In this Nation States forum thread... 4th Grade Nation State... one of the participants, Galloism, has facilitated an experiment to test the relative long-term effectiveness of using spending (coasianism) to make group decisions. At a local college, a psychology professor is allowing two of his classes to use coasianism to decide whether to have class inside or outside. A third class is using voting to decide.
With coasianism, the students write down their...
1. Name
2. Preferred option (ie outside)
3. Willingness to pay (WTP)
Once all the students have turned in their valuation forms, the professor does some basic math to determine the most valuable option (MVO). The students who prefer the MVO have to give their money to the professor. The students who do not prefer the MVO do not have to spend any money. Instead, they are proportionally compensated. The winners have to pay the losers.
Today was the first day of the experiment. All three classes decided to have class outside. With the voting class... 16 voted in favor and 1 voted against. It was a classic example of tyranny of the majority.
With the coasianism classes, it wasn't tyranny of the majority because the majority fairly compensated the minority. The majority traded with the minority.
In a different but similar study (One Man, One Bid), which I discussed here, there were two key differences...
1. quadratic voting
2. equal compensation
Monday, October 31, 2016
Sunday, October 30, 2016
Coherent Economics VS Will Wilkinson
Over a year ago, Will Wilkinson wrote this blog entry... Libertarianism and the Politics of Everything. Here's the comment that I wrote on his entry...
*******************************
Coffee tastes like politics? Yuck! No wonder I don't drink the stuff!
You spend your money on coffee... I do not spend my money on coffee. We spend our money differently because we have different preferences. Human diversity is the basis of consumer choice. Consumer choice is economics. Economics is the opposite of politics. Economics is the opportunity cost of politics.
If coffee was in the realm of politics... then one of us would have to get screwed. Either my money would be spent on coffee... despite the fact that I can't stand the stuff... or your money wouldn't be spent on coffee... despite the fact that you love the stuff. Would you really want coffee to be in the realm of politics? No? Then why in the world would you want anything to be in the realm of politics?
Politics only exists because people don't understand economics. If people understood economics then they would clearly see the absolute absurdity of allowing a small group of elected officials to spend everybody's taxes.
The next time that you drink coffee... don't think about politics. Think about how you're pretty happy with your coffee despite the fact that I'm entirely free not to spend any of my money on coffee.
To be clear... the free-rider problem is a real problem... so we need the public sector... but we really don't need it to be a political realm. Libertarianism is the belief that we need to kick most public goods out of the public sector. Pragmatarianism is the belief that we need to kick politics out of the public sector.
*******************************
This morning in my twitter feed I found this...
And this...
Let's start here...
Definitely! Yes! True! But what, exactly, does government effectiveness depend on? Does Wilkinson know the answer to this question?
*******************************
When those most likely to benefit from social spending have a political voice, they demand more of it. - Will Wilkinson, What If We Can't Make Government Smaller?
When people get richer, they seem to want more government. In particular, they want more welfare spending. It’s mainly the positive relationship between rising demand for welfare services/transfers and rising GDP per capita that drives Wagner’s Law. - Will Wilkinson, What If We Can't Make Government Smaller?
Bill Niskanen said that “the longer-term challenge for those of us who favor limited constitutional government is to try to convince voters to reduce their demand for the services financed by federal spending.” However, the fact of the matter is that our well-funded and well-organized attempts “to convince voters to reduce their demand for the services financed by federal spending” so far have all failed. - Will Wilkinson, What If We Can't Make Government Smaller?
If we look at the world, what we see is that when people get richer, they want more welfare state. Maybe there’s nothing much we can do about that. - Will Wilkinson, What If We Can't Make Government Smaller?
Folks on the right need to consider the possibility that we’ve been wrong to see demand for government as the sort of dependent variable that can be manipulated through education or propaganda or political organizing or too-clever-by-half fiscal policy gymnastics or far-fetched constitutional amendments. The only variable the level of government spending clearly and reliably responds to over the long run is GDP per capita, and the relationship goes the wrong way. When people get richer, they want more welfare state. - Will Wilkinson, What If We Can't Make Government Smaller?
*******************************
Imagine that Wilkinson is at the grocery store. He finds an employee and says, "I want coffee". The employee replies, "Aisle 8". Wilkinson goes to aisle 8 and finds a wide variety of coffee to choose from. Why is there a wide variety to choose from? Maybe it has something to do with the fact that he's free to choose which variety he believes will provide him with the most bang for his buck. When he chooses a variety he then has to decide the quantity. Will he fill up his entire shopping cart with coffee? Maybe he'd consider the opportunity cost.
When he's finished putting items in his shopping cart... he goes to find a cashier. He tells her, "I demand coffee". And she says, "Yeah, great, I can see that!" She just takes his word for it and he walks out the store? Of course not. If he truly wants/demands coffee, then he's going to have to take out his wallet and prove it.
This is so fundamentally basic. Wants are unlimited, resources are not. Willingness to pay (WTP) is how we ensure that limited resources are put to their most valuable uses. Therefore, effective/efficient government depends on WTP. Does Wilkinson understand this?
See that? He said "political demand". Which implies that he grasps that there are other types of demand. But he doesn't really feel any need to point out or mention or highlight or discuss the important difference between political "demand" and economic demand. Yet...
Wilkinson knows that if he truly wants coffee, then he's going to have to pay for it. He's going to have to actually demonstrate that he's truly willing to sacrifice the alternative uses of his money. But why doesn't he apply this fundamentally basic economic concept to government?
Libertarians half believe this*. So, as a result, their attempts at economic education have always been half-assed. Libertarians, by definition, are economically incoherent. They say that determining true demand is necessary for coffee... but it's not necessary for defense. Because, evidently, congresspeople are partially omnisicent. Or, resources are unlimited in the public sector.
Well... to be clear... anarcho-capitalists are not libertarians. Murray Rothbard, to his incredible credit, grasped that knowing the demand for defense is just as important as knowing the demand for coffee...
*******************************
One of the most absurd procedures based on a constancy assumption has been the attempt to arrive at a consumer’s preference scale . . . Through quizzing him by questionnaires. In vacuo, a few consumers are questioned at length on which abstract bundle of hypothetical commodities they would prefer to another abstract bundle, etc. Not only does this suffer from the constancy error, no assurance can be attached to the mere questioning of people. Not only will a person’s valuations differ when talking about them than when he is actually choosing, but there is also no guarantee that he is telling the truth. - Murray Rothbard
Individual valuation is the keystone of economic theory. - Murray Rothbard
The concept of demonstrated preference is simply this: that actual choice reveals, or demonstrates, a man’s preferences; that is, that his preferences are deducible from what he has chosen in action. Thus, if a man chooses to spend an hour at a concert rather than a movie, we deduce that the former was preferred, or ranked higher on his value scale. Similarly, if a man spends five dollars on a shirt we deduce that he preferred purchasing the shirt to any other uses he could have found for the money. This concept of preference, rooted in real choices, forms the keystone of the logical structure of economic analysis, and particularly of utility and welfare analysis. - Murray Rothbard
The crucial point is that when consumers spend, they benefit, because the expenditures are voluntary. The consumers buy product X because they decide that, for whatever reason, it would benefit them to buy that product rather than use the money on some other product or save or add to their cash balances. They give up money for product X because they expect to prefer that product to whatever they could have done with the money elsewhere; their preference reflects a judgment of relative benefit from that, as compared to another, purchase. In my own terms, spending choices by consumers demonstrate their preference for one, as compared to another, way of using their money. - Murray Rothbard
Since "benefits" are subjective, we cannot measure anyone's benefit on the market either, but we can conclude, from a person's voluntary purchase, that his (expected) benefit was greater than the value to him of the money given up in exchange. If I buy a newspaper for 25 cents, we can conclude that my expected benefit is greater than a quarter. But since taxes are compulsory and not voluntary, we can conclude nothing about the alleged benefits that are paid for with them. Suppose, in analogy, that I am forced at gunpoint to contribute 25 cents for a newspaper and that that newspaper is then forcibly hurled at my door. We would be able to conclude nothing about my alleged benefit from the newspaper. Not only might I be willing to pay no more than 5 cents for the paper, or even nothing on some days, I might positively detest the newspaper and would demand payment to accept it. From the fact of coercion there is no way of telling. Except that we can conclude that many people are not getting 25 cents' worth from the paper or indeed are positively suffering from this coerced "exchange." Otherwise, why the need to exercise coercion? Which is all that we can conclude about the "benefits" of taxation. - Murray Rothbard
We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection—for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State's police protection a net harm rather than a benefit. But one thing we do know: If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue. - Murray Rothbard
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
*******************************
Unfortunately, Rothbard's excellent attempt at economic education was almost entirely eclipsed by his solution (abolishing/annihilating/destroying the government). Rothbard never realized that the demand for defense could easily be determined by allowing each and every taxpayer to decide for themselves whether additional defense was worth more than the alternative uses of their own tax dollars.
Noah Smith wants Wilkinson to write a book. Well...
How intellectually deficient would Wilkinson's book be if it didn't address Rothbard's economic criticism of government? Would it be more or less intellectually deficient than his article?
With all of this in mind, Wilkinson's perspective on basic income shouldn't be a surprise...
*******************************
Coffee tastes like politics? Yuck! No wonder I don't drink the stuff!
You spend your money on coffee... I do not spend my money on coffee. We spend our money differently because we have different preferences. Human diversity is the basis of consumer choice. Consumer choice is economics. Economics is the opposite of politics. Economics is the opportunity cost of politics.
If coffee was in the realm of politics... then one of us would have to get screwed. Either my money would be spent on coffee... despite the fact that I can't stand the stuff... or your money wouldn't be spent on coffee... despite the fact that you love the stuff. Would you really want coffee to be in the realm of politics? No? Then why in the world would you want anything to be in the realm of politics?
