decline of rhinos due to a senseless human greed. Her species is on the very brink of extinction. — Přemysl Rabas, Female Nabiré, one of the last five northern white rhinos, died

I wanted to laugh, scream and cry when I read this. What Rabas said is funny because he clearly wants more white rhinos. How many more? Maybe 10 more? Or 100 more? Or a 1,000 more? What about 10,000 more? Yes? Rabas most definitely wants an abundance of rhinos. But… isn’t that greedy of him? Isn’t it greedy to want more and more and more? Of course! Yet, there he is shaking his fist at greed!

Human greed really isn’t the problem… it’s the solution! Human greed is the solution to human greed. The greed to consume more must be checked and balanced by the greed to conserve more. Right now the balance is heavily weighted in favor of consumption. This is simply because human greed has been largely limited to the private sector.

We don’t have a market in the public sector. Rabas isn’t free to choose where his taxes go. The government takes his taxes and a small group of elected representatives decides how to spend them. But there isn’t a single elected representative that can come even close to matching Rabas’ in terms of rhino greed and knowledge. No representative cares more than Rabas does about effectively increasing the supply of rhinos. No representative feels the loss of rhinos more deeply than Rabas does. No representative frequently dreams of endless herds of freely roaming rhinos.

It’s a travesty that Rabas’ rhino greed/knowledge is blocked from the public sector. Just like it’s a travesty that my epiphyte greed/knowledge is blocked from the public sector. How many similar travesties are there?

We expect our elected representatives to effectively embody humanity’s greed and knowledge. There has never been… and will never be…a more harmful absurdity.

What is the demand for rhino conservation? We don’t know. We really should know… but we don’t. How long will it take for people to grasp the problem with not knowing the truth? How long will it take for people to grasp the benefit of human greed?

Minimum Wage Vicious Cycle

The Nobel Prize liberal economist Paul Krugman recently argued that we need more government because people tend to make poor education/career decisions.  Shortly after reading Krugman's case for bigger government, I read an article in the LA Times about how some people in the Philippines were lured to America with the false promise of high wages.

Somewhat inspired by this very popular blog entry... A Week of Shorter Rod Drehers... I patched together some relevant snippets from Paul Krugman...

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

If you'd like the context, just click the links.  As you can see... Krugman used to be an opponent of minimum wages... but now he's a proponent.

From my perspective, a minimum wage is a problem because it doesn't accurately communicate the demand for unskilled labor in any given area.  This increases the chances that people will make really bad career/education decisions.  Here's how I've illustrated this...

And here's another attempt...

My drawing skills aren't that great... but hopefully you should get the idea that, in this drawing, the US has more than enough people pushing brooms (unskilled labor).  In economics... "more than enough" means that there's a surplus.  Usually when there's a surplus of something the price will accurately communicate this information to the entire world.  A low price says "hey, we have more than enough!".  This important information helps people make informed decisions.  When this important information changes, people's decisions will change accordingly.  So in order for the US to have ended up with such a massive surplus of unskilled labor... something must have gone wrong with the price system.  And that something is the minimum wage.  A minimum wage says, "hey, we don't have enough unskilled labor!".

A minimum wage creates a vicious cycle.  When wages falsely signal that the US has a shortage of unskilled labor... this increases the chances that people will make big mistakes.  Students are more likely to make the big mistake of dropping out of school and unskilled immigrants are more likely to make the big mistake of risking their lives to move here.  The logical consequence of so many people making big mistakes is an increase in poverty... which is then used to justify an increase in the minimum wage.

So what would happen if we eliminated minimum wages?  I'm guessing that wages for unskilled labor will decrease.  And I'm sure that proponents of a minimum wage would guess the same thing.  Right?  Because if we eliminated the minimum wage... and wages didn't decrease... then there wouldn't be a need for a minimum wage.

If proponents of a minimum wage want to guess that eliminating the minimum wage would result in a huge decrease in wages... then, assuming that they are correct, this huge decrease would reveal that there is indeed a huge surplus of unskilled labor in the US.  This would conclusively confirm the problem with lying to people about the demand for unskilled labor (aka "a minimum wage").