Politics only exists because people don't understand economics. If people understood economics then they would clearly see the absolute absurdity of allowing a small group of elected officials to spend everybody's taxes.
The next time that you drink coffee... don't think about politics. Think about how you're pretty happy with your coffee despite the fact that I'm entirely free not to spend any of my money on coffee.
To be clear... the free-rider problem is a real problem... so we need the public sector... but we really don't need it to be a political realm. Libertarianism is the belief that we need to kick most public goods out of the public sector. Pragmatarianism is the belief that we need to kick politics out of the public sector.
*******************************
This morning in my twitter feed I found this...
Must-read from @willwilkinson What If We Can't Make Government Smaller? https://t.co/QXpxM3KuYt via @NiskanenCenter— JohnQuiggin (@JohnQuiggin) October 30, 2016
And this...
If @willwilkinson doesn't turn this article into a book, there's something wrong with the world: https://t.co/Ro9j0UQJeL— Noah Smith (@Noahpinion) October 29, 2016
Let's start here...
You start to accept that spending cuts are ultimately more about optimizing the composition and effectiveness of spending than about the overall level of spending or its rate of growth. - Will Wilkinson, What If We Can't Make Government Smaller?
Definitely! Yes! True! But what, exactly, does government effectiveness depend on? Does Wilkinson know the answer to this question?
*******************************
When those most likely to benefit from social spending have a political voice, they demand more of it. - Will Wilkinson, What If We Can't Make Government Smaller?
When people get richer, they seem to want more government. In particular, they want more welfare spending. It’s mainly the positive relationship between rising demand for welfare services/transfers and rising GDP per capita that drives Wagner’s Law. - Will Wilkinson, What If We Can't Make Government Smaller?
Bill Niskanen said that “the longer-term challenge for those of us who favor limited constitutional government is to try to convince voters to reduce their demand for the services financed by federal spending.” However, the fact of the matter is that our well-funded and well-organized attempts “to convince voters to reduce their demand for the services financed by federal spending” so far have all failed. - Will Wilkinson, What If We Can't Make Government Smaller?
If we look at the world, what we see is that when people get richer, they want more welfare state. Maybe there’s nothing much we can do about that. - Will Wilkinson, What If We Can't Make Government Smaller?
Folks on the right need to consider the possibility that we’ve been wrong to see demand for government as the sort of dependent variable that can be manipulated through education or propaganda or political organizing or too-clever-by-half fiscal policy gymnastics or far-fetched constitutional amendments. The only variable the level of government spending clearly and reliably responds to over the long run is GDP per capita, and the relationship goes the wrong way. When people get richer, they want more welfare state. - Will Wilkinson, What If We Can't Make Government Smaller?
*******************************
Imagine that Wilkinson is at the grocery store. He finds an employee and says, "I want coffee". The employee replies, "Aisle 8". Wilkinson goes to aisle 8 and finds a wide variety of coffee to choose from. Why is there a wide variety to choose from? Maybe it has something to do with the fact that he's free to choose which variety he believes will provide him with the most bang for his buck. When he chooses a variety he then has to decide the quantity. Will he fill up his entire shopping cart with coffee? Maybe he'd consider the opportunity cost.
When he's finished putting items in his shopping cart... he goes to find a cashier. He tells her, "I demand coffee". And she says, "Yeah, great, I can see that!" She just takes his word for it and he walks out the store? Of course not. If he truly wants/demands coffee, then he's going to have to take out his wallet and prove it.
This is so fundamentally basic. Wants are unlimited, resources are not. Willingness to pay (WTP) is how we ensure that limited resources are put to their most valuable uses. Therefore, effective/efficient government depends on WTP. Does Wilkinson understand this?
There’s an abiding faith on the right that there must be policy levers that can be pulled to reduce political demand for government spending. - Will Wilkinson, What If We Can't Make Government Smaller?
See that? He said "political demand". Which implies that he grasps that there are other types of demand. But he doesn't really feel any need to point out or mention or highlight or discuss the important difference between political "demand" and economic demand. Yet...
But if you’ve been following the proposals of this year’s presidential contenders, or glanced at the unrelenting spending trendlines, it’s hard say attempts at economic and political education have had any effect at all. - Will Wilkinson, What If We Can't Make Government Smaller?
Wilkinson knows that if he truly wants coffee, then he's going to have to pay for it. He's going to have to actually demonstrate that he's truly willing to sacrifice the alternative uses of his money. But why doesn't he apply this fundamentally basic economic concept to government?
Political "demand" really isn't the same as economic demand, and economic demand is the only way that we can know what people truly want. Knowing what people truly want is the only way that the government is going to be truly effective/efficient.
Libertarians half believe this*. So, as a result, their attempts at economic education have always been half-assed. Libertarians, by definition, are economically incoherent. They say that determining true demand is necessary for coffee... but it's not necessary for defense. Because, evidently, congresspeople are partially omnisicent. Or, resources are unlimited in the public sector.
Well... to be clear... anarcho-capitalists are not libertarians. Murray Rothbard, to his incredible credit, grasped that knowing the demand for defense is just as important as knowing the demand for coffee...
*******************************
One of the most absurd procedures based on a constancy assumption has been the attempt to arrive at a consumer’s preference scale . . . Through quizzing him by questionnaires. In vacuo, a few consumers are questioned at length on which abstract bundle of hypothetical commodities they would prefer to another abstract bundle, etc. Not only does this suffer from the constancy error, no assurance can be attached to the mere questioning of people. Not only will a person’s valuations differ when talking about them than when he is actually choosing, but there is also no guarantee that he is telling the truth. - Murray Rothbard
Individual valuation is the keystone of economic theory. - Murray Rothbard
The concept of demonstrated preference is simply this: that actual choice reveals, or demonstrates, a man’s preferences; that is, that his preferences are deducible from what he has chosen in action. Thus, if a man chooses to spend an hour at a concert rather than a movie, we deduce that the former was preferred, or ranked higher on his value scale. Similarly, if a man spends five dollars on a shirt we deduce that he preferred purchasing the shirt to any other uses he could have found for the money. This concept of preference, rooted in real choices, forms the keystone of the logical structure of economic analysis, and particularly of utility and welfare analysis. - Murray Rothbard
The crucial point is that when consumers spend, they benefit, because the expenditures are voluntary. The consumers buy product X because they decide that, for whatever reason, it would benefit them to buy that product rather than use the money on some other product or save or add to their cash balances. They give up money for product X because they expect to prefer that product to whatever they could have done with the money elsewhere; their preference reflects a judgment of relative benefit from that, as compared to another, purchase. In my own terms, spending choices by consumers demonstrate their preference for one, as compared to another, way of using their money. - Murray Rothbard
Since "benefits" are subjective, we cannot measure anyone's benefit on the market either, but we can conclude, from a person's voluntary purchase, that his (expected) benefit was greater than the value to him of the money given up in exchange. If I buy a newspaper for 25 cents, we can conclude that my expected benefit is greater than a quarter. But since taxes are compulsory and not voluntary, we can conclude nothing about the alleged benefits that are paid for with them. Suppose, in analogy, that I am forced at gunpoint to contribute 25 cents for a newspaper and that that newspaper is then forcibly hurled at my door. We would be able to conclude nothing about my alleged benefit from the newspaper. Not only might I be willing to pay no more than 5 cents for the paper, or even nothing on some days, I might positively detest the newspaper and would demand payment to accept it. From the fact of coercion there is no way of telling. Except that we can conclude that many people are not getting 25 cents' worth from the paper or indeed are positively suffering from this coerced "exchange." Otherwise, why the need to exercise coercion? Which is all that we can conclude about the "benefits" of taxation. - Murray Rothbard
We have no idea how much the taxpayers would value these services, if indeed they valued them at all. For example, suppose that the government levies a tax of X dollars on A, B, C, and so on, for police protection—for protection, that is, against irregular, competing looters and not against itself. The fact that A is forced to pay $1,000 is no indication that $1,000 in any sense gauges the value to A of police protection. It is possible that he values it very little, and would value it less if he could turn to competing defense agencies. Moreover, A may be a pacifist; so he may consider the State's police protection a net harm rather than a benefit. But one thing we do know: If these payments to government were voluntary, we can be sure that they would be substantially less than present total tax revenue. - Murray Rothbard
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
*******************************
Unfortunately, Rothbard's excellent attempt at economic education was almost entirely eclipsed by his solution (abolishing/annihilating/destroying the government). Rothbard never realized that the demand for defense could easily be determined by allowing each and every taxpayer to decide for themselves whether additional defense was worth more than the alternative uses of their own tax dollars.
Noah Smith wants Wilkinson to write a book. Well...
@artcarden @mungowitz have you ever used multitude's WTP to choose topic for your next article? Invisible hand weeds but rarely plants.— Pragmatarian (@Pragmatarian) September 21, 2016
How intellectually deficient would Wilkinson's book be if it didn't address Rothbard's economic criticism of government? Would it be more or less intellectually deficient than his article?
With all of this in mind, Wilkinson's perspective on basic income shouldn't be a surprise...
I blogged ... Tyler Cowen on Universal Basic Income https://t.co/CTUDWdr8XI via @NiskanenCenter— Will Wilkinson (@willwilkinson) October 29, 2016
Friday, October 28, 2016
Standing On The Right Shoulders
Am I trying to stand on the right shoulders? Are you trying to stand on the right shoulders? These are good questions to ask because... life is too short to spend standing on the wrong shoulders. Life is too short to spend barking up the wrong trees.
I saw this on twitter last week...
James Buchanan is my favorite recently dead economist so of course I listened to it. And of course I enjoyed it but... it felt too broad/general... or something. It's a bit hard for me to complain though because I suspect it was supposed to be a broad overview. Hey Munger... fancy sharing the text of your lecture? It was nice to listen to but it's not so easy to reference/quote. Also, why not put it on Youtube and your blog?
Munger mentioned an interview with Geoffrey Brennan. I did a quick google search to try and find it but failed to do so. A day or two later I was on Youtube randomly searching for videos of Buchanan when I spotted this one...
It's funny because I listened to the entire thing without realizing that it was the interview that I was actually looking for. I didn't know that Geoffrey Brennan is Australian!
Here's the second part...
You can download the audio files from Liberty Fund... part 1 and part 2. While listening to the interview I roughly noted some topics of particular interest...
Part 1
10: benefit principle
18: game theory
27: econometric nonsense
28: experimental economics
29: Knut Wicksell
59: minimum vs productive state
Part 2
30: Friedrich Nietzsche, inside house looking outside through different windows
39: value of prizes
54: Mormons
56?: no children, motivation for promoting liberty
Does anybody have a transcript of the interview?
The interview took place in 2001. It really seemed like Buchanan was bashing econometrics more than decade before it was fashionable to do so.
Where was I in 2001? I had been out of the Army Infantry for a couple of years and I was going to Pasadena City College. Was I even a libertarian then? When I transferred to UCLA to study international development I was probably a libertarian. Between my junior and senior year... thanks to being in the active Army Reserves... I spent a year in Afghanistan. When I returned I was definitely a libertarian. Of course now I'm no longer a libertarian. Now I'm a pragmatarian.
My point is that it would have been pointless for me to interview Buchanan in 2001. Now it's 2016 and I have a gazillion questions that I'd love to ask him... but he died in 2013. I was 35 years old? Our lives overlapped but we never connected.
Just like I'm a huge fan of Buchanan.... he was a huge fan of Wicksell. Buchanan was 7 years old when Wicksell died. Even less of an overlap.
I really enjoyed the part in the interview where Buchanan talked about Wicksell. It would be nice to have the exact quote but... in the meantime...
I think it's safe to say that Buchanan stood on Wicksell's shoulders.
Not too long after I listened to Munger's lecture on Buchanan I saw, thanks to Glen Weyl, this tweet....
I read the version on Jingjing Zhang's webpage where I found this...
Also...
Wicksell! Well yeah. The winners should compensate the losers. For all intents and purposes, Goeree and Zhang are standing on Wicksell's shoulders. Then again, so did Buchanan but, as far as I know, he didn't have the same idea. Well... I'm pretty sure that Goeree and Zhang didn't cite Buchanan in their paper.
What's really interesting is that I had independently thought of the same general idea as Goeree and Zhang...
- Clarifying The Demand For Green Lights (Feb 2016)
- Popular vs Valuable (Mar 2016)
- Nude Beach Economics (Sept 2016)
- 4th Grade Nation State (Oct 2016)
However, they thought of the same general idea several years before I did...
Even though we both thought of the same general idea... we really didn't think of the same exact idea! Which is really fascinating!
In their version they use quadratic voting and they evenly distribute the compensation. In my version, the outcome is simply based on the willingness to pay (WTP) of the participants. Plus, the compensation is proportionally distributed based on WTP. The greater a participant's WTP (cost/harm)... the greater their compensation.
In my previous blog entry, I shared three trades that have already been made in my friend's 4th grade class...
1. Deciding which book to read (29 Sept 2016)...
2. Deciding who should be in charge of their IRS (7 Oct 2016)...
3. Deciding what the class insect should be (11 Oct 2016)...
Today a fourth trade was made...
4. Deciding who should be in charge of their Gardening Department (28 Oct 2016)...
My friend Michelle didn't just replace voting with spending... she also's taxing the compensation but allowing the students to choose which class/school goods they spend their taxes on. Hence the need for an IRS.
Today the second department (IRS was the first) was created... the Gardening Department. Or Department of Gardening?
Michelle and I are both avid plant enthusiasts... which is how we met. She quickly transferred her enthusiasm for plants to her students and they've transformed several of the school's empty patches of dirt into thriving green spaces. So it's only natural that the students should have the opportunity to give their taxes to a department dedicated to gardening.
After the first trade the students brought up the issue of Michelle participating in the trades. The class was strongly supportive of her doing so. I texted Michelle when she was at school and told her to ask the students whether they wanted their parents to have the opportunity to participate. They overwhelming said "no". I then had Michelle ask the class whether I should be allowed to participate. I sent a follow up text that if they said "no" that I would want all my pennies back. I had given Michelle 700 pennies and she gave each of her 30 students 20 pennies for the first trade. It's hard to know exactly when it started, but now the students are bringing pennies, nickles, dimes, quarters and even dollars from home. However, only pennies can be used for participation.
Well, actually, most of the kids started bringing money from home when Michelle started auctioning off quotes from my collection. Each day she sold one or more quotes and the average winning bid for the first 10 or so quotes was around 50 cents. The winners will be able to decide which class/school goods their money gets spent on. Michelle and I were curious whether it would be possible to create a market for ideas in her classroom. Ideally her students would trade ideas as enthusiastically as kids (used to?) trade baseball cards. Maybe nowadays it's Pokemon? Gotta catch them all?
Getting back on track, the students all enthusiastically said that I could also participate in the trades. I haven't met her students and don't plan on doing so... I don't even like kids. Michelle refers to me as "the inventor" when they discuss trading/taxing.
Today Michelle texted me that they were about to use spending to choose who should be in charge of the Gardening Department. The responsibilities include... giving taxpayers receipts when they make tax payments, keeping track of tax payments, deciding how to spend the revenue and keeping track of expenditures. I'm sure that there will be other responsibilities as well. Today her students received gmail addresses so they'll be able to use google docs, sheets and slides. It will help them keep track of all the information.
When Michelle asked for nominees... there were way too many and there was some difficulty narrowing the candidates. So in this case, there ended up being 6 options to choose from. Michelle texted me the options and I told her to let me know when she had already turned in her own valuation. When she did so, I texted her that my valuation was $1.50 for Brianna.
My valuation wasn't random... it was based on information that Michelle had previously shared about Brianna's diligence, competence and initiative. It was also based on one of her homework assignments.
After the first trade the students were given an optional extra credit homework assignment of answering some questions about the process. The students didn't know what "extra credit" meant and asked Michelle. She told them to guess and one student guessed that it meant pennies and another student followed with the guess that more writing meant more pennies. Michelle didn't confirm or deny it. The next day Michelle said that she had never seen so many students turn in their homework. Over the weekend Michelle and I individually "graded" their homework. We didn't use the typical grading system.... we used pennies. So we technically valuated their homework. We both decided that completing the assignment was worth a penny. Aiden's homework was relatively decent so my valuation was 5 pennies. That's why I was willing to spend 80 pennies for him to be in charge of the IRS. My highest valuation was 7 pennies for Brianna's homework which is partly why my valuation for her being in charge of the Gardening Department was 150 pennies.
Today, my valuation was the very last one that Michelle wrote on the board. She called me during her lunch break and said that, when the kids saw my valuation, they all gasped/screamed... "Oh no!!!" At first they were disappointed that their preferred candidate didn't win but then Adrian jumped up and spun around and exclaimed, "We get compensation! We're going to get money!!" The rest of the class cheered up at the prospect of being compensated.
In this case though their compensation was somewhat less than their valuation. This is an issue with having so many options... the total size of the losing pie is more likely to be larger than the winning pie. Not exactly sure what the most efficient way is to narrow down the options.
When I asked Michelle what her valuation was, I was somewhat surprised when she said that she had been willing to spend 10 cents on Jacob. I had guessed that she would have preferred Brianna to be in charge of the Gardening Department. My guess was obviously wrong.
I think that Michelle's compensation was 7 cents. With a 10% tax rate... we can round up and say that she owes around a penny to the class/country government. But she'll be able to choose which department she gives it to. Chances are good though that she'll make a payment when she owes a few more pennies and there are a few more departments to choose from.
Would this system work better with quadratic voting and equal compensation? I e-mailed the authors and asked about the two key differences. Goeree quickly replied but wasn't willing, or able, to answer the question. Instead, he wanted to point out who he believes deserves credit for the idea... Arrow, d'Aspremont and Gerard-Varet (1979... AGV).
I haven't had a chance to really dig into the relevant literature but from a quick browse the impression that I got was that they were using a replacement for democracy to try and do the job of a market. Ack. *Awkward*
From my perspective, coasianism (my name for replacing voting with spending) is for deciding whether prostitution, for example, should be illegal. If coasianism determines that it should be illegal... then you need a market (pragmatarianism) to allow each and every taxpayer to decide for themselves whether funding the enforcement of this law is more valuable than the alternative uses of their tax dollars.
Which brings us back to Buchanan...
Geoffrey Brennan didn't ask Buchanan about this paper... and Buchanan didn't mention it. I think part of the oversight might be explained by the section where they discussed a productive government versus a minimum government. It seems like Buchanan had initially been more interested in, and focused on, a productive government. But by 2001 he had become disillusioned with the system and had switched his focus to a minimum government?
It seems rather logical that this disillusionment has infected Munger, Peter Boettke and others who are the closest to standing on Buchanan's shoulders. As far as I can tell, they've never written anything about people choosing where their taxes go. Have they ever written anything about replacing voting with spending? Bryan Caplan doesn't seem very interested in alternatives to voting.
Today I noticed that Boettke retweeted this...
I didn't expect to agree with David Suzuki, but a lot of what he said in the video is painfully true. However, it's extremely important to distinguish between economics and conventional economics. Conventional economists have almost entirely ignore the externalities associated with voting and biodiversity conservation and space colonization. It's like biologists ignoring the existence of whales or trees or photosynthesis or evolution. Or some better comparison.