Would chaos ensue if we learned that there actually was a huge surplus of unskilled labor in the US?   Well... no.  Take China for example.  They used to have a huge surplus of cheap labor... but now they don't...

Costs are soaring, starting in the coastal provinces where factories have historically clustered (see map). Increases in land prices, environmental and safety regulations and taxes all play a part. The biggest factor, though, is labour. - The Economist, The end of cheap China

Wages in China really didn't skyrocket because of a minimum wage... they skyrocketed because of the massive demand for cheap labor...

While corporations may look elsewhere for still cheaper labor, there are no more Chinas out there.  Other countries that establish themselves as low-wage havens will soon be overwhelmed by the inflow of capital from the United States, Europe, Japan, and now China. They cannot possibly have the same dampening effect on wages in the United States over the next three decades as did China and other developing countries in the last three decades.  - Dean Baker, Living in the Short-Run: Comment on Capital in the 21st Century

In case you didn't actually dig through all those Krugman articles that I shared earlier, I'll point out that he vociferously argued against the idea that the massive increase in the global supply of cheap labor had anything to do with wages stagnating in the US.  Eventually he acknowledged that perhaps there were some issues with his "implicit assumptions".

Let's review!  Here are two possibilities of eliminating the minimum wage here in the US...

1. Wages don't plummet.  Then there's really no point in having a minimum wage.
2. Wages do plummet.  Then the US "will soon be overwhelmed by the inflow of capital from the United States, Europe, Japan, and now China".

We really don't help anybody by giving people bad directions.  If you truly want to help poor people... then start a business.  Give poor people a better option (builderism).  Especially if you have a strong theory that some existing business is making a stupid mistake.  Put your strong theory to the test by starting a business that doesn't make the same stupid mistake.  Maybe you want to argue that starting a business is too difficult?  Well there you go.  You've successfully identified a huge problem.  It's a huge problem when it's too difficult to give poor people better options.  Please figure out how to make it easier for somebody as intelligent as yourself to start a business.  And if you can't figure it out... then please have some respect for anybody who does manage to successfully start and run a business that employs/serves any amount of people.

Matt Bruenig vs Poverty

A few days ago I mentioned in this entry...Raymond Fisman - Education vs Markets ... that John Quiggin is my second favorite Crooked Timber liberal.  If you'd like to know who my first favorite Crooked Timber liberal is... then you're welcome to read this entry... Is A Procreation License Consistent With Libertarianism?

Yes, Quiggin is still my second favorite Crooked Timber liberal.  It probably doesn't hurt that I have a cognitive bias towards Australians.  I think Australians are so cool for so many reasons!  But I'll avoid the strong temptation to digress any further down that path.

As I was about to start this entry, I wondered whether it's really necessary for me to refer to Quiggin as my second favorite Crooked Timber liberal.  It kind of begs the question of how he ranks among all the liberals in the world.  Doesn't it?  I'm sure the question keeps Quiggin up at night.  So from now on... I'm going to zoom out.  John Quiggin is my second favorite liberal in the world.  The world has a lot of liberals so that's pretty impressive... right?  There's nothing dubious about this distinction!

So who's my third favorite liberal in the world?  Noah Smith!  And my fourth favorite liberal in the world?  Errrr...I don't have one.  :(   That's got to be a problem.  I should have at least 5 favorite liberals or else I'm a huge failure at life.

Quiggin has been kind enough to suggest a candidate... The US government didn’t lose the War on Poverty: it changed sides.  Well... the suggestion was... subtle.  It was actually in the comments section... and somebody else's comment no less.  But Australians work in mysterious (and wonderful) ways!

The candidate is the liberal Matt Bruenig.  Is he going to be my fourth favorite liberal?  Let's find out!

Bruenig and I have at least two very important things in common...