The fact of the matter is that we can only see/reveal/show externalities when our systems eliminate people's incentives to hide their true preferences. Therefore... scientific/economic experiments! They are clearly possible and desirable. By far the most important thing to test is the Invisible Hand...
I'm pretty sure that David Suzuki would argue that global warming is a faulty distribution. But how many of his own tax dollars would he be willing to spend in order to try and correct this faulty distribution? We don't know. "We" don't care! Yeah... too many economists aren't standing on the right shoulders.
It's so strange that economists don't appreciate/understand that the Invisible Hand depends on accurate information. The Invisible Hand can't correct faulty distributions when Suzuki, for example, isn't given the freedom to use his taxes to show/communicate/reveal what he believes to be a faulty distribution.
The concept of communicating with cash is so clear and obvious to me that it feels really reasonable to conclude that conventional economics does cause brain damage. It prevents conventional economists from seeing/understanding/appreciating the basic mechanics of how faulty distributions are corrected with incentives.
Math is a convenient culprit. At UCLA I remember being fascinated by the Invisible Hand. I asked at least a few professors what would happen if we applied it to the public sector. None of them had any idea and they obviously weren't very interested in the question. For a while there I wanted to study economics until I took an upper level economics class that consisted entirely of math. Yeah... no. I didn't want to study math. I wanted to study economics. But, according to UCLA, they were one and the same.
So maybe conventional economics doesn't make you brain damaged. It simply selects for brain damaged individuals. Heh. That can't be right. It selects for individuals who should be studying math instead of economics. So you end up with a bunch of economists who can't appreciate the Invisible Hand because math doesn't allow them to see its true beauty.
Obviously I did end up studying economics. But I certainly didn't study it formally/traditionally/conventionally. Perhaps applying the Invisible Hand to one public school classroom will allow real economics to creatively destroy conventional economics. And then it will be abundantly clear whose shoulders are the right ones to stand on... Buchanan, Hayek, Mises, Wicksell, Bastiat, Smith and a precious few others.
I saw this on twitter last week...
If you are interested in the podcast version of the "30 Years After the Nobel" lecture on JM Buchanan, it's here! https://t.co/IkSVYUEhhb— Michael Munger (@mungowitz) October 22, 2016
James Buchanan is my favorite recently dead economist so of course I listened to it. And of course I enjoyed it but... it felt too broad/general... or something. It's a bit hard for me to complain though because I suspect it was supposed to be a broad overview. Hey Munger... fancy sharing the text of your lecture? It was nice to listen to but it's not so easy to reference/quote. Also, why not put it on Youtube and your blog?
Munger mentioned an interview with Geoffrey Brennan. I did a quick google search to try and find it but failed to do so. A day or two later I was on Youtube randomly searching for videos of Buchanan when I spotted this one...
It's funny because I listened to the entire thing without realizing that it was the interview that I was actually looking for. I didn't know that Geoffrey Brennan is Australian!
Here's the second part...
You can download the audio files from Liberty Fund... part 1 and part 2. While listening to the interview I roughly noted some topics of particular interest...
Part 1
10: benefit principle
18: game theory
27: econometric nonsense
28: experimental economics
29: Knut Wicksell
59: minimum vs productive state
Part 2
30: Friedrich Nietzsche, inside house looking outside through different windows
39: value of prizes
54: Mormons
56?: no children, motivation for promoting liberty
Does anybody have a transcript of the interview?
The interview took place in 2001. It really seemed like Buchanan was bashing econometrics more than decade before it was fashionable to do so.
Where was I in 2001? I had been out of the Army Infantry for a couple of years and I was going to Pasadena City College. Was I even a libertarian then? When I transferred to UCLA to study international development I was probably a libertarian. Between my junior and senior year... thanks to being in the active Army Reserves... I spent a year in Afghanistan. When I returned I was definitely a libertarian. Of course now I'm no longer a libertarian. Now I'm a pragmatarian.
My point is that it would have been pointless for me to interview Buchanan in 2001. Now it's 2016 and I have a gazillion questions that I'd love to ask him... but he died in 2013. I was 35 years old? Our lives overlapped but we never connected.
Just like I'm a huge fan of Buchanan.... he was a huge fan of Wicksell. Buchanan was 7 years old when Wicksell died. Even less of an overlap.
I really enjoyed the part in the interview where Buchanan talked about Wicksell. It would be nice to have the exact quote but... in the meantime...
It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other. - Knut Wicksell, A New Principle of Just Taxation
Justice would thereby have been done at least to the extent that each man received his money’s worth. - Knut Wicksell, A New Principle of Just Taxation
For Buchanan, Wicksell is “the intellectual father of modern public finance” (Buchanan, 1968: 192), and he states: “In any overall evaluation of the history of fiscal thought, Wicksell alone commands the heights of genius” (Buchanan, 1967: 285). Buchanan’s Nobel-prize speech honored Wicksell with the accolade that Wicksell deserves designation as the most important precursor in public finance theory. (Buchanan, 1987: 243). - Bernd Hansjürgens, The Influence of Knut Wicksell on Richard Musgrave and James Buchanan
The effect (of the Finanztheoretische Untersuchungen, B.H.) on me was dramatic. Wicksell laid out before me a set of ideas that seemed to correspond precisely with those that I had already in my head, ideas that I could not have expressed and would not have dared to express in the public-finance mindset of the time. - James Buchanan, Economics from the Outside in: "Better Than Plowing" and Beyond
I think it's safe to say that Buchanan stood on Wicksell's shoulders.
Not too long after I listened to Munger's lecture on Buchanan I saw, thanks to Glen Weyl, this tweet....
Fascinating study of quadratic voting in the lab. Quadatic voting >> voting, but not as good as in theory. @glenweyl https://t.co/ByTMYVcETI— Alex Teytelboym (@t8el) October 22, 2016
I read the version on Jingjing Zhang's webpage where I found this...
In this paper we have demonstrated the inefficiency of elections, i.e. their inability to achieve socially optimal outcomes in situations without a clear ex ante winner (Proposition 1). We have also shown that a simple bidding mechanism yields higher overall welfare and better outcomes for all voters. These bidding mechanisms therefore represent practical implementations of Wicksell's idea of “unanimity and voluntary consent in taxation," i.e. the insight that if a proposal yields a common outcome with a positive net value to society then there exists a compensation scheme by which those that gain from the proposal can compensate those that lose and the proposal can be approved unanimously. - Jacob K. Goeree and Jingjing Zhang, One Man, One Bid
Also...
This endogenous choice of institution is inspired by Wicksell's (1896) principle of unanimity and voluntary consent in taxation: “if a proposal yields a common outcome that applies to all members of a collective, and the outcome provides higher overall welfare, then there exists a compensation scheme whereby those that gain from the outcome compensate those that are harmed in a manner such that everyone is better off. As a result, the proposal will be accepted unanimously." In our experiments there is no status quo so it is unclear which of the two institutions would require unanimous consent. To not favor either bidding or voting, we let the choice of institution be determined by majority voting. - Jacob K. Goeree and Jingjing Zhang, One Man, One Bid
Wicksell! Well yeah. The winners should compensate the losers. For all intents and purposes, Goeree and Zhang are standing on Wicksell's shoulders. Then again, so did Buchanan but, as far as I know, he didn't have the same idea. Well... I'm pretty sure that Goeree and Zhang didn't cite Buchanan in their paper.
What's really interesting is that I had independently thought of the same general idea as Goeree and Zhang...
- Clarifying The Demand For Green Lights (Feb 2016)
- Popular vs Valuable (Mar 2016)
- Nude Beach Economics (Sept 2016)
- 4th Grade Nation State (Oct 2016)
However, they thought of the same general idea several years before I did...
Given we’ve been doing “one person, one vote” for so long, I think it is highly unlikely that we will ever see Glen’s idea put into practice in major political elections. Two other economists, Jacob Goeree and Jingjing Zhang have been exploring a similar idea to Glen’s and testing it in a laboratory environment. Not only does it work well, but when given a choice between standard voting and this bid system, the participants usually choose the bid system.
This voting scheme can work in any situation where there are multiple people trying to choose between two alternatives — e.g., a group of people trying to decide which movie or restaurant to go to, housemates trying to decide which of two TV’s to buy, etc. In settings like those, the pool of money that is collected from people voting would be divided equally and then redistributed to the participants. - Steven D. Levitt, An Alternative to Democracy?
Even though we both thought of the same general idea... we really didn't think of the same exact idea! Which is really fascinating!
In their version they use quadratic voting and they evenly distribute the compensation. In my version, the outcome is simply based on the willingness to pay (WTP) of the participants. Plus, the compensation is proportionally distributed based on WTP. The greater a participant's WTP (cost/harm)... the greater their compensation.
In my previous blog entry, I shared three trades that have already been made in my friend's 4th grade class...
1. Deciding which book to read (29 Sept 2016)...
2. Deciding who should be in charge of their IRS (7 Oct 2016)...
3. Deciding what the class insect should be (11 Oct 2016)...
Today a fourth trade was made...
4. Deciding who should be in charge of their Gardening Department (28 Oct 2016)...
My friend Michelle didn't just replace voting with spending... she also's taxing the compensation but allowing the students to choose which class/school goods they spend their taxes on. Hence the need for an IRS.
Today the second department (IRS was the first) was created... the Gardening Department. Or Department of Gardening?
Michelle and I are both avid plant enthusiasts... which is how we met. She quickly transferred her enthusiasm for plants to her students and they've transformed several of the school's empty patches of dirt into thriving green spaces. So it's only natural that the students should have the opportunity to give their taxes to a department dedicated to gardening.
After the first trade the students brought up the issue of Michelle participating in the trades. The class was strongly supportive of her doing so. I texted Michelle when she was at school and told her to ask the students whether they wanted their parents to have the opportunity to participate. They overwhelming said "no". I then had Michelle ask the class whether I should be allowed to participate. I sent a follow up text that if they said "no" that I would want all my pennies back. I had given Michelle 700 pennies and she gave each of her 30 students 20 pennies for the first trade. It's hard to know exactly when it started, but now the students are bringing pennies, nickles, dimes, quarters and even dollars from home. However, only pennies can be used for participation.
Well, actually, most of the kids started bringing money from home when Michelle started auctioning off quotes from my collection. Each day she sold one or more quotes and the average winning bid for the first 10 or so quotes was around 50 cents. The winners will be able to decide which class/school goods their money gets spent on. Michelle and I were curious whether it would be possible to create a market for ideas in her classroom. Ideally her students would trade ideas as enthusiastically as kids (used to?) trade baseball cards. Maybe nowadays it's Pokemon? Gotta catch them all?
Getting back on track, the students all enthusiastically said that I could also participate in the trades. I haven't met her students and don't plan on doing so... I don't even like kids. Michelle refers to me as "the inventor" when they discuss trading/taxing.
Today Michelle texted me that they were about to use spending to choose who should be in charge of the Gardening Department. The responsibilities include... giving taxpayers receipts when they make tax payments, keeping track of tax payments, deciding how to spend the revenue and keeping track of expenditures. I'm sure that there will be other responsibilities as well. Today her students received gmail addresses so they'll be able to use google docs, sheets and slides. It will help them keep track of all the information.
When Michelle asked for nominees... there were way too many and there was some difficulty narrowing the candidates. So in this case, there ended up being 6 options to choose from. Michelle texted me the options and I told her to let me know when she had already turned in her own valuation. When she did so, I texted her that my valuation was $1.50 for Brianna.
My valuation wasn't random... it was based on information that Michelle had previously shared about Brianna's diligence, competence and initiative. It was also based on one of her homework assignments.
After the first trade the students were given an optional extra credit homework assignment of answering some questions about the process. The students didn't know what "extra credit" meant and asked Michelle. She told them to guess and one student guessed that it meant pennies and another student followed with the guess that more writing meant more pennies. Michelle didn't confirm or deny it. The next day Michelle said that she had never seen so many students turn in their homework. Over the weekend Michelle and I individually "graded" their homework. We didn't use the typical grading system.... we used pennies. So we technically valuated their homework. We both decided that completing the assignment was worth a penny. Aiden's homework was relatively decent so my valuation was 5 pennies. That's why I was willing to spend 80 pennies for him to be in charge of the IRS. My highest valuation was 7 pennies for Brianna's homework which is partly why my valuation for her being in charge of the Gardening Department was 150 pennies.
Today, my valuation was the very last one that Michelle wrote on the board. She called me during her lunch break and said that, when the kids saw my valuation, they all gasped/screamed... "Oh no!!!" At first they were disappointed that their preferred candidate didn't win but then Adrian jumped up and spun around and exclaimed, "We get compensation! We're going to get money!!" The rest of the class cheered up at the prospect of being compensated.
In this case though their compensation was somewhat less than their valuation. This is an issue with having so many options... the total size of the losing pie is more likely to be larger than the winning pie. Not exactly sure what the most efficient way is to narrow down the options.
When I asked Michelle what her valuation was, I was somewhat surprised when she said that she had been willing to spend 10 cents on Jacob. I had guessed that she would have preferred Brianna to be in charge of the Gardening Department. My guess was obviously wrong.
I think that Michelle's compensation was 7 cents. With a 10% tax rate... we can round up and say that she owes around a penny to the class/country government. But she'll be able to choose which department she gives it to. Chances are good though that she'll make a payment when she owes a few more pennies and there are a few more departments to choose from.
Would this system work better with quadratic voting and equal compensation? I e-mailed the authors and asked about the two key differences. Goeree quickly replied but wasn't willing, or able, to answer the question. Instead, he wanted to point out who he believes deserves credit for the idea... Arrow, d'Aspremont and Gerard-Varet (1979... AGV).
I haven't had a chance to really dig into the relevant literature but from a quick browse the impression that I got was that they were using a replacement for democracy to try and do the job of a market. Ack. *Awkward*
From my perspective, coasianism (my name for replacing voting with spending) is for deciding whether prostitution, for example, should be illegal. If coasianism determines that it should be illegal... then you need a market (pragmatarianism) to allow each and every taxpayer to decide for themselves whether funding the enforcement of this law is more valuable than the alternative uses of their tax dollars.
Which brings us back to Buchanan...
Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his "true" preferences for public goods. - James M. Buchanan, The Economics of Earmarked Taxes
Geoffrey Brennan didn't ask Buchanan about this paper... and Buchanan didn't mention it. I think part of the oversight might be explained by the section where they discussed a productive government versus a minimum government. It seems like Buchanan had initially been more interested in, and focused on, a productive government. But by 2001 he had become disillusioned with the system and had switched his focus to a minimum government?
It seems rather logical that this disillusionment has infected Munger, Peter Boettke and others who are the closest to standing on Buchanan's shoulders. As far as I can tell, they've never written anything about people choosing where their taxes go. Have they ever written anything about replacing voting with spending? Bryan Caplan doesn't seem very interested in alternatives to voting.
Today I noticed that Boettke retweeted this...
Economics is a Form of Brain Damage https://t.co/H35nVpveiA— Peter Boettke (@PeterBoettke) October 28, 2016
I didn't expect to agree with David Suzuki, but a lot of what he said in the video is painfully true. However, it's extremely important to distinguish between economics and conventional economics. Conventional economists have almost entirely ignore the externalities associated with voting and biodiversity conservation and space colonization. It's like biologists ignoring the existence of whales or trees or photosynthesis or evolution. Or some better comparison.
The fact of the matter is that we can only see/reveal/show externalities when our systems eliminate people's incentives to hide their true preferences. Therefore... scientific/economic experiments! They are clearly possible and desirable. By far the most important thing to test is the Invisible Hand...
It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. - Adam Smith, Wealth of Nations
I'm pretty sure that David Suzuki would argue that global warming is a faulty distribution. But how many of his own tax dollars would he be willing to spend in order to try and correct this faulty distribution? We don't know. "We" don't care! Yeah... too many economists aren't standing on the right shoulders.
It's so strange that economists don't appreciate/understand that the Invisible Hand depends on accurate information. The Invisible Hand can't correct faulty distributions when Suzuki, for example, isn't given the freedom to use his taxes to show/communicate/reveal what he believes to be a faulty distribution.
The concept of communicating with cash is so clear and obvious to me that it feels really reasonable to conclude that conventional economics does cause brain damage. It prevents conventional economists from seeing/understanding/appreciating the basic mechanics of how faulty distributions are corrected with incentives.
Math is a convenient culprit. At UCLA I remember being fascinated by the Invisible Hand. I asked at least a few professors what would happen if we applied it to the public sector. None of them had any idea and they obviously weren't very interested in the question. For a while there I wanted to study economics until I took an upper level economics class that consisted entirely of math. Yeah... no. I didn't want to study math. I wanted to study economics. But, according to UCLA, they were one and the same.
So maybe conventional economics doesn't make you brain damaged. It simply selects for brain damaged individuals. Heh. That can't be right. It selects for individuals who should be studying math instead of economics. So you end up with a bunch of economists who can't appreciate the Invisible Hand because math doesn't allow them to see its true beauty.
Obviously I did end up studying economics. But I certainly didn't study it formally/traditionally/conventionally. Perhaps applying the Invisible Hand to one public school classroom will allow real economics to creatively destroy conventional economics. And then it will be abundantly clear whose shoulders are the right ones to stand on... Buchanan, Hayek, Mises, Wicksell, Bastiat, Smith and a precious few others.
Tuesday, October 11, 2016
Paul Samuelson: Worst Economic Theorist
Comment on: Nobel Prize 2016 Part I: Bengt Holmstrom by Kevin Bryan
******************************************
Samuelson was not the greatest economic theorist of all time. My friend Michelle teaches a 4th grade public school class of 30 students. She recently applied two of my economic theories to her class...
1. voting is replaced with spending
2. kids can choose where their taxes go
The first theory is largely based on Coase while the second is largely based on Smith and Buchanan.
Today the kids are using their own real money (pennies) to choose the class insect. The kids who are compensated for their preferred insect not being chosen will have to eventually pay a tax on their compensation/income. But they will be able to choose which class/school goods they spend their taxes on.
Can you make a solid prediction about the outcome? Chances are extremely good that you'll be unable to. Why? Largely because you don't realize just how terrible an economist Samuelson was. He was wonderful at math but terrible at economics. Economics is all about trade. Being terrible at economics means failing to truly understand the benefit and point of trade. When you fail to truly understand the benefit and point of trade... then you fail to see all the places where trade isn't... but should be.
"the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive." - Samuelson
******************************************
Here are some trades that have occurred in Michelle's class...
1. Deciding which book to read (29 Sept 2016)...
2. Deciding who should be in charge of their IRS (7 Oct 2016)...
3. Deciding what the class insect should be (11 Oct 2016)...
The most valuable option was chosen. The students who did not get their preferred option did not have to spend their money. Instead, they received all the money spent on the most valuable option. The amount of money a student received was in proportion to their WTP.
Did all these trades occur because of Samuelson? Nope. They occurred despite him. He was an obstacle to trade. He was a barrier to trade. Samuelson was an anti-economist. The true purpose of economics is to facilitate trade.
Blocking trade is the same as blocking the flow of information...