1. We both want to eliminate poverty
2. We both think that the non-aggression principle (NAP) is... not that great

Here's why Bruenig isn't a fan of the NAP... Non-aggression never does any argumentative work at any time.  If you'd like to know why I'm not a fan of the NAP... then evidently you didn't read my entry that I linked to in the beginning of this entry!  For your convenience... here it is again... Is A Procreation License Consistent With Libertarianism?

Even though Bruenig and I both want to eliminate poverty... our policy recommendations are extremely different.  They can both be wrong... but they can't both be right.  Therefore, it would behoove us to poke and prod each other's poverty remedies.

From Bruenig himself...

As regular readers here know, I am a big fan of reducing inequality and combatting poverty by distributing income more evenly. This involves, among other things, increasing taxes on the rich and using the revenue from such taxes to boost the incomes of the poor. It's pretty simple and has been a winner of a policy everywhere it has been tried. - Matt Bruenig, Social Security Pulled 22 Million Out of Poverty in 2012

Most liberals would probably agree with this "solution".  Which is a problem because I'm pretty sure that it's fundamentally flawed.  Let me try and explain why.

Here was the comment on Quiggin's recent entry that he was responsible (more or less) for...

Exactly right John. When people say that the War on Poverty failed they need to be reminder that poverty is a flow not a stock. Matt Bruenig has an excellent article on this:
http://www.demos.org/blog/4/3/14/war-poverty-cut-poverty-12-billion-people-years
- MPAVictoria

Unless somebody wants to argue that MPAVictoria was lying, it seems pretty reasonable to assume that she values Bruenig's article.  The question is... how much does she value his article?  Does she value it at a penny?  A dime?  A dollar?  Ten dollars?

Let's go ahead and also assume that MPAVictoria isn't a free-rider.  Each year she donates $100 a year to Demos.  Even if this is true, it still wouldn't tell us how much she values the article in question.  Unless we want to assume that she values every single Demos article equally.  Do we want to assume this?  I sure don't.

It should be clear that MPAVictoria has her valuation of Bruenig's article locked away in her heart of hearts.    If Bruenig was only missing one person's valuation of one of his articles... then, unless she really valued the article, it would just be a small problem.  But if you add up enough small problems... then you can end up with a huge problem.  There are millions and millions of liberals in the world.... so you do the math!

Valuation information is fundamentally important.  We really can't make informed decisions without it.  So when we make important decisions in the absence of valuation information... it's very likely that we will misallocate our resources.

Paying somebody for something has two purposes... compensate and communicate.  The first is "seen" and the second is "unseen".  Liberals grasp the first but not the second.  As a result, they see no problem arbitrarily increasing compensation.  Changing the accuracy of what's communicated results in the proliferation of misinformation.  Spreading lies puts people into poverty.  And then Matt Bruenig endeavors to "save" them by adding fuel to the misinformation forest fire.  It's a vicious and violent cycle.

The efficient allocation of resources depends on accurate information.   Here's just some of the missing information...

• Bruenig doesn't know how much MPAVictoria, or any liberal, values any of his articles
• The government doesn't know how much Bruenig, or anybody else, values any public good
• Poor people and students don't know how much any business owner values unskilled labor
• Teachers don't know how much parents value their services

In this veritable valuation vacuum, it's a given that far too many people are going to end up being majorly misallocated.  This misallocation is impossible to miss when people are in poverty.  But it's a case of "really missing the point" to assume that poor people are the only victims of this valuation vacuum.  Perhaps if, at an earlier stage in life, some millionaire had known exactly how much society valued his writing, then he would have pursued his passion rather than settle for a lucrative but joyless career.  Humanity will never be able to benefit from the valuable volumes that the millionaire would have produced if his path had been properly illuminated by everybody's valuations.

So how do we unlock the mountain of valuation information that's hidden away in everybody's heart of hearts?  All that's required is to facilitate payments (communication).  The proliferation of accurate information will greatly increase the chances that we will choose the most valuable paths in life.  It will greatly decrease the chances that we'll spend our lives barking up the wrong trees, or tilting at windmills, or going on wild goose chases.

Specifically...