We don't understand why? Really? Maybe he should find a class of 4th graders.
******************************************
Samuelson was not the greatest economic theorist of all time. My friend Michelle teaches a 4th grade public school class of 30 students. She recently applied two of my economic theories to her class...
1. voting is replaced with spending
2. kids can choose where their taxes go
The first theory is largely based on Coase while the second is largely based on Smith and Buchanan.
Today the kids are using their own real money (pennies) to choose the class insect. The kids who are compensated for their preferred insect not being chosen will have to eventually pay a tax on their compensation/income. But they will be able to choose which class/school goods they spend their taxes on.
Can you make a solid prediction about the outcome? Chances are extremely good that you'll be unable to. Why? Largely because you don't realize just how terrible an economist Samuelson was. He was wonderful at math but terrible at economics. Economics is all about trade. Being terrible at economics means failing to truly understand the benefit and point of trade. When you fail to truly understand the benefit and point of trade... then you fail to see all the places where trade isn't... but should be.
"the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive." - Samuelson
******************************************
Here are some trades that have occurred in Michelle's class...
1. Deciding which book to read (29 Sept 2016)...
2. Deciding who should be in charge of their IRS (7 Oct 2016)...
3. Deciding what the class insect should be (11 Oct 2016)...
The most valuable option was chosen. The students who did not get their preferred option did not have to spend their money. Instead, they received all the money spent on the most valuable option. The amount of money a student received was in proportion to their WTP.
Did all these trades occur because of Samuelson? Nope. They occurred despite him. He was an obstacle to trade. He was a barrier to trade. Samuelson was an anti-economist. The true purpose of economics is to facilitate trade.
We must always remember that Samuelson was the great anti-Misesian of 20th century economics, and in my book that translates into a force for anti-economics despite all the scientific accolades, awards, honorary degrees, and reverence by his peers he was granted in his lifetime. - Peter Boettke, Paul Samuelson
Blocking trade is the same as blocking the flow of information...
We know what this huge volume of trading is about. It’s about information, not preference shocks. Information seems to need trades to percolate into prices. We just don’t understand why. - John H. Cochrane, Volume and Information
We don't understand why? Really? Maybe he should find a class of 4th graders.
The main point about which there can be little doubt is that Smith’s chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst. It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that it is a system under which bad men can do least harm. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid. - Friedrich Hayek, Individualism and Economic Order
Tuesday, October 4, 2016
Samuel Hammond VS QIRE
Comment on: Voting as a collective action problem by Samuel Hammond
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Prohibition, the Holocaust and every war ever started were "solutions" to collective action "problems". Same thing with the pyramids and putting a man on the moon.
Voting is only good to the extent that it doesn't violate Quiggin's Implied Rule of Economics (QIRE). So... when does voting not violate QIRE? The only way that we could know that voting was not violating QIRE would be if we actually knew people's willingness to pay (WTP) for their preferred option. But that would require replacing voting with spending.
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Economics teaches two basic truths: people make wise choices when they are forced to weigh benefits against costs; and competition produces good results. - Edward Glaeser, If You Build It…
The correct fix for crowded roads is to charge people for the social costs of their choices. - Edward Glaeser, If You Build It…
People should pay for the social cost of their flying. The TSA should be paid for by fliers. - Edward Glaeser, The one thing Trump and Clinton agree on is infrastructure.
Until people are made to bear the full costs of their decisions, those decisions are unlikely to be socially sound, in this as in other areas of public policy. - Richard Bird, Charging for Public Services: A New Look at an Old Idea
The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. - Adam Smith, Wealth of Nations
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
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WTP is an incredibly coherent thread in economics (and in the best libertarianism). Why are you ignoring it? Do you think it's irrelevant? Are you not aware of it?
Elsewhere you wrote...
It seems like you care about a person's willingness to move. But willingness to move is the same thing as WTP. So.... clearly, to some extent, you're not entirely unaware of WTP. The question is... why are you ignoring it when it comes to voting? Why does it matter when it comes to foot voting but it doesn't matter when it comes to ballot voting?
Giving people the freedom to decide for themselves whether it's truly worth it to throw the alternative uses of their own resources under the bus is the only way to prevent QIRE from being violated.
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Prohibition, the Holocaust and every war ever started were "solutions" to collective action "problems". Same thing with the pyramids and putting a man on the moon.
Voting is only good to the extent that it doesn't violate Quiggin's Implied Rule of Economics (QIRE). So... when does voting not violate QIRE? The only way that we could know that voting was not violating QIRE would be if we actually knew people's willingness to pay (WTP) for their preferred option. But that would require replacing voting with spending.
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Economics teaches two basic truths: people make wise choices when they are forced to weigh benefits against costs; and competition produces good results. - Edward Glaeser, If You Build It…
The correct fix for crowded roads is to charge people for the social costs of their choices. - Edward Glaeser, If You Build It…
People should pay for the social cost of their flying. The TSA should be paid for by fliers. - Edward Glaeser, The one thing Trump and Clinton agree on is infrastructure.
Until people are made to bear the full costs of their decisions, those decisions are unlikely to be socially sound, in this as in other areas of public policy. - Richard Bird, Charging for Public Services: A New Look at an Old Idea
The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for. - Adam Smith, Wealth of Nations
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
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WTP is an incredibly coherent thread in economics (and in the best libertarianism). Why are you ignoring it? Do you think it's irrelevant? Are you not aware of it?
Elsewhere you wrote...
Economists call this Tiebout sorting, a model that inspired a generation of libertarians to a kind of municipal fetishism which vastly overestimated the average person’s willingness to move, and vastly underestimated the potential for localized forms of tyranny.
It seems like you care about a person's willingness to move. But willingness to move is the same thing as WTP. So.... clearly, to some extent, you're not entirely unaware of WTP. The question is... why are you ignoring it when it comes to voting? Why does it matter when it comes to foot voting but it doesn't matter when it comes to ballot voting?
Giving people the freedom to decide for themselves whether it's truly worth it to throw the alternative uses of their own resources under the bus is the only way to prevent QIRE from being violated.
Thursday, September 22, 2016
Bryan Caplan VS Friedrich Hayek
Ayn Rand probably had a subplot about something like this, but deleted it as too implausible. https://t.co/18Igfs9CEK But it's real, folks.— Michael Munger (@mungowitz) September 21, 2016
@mungowitz Also, I'm a bit hacked off that I can't get good sushi at a nearby taco truck. Petition time! /2— Art Carden (@artcarden) September 21, 2016
My WTP for @mungowitz @artcarden to write article about seeing unseen demand is $5 dollars. What's unseen demand for healthy fastfood?— Pragmatarian (@Pragmatarian) September 21, 2016
@Pragmatarian @mungowitz Discoverable via market process and being filled by Subway, Chipotle, Taco Bell, & others. https://t.co/CcbgIjuOVx— Art Carden (@artcarden) September 21, 2016
@artcarden @mungowitz have you ever used multitude's WTP to choose topic for your next article? Invisible hand weeds but rarely plants.
— Pragmatarian (@Pragmatarian) September 21, 2016
@Pragmatarian @mungowitz Start a Patreon page, perhaps, with data guiding next project? Interesting.— Art Carden (@artcarden) September 21, 2016
@artcarden @mungowitz @Patreon based on stupid assumption that I equally value your articles... which implies that I equally value topics.— Pragmatarian (@Pragmatarian) September 21, 2016
@Pragmatarian @mungowitz Does Patreon allow bidding of any kind that would allow one to price topics?— Art Carden (@artcarden) September 21, 2016
@artcarden @mungowitz AFAIK granularity stops at creators. Assumption: you unequally value creators but equally value a creator's creations— Pragmatarian (@Pragmatarian) September 21, 2016
Smart assumption: I unequally value creators
Stupid assumption: I equally value a creator's creations
Smart assumption: I unequally value economists
Stupid assumption: I equally value Bryan Caplan's blog entries
Here's one of Caplan's recent entries... Value-Added and Social Desirability Bias...
What's up? I once again point my accusatory finger at Social Desirability Bias. Rewarding good teachers sounds a lot nicer than firing bad teachers. So when research comes along that potentially recommends both, pundits and politicians don't coolly crunch the numbers. They leap to the recommendation that's pleasing to the ear. So what if the original researchers find that firing bad teachers wins with flying colors? Move along folks, nothing to see here...
Assumption 1: parents equally value schools
Assumption 2: parents equally value teachers
Are these assumptions smart or stupid? Of course they are stupid. They are fundamentally stupid. Yet, does Caplan challenge these fundamentally stupid assumptions? Clearly he doesn't challenge the second assumption. Instead, he encourages/enables/empowers it. He argues that administrators can fire the bad teachers despite the fact that the admins don't actually know how much value the teachers create. Possible assumptions...
Assumption 1: admins are omniscient, they do know how much value teachers create
Assumption 2: how much value teachers create is a "minor" detail
In my opinion... both these assumptions are stupid. Are they equally stupid though?
It's actually pretty easy to visualize the basic economics of education. Here's how the current system looks...
Any given school consists of consumers (ie parents), producers (ie teachers) and an intermediary (ie a principal). The consumers give their money to the intermediary who gives more or less the same amount of money to each of the producers.
The problem with this system is that teachers are not equally valuable. Anybody who has ever been taught should thoroughly and completely understand that teachers are not equally valuable. Just like artists are not equally valuable. Just like economists are not equally valuable. As you can see in the diagram, teachers don't all produce the same amount of value. They aren't all Jaime Escalante. Except, we obviously don't know how much value he truly created.
The solution is to unbundle teachers...
Parents would be entirely free to decide which teachers they give their money to. The most valuable teachers would get the most money and the least valuable teachers would get the least money.
We can imagine that this is pretty much how Patreon works. There's no intermediary to decide how supporters' money is distributed among the creators. Supporters are entirely free to decide for themselves how much support they give to the creators. The more money a creator receives... the more value they create. Supporters are free to use their cash to communicate their perception of a creator's relative scarcity.
Is this how schools should work? Or is it more beneficial to bundle teachers together? Is it beneficial to protect teachers from the valuations of parents? Is it beneficial to protect teachers from the Invisible Hand? Would it also be beneficial to bundle schools together in order to protect them from the Invisible Hand?
Would Caplan argue that we should bundle Khan Academy and Marginal University together?
Does Caplan want to argue that he values both these lessons equally? Does he want to argue that he's just as valuable as Hayek?
The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote. Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this had rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost. The intellectual revival of liberalism is already underway in many parts of the world. Will it be in time? - Friedrich Hayek, The Intellectuals and Socialism
For example...
Even at the cost of lining up with Friedman, I’d be pleased if the idea that war is a mostly futile waste of lives and money became conventional wisdom. Switching to utopian mode, wouldn’t it be amazing if the urge to “do something” could be channeled into, say, ending hunger in the world or universal literacy (both cheaper than even one Iraq-sized war)? - John Quiggin, War and waste
Yet...
Then I realized that they want a kind of unicorn, a State that has the properties, motivations, knowledge, and abilities that they can imagine for it. When I finally realized that we were talking past each other, I felt kind of dumb. Because essentially this very realization—that people who favor expansion of government imagine a State different from the one possible in the physical world—has been a core part of the argument made by classical liberals for at least 300 years. - Michael Munger, Unicorn Governance
Switching to utopian mode, wouldn't it be amazing if parents could give their money to any teachers in the world?
Switching to dystopian mode, wouldn't it be terrible if readers around the world couldn't give their money to J. K. Rowling?
We know that Rowling is a superstar. But we only know that she's a superstar because lots of people around the world were completely free and more than happy to spend their money on her books.
What do we know about teachers? We know that they are not equally valuable. And we also know that there's at least a gazillion of them. Therefore, according to the law of truly large numbers, it's a given that at least one of those teachers should be an algebra superstar. It's a given that at least one of those teachers should be a geography superstar. It's a given that each and every significant subject should have at least one superstar teacher. There should be just as many superstar teachers as there are superstar authors. Just in case it's not abundantly clear... by "superstar" teachers I mean that they would be as filthy rich as superstar authors.
The manufacturers first supply the neighbourhood, and afterwards, as their work improves and refines, more distant markets. - Adam Smith
When the buyer goes to the market, he wants to find it abundantly supplied. He wants the seasons to be propitious for all the crops; more and more wonderful inventions to bring a greater number of products and satisfactions within his reach; time and labor to be saved; distances to be wiped out; - Frédéric Bastiat
We've made pretty decent progress at wiping out distances but it's not like any of the teachers who've put their classes online are getting filthy rich.
A while back I e-mailed Alex Tabarrok and suggested that Marginal University create a video about the free-rider problem. I also suggested that they try and determine the multitude's WTP for potential topics. I'd certainly be happy to pay $5 in order to try and move the free-rider problem higher up on their list of potential topics. Wouldn't it be so cool to see a list of their potential topics sorted by the multitude's WTP for them?
In my tweet to Art Carden and Michael Munger I said that the Invisible Hand weeds but rarely plants. If the Invisible Hand does not do most of the planting then it logically means that the Visible Hand does most of the planting. Voila! Here I am! Planting this blog entry. My decision to do so wasn't based on the multitude's WTP for this topic... it was based entirely on my own WTP for this topic. But it's not like I ignored or disregarded the multitude's WTP for this topic... I don't even vaguely or remotely know what the multitude's WTP for this topic actually is.
After I publish this entry... will it be easy to discern the Invisible Hand's verdict of my product? Nope. Thanks to the free-rider problem... ignorance is bliss. Really? Ignorance of the Invisible Hand's verdict is bliss?
I'm guessing that Caplan is correct that there's a social desirability bias. But as far as a bias against markets is concerned... it seems like a really good idea to consider the notable exceptions. We really don't hear people complain about...
1. artists being supported on Patreon
2. J.K. Rowling being a superstar
Same thing with this guy...
I'm a millionaire, I'm a multi-millionaire. I'm filthy rich. You know why I'm a multi-millionaire? 'Cause multi-millions like what I do. That's pretty good, isn't it? - Michael Moore
How many liberals complain that he's a superstar?
Ok... so... despite the fact that I've done a terrible job of presenting/sharing/organizing the evidence... it should be more than adequate to point us in the right direction.
We'll use all this evidence to think big but start small. We'll create a website! At first the website will consist entirely of videos created by Marginal University and videos created by Khan Academy. Members of this website will each have to pay $1/month... but they'll be free to choose which videos they allocate their pennies to. Knowing the relative value of the videos would allow...
1. the most valuable videos to be featured on the homepage
2. members to sort the videos by their value
It would actually be the Invisible Hand that would decide which videos were valuable enough to put on the homepage. And it would actually be the Invisible Hand that would sort the videos by their value. How cool would that be?
Of course we could also allocate our pennies to potential topics. This would allow the Invisible Hand to guide the planting. Which would mean less weeds.
The website would cover its costs and pass the rest of the money onto Marginal University and Khan Academy.
If this utopian model turned out to be possible and practicable in the physical world... then we would gradually add more and more educators and their products. Bryan Caplan, John Quiggin, Art Carden, Michael Munger and others could add their educational products (blog entries, articles, papers, etc) and we'd be free to allocate our pennies to them.
As the supply of valuable products increased... more people would join the website. And as more people became members... the most valuable products would get more money. This would encourage more educators to join the website. As the supply of valuable products increased... so too would people's WTP and the monthly fee. It would be a virtuous circle of incentives and education. It would be an accurate and amazing feedback loop.
Hmmm... anybody want to argue that the website wouldn't need a monthly fee? It would just need to give members the ability to...
1. put money into their digital wallets
2. spend their money on their favorite educational products
That wouldn't be a bad argument. Right now it's not the easiest thing in the world to allocate a quarter to Marginal University's video about prices. In other words, there's a barrier to payment. There's an obstacle to spending. Would eliminating this obstacle facilitate the Invisible Hand? Of course it would! If giving the video a quarter was as easy as giving it a "thumbs up"... then I'd sure be happy to do so. I'd be surprised if I was the only person in this boat. How cool would it be to see a list of all the people who were willing to allocate some money to the video?
Eliminating the obstacle to spending would eliminate the forced-free-rider problem. And it's entirely possible that the forced-free-rider problem is a lot larger than anybody realized. Which means that it's entirely possible that eliminating the barrier to payment would allow the Invisible Hand to turn the most valuable educators into superstars.
In any case, there's more than one way to skin a cat. We can apply the Invisible Hand to formal education... or we can apply the Invisible Hand to informal education. I think that applying the Invisible Hand to formal education would be a Herculean task. It would be far less Herculean to apply the Invisible Hand to informal education. Even though it would be a lot easier to apply the Invisible Hand to informal education... the potential benefits would be massive. People would be able to easily see, understand and really appreciate the Invisible Hand. What happens when everybody really appreciates the Invisible Hand? Utopia. Heaven on Earth.
Sunday, September 18, 2016
Bryan Caplan VS Voting Alternatives
I finally got around to reading this blog entry by Bryan Caplan... Why I Don't Vote: The Honest Truth. To be equally honest, I don't vote either.
Here's what Caplan wrote in his entry...
Here's what I wrote in my previous entry...
There are two main methods for people to reveal/communicate/project their preferences...
1. stated preference = voting, surveys, polls, Facebook "Likes"
2. demonstrated preference = willingness to pay/spend/sacrifice
Do both these methods create an equally accurate reflection of society? Of course not. As Nassim Taleb would say... voting doesn't have skin in the game...
As Alex Tabarrok would say... voting doesn't have a tax on bullshit...
Anybody who knows anything about Bryan Caplan knows that he's willing to put his money where his mouth is. This is how Caplan works. This is really not how voting works.
Voting doesn't require skin in the game. Voting doesn't have a tax on bullshit. This means that the reflection that voting creates of society is bullshit. Again, with emphasis.... the reflection that voting creates of society is bullshit.
Yet...
Don't you get the sense that Caplan is judging humanity by its opinions? Doesn't it sure sound like he's judging the book by its cover?
Here's another economist doing the same thing...
And another economist who did the same thing...
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Historians are mistaken in explaining the rise of Nazism by referring to real or imaginary adversities and hardships of the German people. What made the Germans support almost unanimously the twenty-five points of the "unalterable" Hitler program was not some conditions which they deemed unsatisfactory, but their expectation that the execution of this program would remove their complaints and render them happier. They turned to Nazism because they lacked common sense and intelligence. They were not judicious enough to recognize in time the disasters that Nazism was bound to bring upon them.
The immense majority of the world's population is extremely poor when compared with the average standard of living of the capitalist nations. But this poverty does not explain their propensity to adopt the communist program. They are anti-capitalistic because they are blinded by envy, ignorant, and too dull to appreciate correctly the causes of their distress. There is but one means to improve their material conditions, namely, to convince them that only capitalism can render them more prosperous. - Ludwig von Mises
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To argue that the Holocaust and WWII accurately reflected the German society is to pretend or assume that voting creates an accurate reflection of society. Nothing could be further from the truth...
Mises didn't know better. Daron Acemoglu doesn't know better. Bryan Caplan doesn't know better? That's not true. Of course Caplan knows better. Yet, I sure do get the sense that he somehow kinda forgets that the reflection of society that voting creates is bullshit.
We really shouldn't judge society by its bullshit reflection.