1. We have to acknowledge that movies, shows, books, blogs, music and the rest really aren't private goods.  They are public goods that are subject to the free-rider (valuation vacuum) problems.  As such, there should be mechanisms that require minimum contributions but also allow for maximum choice regarding how contributions are allocated.  This would unlock the mountain of valuation information regarding these types of goods.  For more info... The Satt.

2. We should eliminate minimum wages.  This would unlock the mountain of valuation information regarding any given area's demand for unskilled labor.  Nobody's better off when poor people misallocate themselves to areas that have a major surplus of unskilled labor.

3. Parents should be allowed to choose which teachers they give their money to.  This would unlock the mountain of valuation information regarding education.  For more info... Raymond Fisman - Education vs Markets

4. People should be free to shop for themselves in the public sector.  This would unlock the mountain of valuation information regarding public goods.  For more info... FAQ.


Can Bruenig effectively poke and prod all of this?  He would have to make a convincing argument that it's beneficial, rather than detrimental, when the supply of goods and services fails to reflect what people aren't given the opportunity to communicate.  In other words, he'd have to make a solid case that the efficient allocation of resources doesn't really depend on accurate valuation information.

Have I effectively poked and prodded Bruenig's argument?

So yes, as a matter of undeniable fact, handing out money does pull people out of poverty. It is astonishing to me that saying something like that is met with such gobsmacked skepticism. It is nearly the most obvious thing in the world that giving people more income makes them less poor. - Matt Bruenig, Social Security Pulled 22 Million Out of Poverty in 2012

If this astonishes Bruenig, then he really needs to familiarize himself with Quiggin's Implied Rule of Economics... The Inadequacy Of The Opportunity Cost Concept.

So is Bruenig going to be my fourth favorite liberal?  The position is his if he truly wants it.  All he has to do is reply to this. If his reply is substantial enough... then there's even a chance that he might steal Noah Smith's ranking!  It would have to be fairly substantial though because Smith and I go way back.

See also:

The Truth About Infrastructure Projects?
Jeff Madrick vs The Invisible Hand

Importing Poverty

Vivek Wadhwa has reservations about importing poverty.

Here's poverty...

It's an Afghan mother and her child scavenging a garbage heap.  This is what Wadhwa does not want to import.   But what if it was just the child on the garbage heap.  Would Wadhwa be against importing an orphan?  Is he against allowing children to be adopted from all countries or just poor countries?

Imagine there's a childless couple in the US...and a parentless child in Afghanistan.  All things being equal...why not allow the American couple to adopt the Afghan child?  Wouldn't that be a more efficient allocation of resources?

Obviously it wouldn't be a more efficient allocation of resources if the American couple already had "enough" children and/or the Afghan child already had parents.

So perhaps Wadhwa is arguing that there aren't enough available jobs in the US.  If so, then why would he be against allowing poor people to choose which countries they move to?  If there aren't enough available jobs here in the US...then why would the Afghan mother make the effort to vote with her feet for the US?

Maybe it's because Wadhwa would lie to the Afghan mother?  Perhaps he would tell her that there were plenty of jobs available here when in reality there were precious few.  Why would Wadhwa do that?

The problem is that Wadhwa doesn't understand the importance of true signals in markets.  This is why he wants to raise the minimum wage.  He wants to lie to poor people all over the world by telling them that we value unskilled labor more than we really do.  So of course he has reservations about allowing resources to freely flow.  We'd be deluged by all the poor people he lies to.

Hey Wadhwa...resources can't flow to where they are most valued if we don't know how much society values the various uses of society's limited resources.  The Afghan mother can't make an informed decision as to which country will provide her with the best option if wages do not honestly communicate which country has the biggest shortage of labor.

Therefore, if you actually and genuinely care about helping the Afghan mother...then you should support the elimination of minimum wages.  Once minimum wages are eliminated...if poor people make the effort to come to the US...then it will be because we could honestly use the help.  Therefore the new allocation of labor would be an improvement...it would be mutually beneficial.  Value would be created.