So that was one issue that I had with Caplan's entry. Another issue that I had with his entry was that there was something super strangely absent... a viable alternative to voting. Are there any viable alternatives?
Is quadratic voting a viable alternative to regular voting? A quick google search did not provide Caplan's answer to this really good question. On the other hand, a quick google search does provide Cowen's answer to this really good question. Is Caplan's answer the same as Cowen's? I'd sure like to know.
Personally, I definitely think that quadratic voting is a lot better than regular voting. With quadratic voting at least there's some skin in the game. At least there's some tax on bullshit. At least there's some reflection/communication/projection of preference intensity. But I'd really love to hear Glen Weyl explain why he thinks that it's better than straight buying and selling votes. I'd also love to hear him explain whether he thinks that quadratic voting is better than coasianism.
Is coasianism a viable alternative to voting? Coasianism would replace voting with spending. Participants would have a certain amount of time to spend as much money as they wanted on their preferred option. Whichever option received the most money would be the most valuable option. The "losing" side would get their money back. Plus, they would get all the money spent by the "winning" side. So coasianism is actually a win-win situation. Participants would either get their preferred option... or they would get something that they value even more. In order to prevent perverse participation... the "market" would be blind. The totals would only be revealed after the "market" closed. Would there still be speculators? If so, then they would quickly learn a fundamentally important lesson the hard way...
As far as I know, coasianism is a recent invention. So it makes sense that Caplan hasn't already analyzed it. But will he analyze it now? Will he compare coasianism to quadratic voting? Will he compare them both to vote buying/selling? Will he compare all three of them to regular voting?
Caplan has lots of kids.... I don't have any kids. So he can correct me if I'm wrong... but if little kids are playing with something that they shouldn't be playing with... generally the best strategy isn't to directly take the item away from them. The best strategy is to offer them a better item. Perhaps in some cases this isn't the best strategy. Like if they are playing with a loaded gun.
Sure it's really reasonable to see see democracy as a loaded gun... but none of us who might perceive it as such are in a position to take it away from citizens. And even if we were in such a position... would we really want to take advantage of our authority?
Watch "Milton Friedman on Libertarianism (Part 4 of 4)". The interviewer starts to ask him a hypothetical..."if you were dictator for a day" question and Friedman quickly interrupts him and says with great emphasis, "If we can't persuade the public that it's desirable to do these things, then we have no right to impose them even if we had the power to do it!" Here's the extended version.
Part of the beauty of the free-market is that entrepreneurs, at least in theory, don't have the authority to directly take products away from citizens. Entrepreneurs have no choice but to provide consumers with better products. And it's entirely up to consumers to decide for themselves whether the new products are truly better than the old products. In the multitude of consumers there is safety.
Liberals really don't see the beauty of builderism. They see that working in a sweatshop is a terrible option but they really do not risk their own resources in order to provide the workers with better options. Instead they endeavor to get sweatshops shut down. They also vote for higher minimum wages, stricter regulations and more benefits for workers. Liberals shoot workers in the feet by skyrocketing the barriers to entry... which makes it far less likely that entrepreneurs will provide workers and consumers with genuinely better options.
Some liberals are somewhat exceptional...
What's voting? Voting is an idea. All ideas are products. So voting is a product. And Caplan, probably more than anyone, knows and understands exactly what's wrong with this product. He knows exactly where there's room for improvement. And fortunately, in this case, nothing really prevents him from selling/creating a better product. Ideas don't have artificial barriers to entry. As far as voting is concerned, nothing technically prevents Caplan from engaging in builderism...
1. explaining why voting is bullshit
2. offering a better alternative
Hmmm... and I suppose that there is a decent amount of division of labor involved. Specialization does increase productivity. To use a volleyball analogy... one person sets the ball and another person spikes it. Caplan sure has done a really wonderful job of setting the ball. So isn't it unreasonable to expect him to spike it as well?
I don't think that I would have been able to invent coasianism without Coase or Caplan. But it certainly can't be the case that I can spike the ball on my own. Replacing voting with a better product will require a multitude of spikers.
In theory, Caplan should be especially interested in products that might be better than voting. So it seems pretty logical that he would make the effort to review the alternatives to voting and use his considerable energy and expertise to help spike the best ones.
When it comes to Caplan and any given voting alternative... here are four courses of action...
1. He can explain why it's a good alternative
2. He can explain why it's a bad alternative
3. He can ask for explanations
4. He can ignore the alternative
Which course of action is the least beneficial?
Let's say that, thanks in no small part to Caplan, we do manage to creatively destroy voting. As a result, society's reflection will be a lot less bullshit. Will Caplan be happy with what he sees? I'm guessing that he'll be happier... but it's doubtful that he'll be perfectly happy. It's very likely that he'll spot some flaws. But at least the flaws will be real. So if he barks up a tree, the cat that he sees in the tree won't be a mirage cat. What happens when Caplan and 300 million other citizens are far less likely to bark up the wrong trees? Progress. A lot more progress in a lot less time.
I'll finish by sharing some ideas about ideas....
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It is ideas that determine social trends that create or destroy social systems. Therefore, the right ideas, the right philosophy, should be advocated and spread. - Ayn Rand, Playboy Interview
It turns out that most of our country is empty for a very good reason: people derive great value from concentrating together in urban areas. First, proximity reduces transportation costs, so producers benefit from being close to their suppliers and customers. Second, more people living in one place means deeper and more diverse markets for both products and labor. With a large enough urban population, niche markets that appeal to only a small fraction of consumers become profitable to serve. Employers have a better pool of potential workers to draw from, while workers have greater choice in prospective employers. And third, people living and working close to one another can take advantage of “information spillovers”: cities expand opportunities for exchanging ideas and information, thereby facilitating both innovation and the accumulation of human capital. - Brink Lindsey, Low-Hanging Fruit Guarded By Dragons
Here is another critical point. Rarely does a new idea come into existence and cause just one change. Every change creates a new and different situation, potentially creating further opportunities to be taken advantage of by other alert and insightful individuals. In an open competitive system, there is no reason why the process of discovery and adaptation should ever come to an end state in which new insights can no longer be made and change is no longer possible. - David Glasner, In Praise of Israel Kirzner
This process by which the new emerges is best understood in the intellectual sphere when the results are new ideas. It is the field in which most of us are aware at least of some of the individual steps of the process, where we necessarily know what is happening and thus generally recognize the necessity of freedom. Most scientists realize that we cannot plan the advance of knowledge, that in the voyage into the unknown — which is what research is— we are in great measure dependent on the vagaries of individual genius and of circumstance, and that scientific advance, like a new idea that will spring up in a single mind, will be the result of a combination of conceptions, habits, and circumstances brought to one person by society, the result as much of lucky accidents as of systematic effort. - Friedrich Hayek, The Case For Freedom
The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote. Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this had rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost. The intellectual revival of liberalism is already underway in many parts of the world. Will it be in time? - Friedrich Hayek, The Intellectuals and Socialism
Orthodoxy of any kind, any pretense that a system of ideas is final and must be unquestioningly accepted as a whole, is the one view which of necessity antagonizes all intellectuals, whatever their views on particular issues. Any system which judges men by the completeness of their conformity to a fixed set of opinions, by their "soundness" or the extent to which they can be relied upon to hold approved views on all points, deprives itself of a support without which no set of ideas can maintain its influence in modern society. The ability to criticize accepted views, to explore new vistas and to experience with new conceptions, provides the atmosphere without which the intellectual cannot breathe. A cause which offers no scope for these traits can have no support from him and is thereby doomed in any society which, like ours, rests on his services. - Friedrich Hayek, The Intellectuals and Socialism
These intellectuals are the organs which modern society has developed for spreading knowledge and ideas, and it is their convictions and opinions which operate as the sieve through which all new conceptions must pass before they can reach the masses. - Friedrich Hayek, The Intellectuals and Socialism
I have already referred to the differences between conservatism and liberalism in the purely intellectual field, but I must return to them because the characteristic conservative attitude here not only is a serious weakness of conservatism but tends to harm any cause which allies itself with it. Conservatives feel instinctively that it is new ideas more than anything else that cause change. But, from its point of view rightly, conservatism fears new ideas because it has no distinctive principles of its own to oppose them; and, by its distrust of theory and its lack of imagination concerning anything except that which experience has already proved, it deprives itself of the weapons needed in the struggle of ideas. Unlike liberalism, with its fundamental belief in the long-range power of ideas, conservatism is bound by the stock of ideas inherited at a given time. And since it does not really believe in the power of argument, its last resort is generally a claim to superior wisdom, based on some self-arrogated superior quality. - Friedrich Hayek, The Constitution of Liberty
Every act of competitive entry is an entrepreneurial act; every entrepreneurial action is necessarily competitive (in the dynamic sense of the word). To compete is to act (or to be in a position to act) to offer buyers a more attractive deal, or to offer sellers a more attractive deal, than others are offering. To do so it is necessary to discover situations where incumbent market participants are offering less than the best possible deals, and to move to grasp the profits made possible by filling the gap so created by the incumbents. Such activity is strictly entrepreneurial. To act entrepreneurially is to enter a market with a new idea, with a better product, with a more attractive price, or with a new technique of production. Any such act necessarily competes with others. - Israel Kirzner, How Markets Work
But unfamiliarity is a disadvantage which, when there is any real value to an idea, it only requires time to remove. And in these days of discussion, and generally awakened interest in improvement, what formerly was the work of centuries, often requires only years. - J.S. Mill, Representative Government
But I want to draw your attention to something more, to an aspect that allowed Professor Hayek to endure the lonely years, an aspect that may too readily be overlooked. Hayek’s position was made more tolerable by a few sources of external financial support, a few scattered persons with access to funds who recognized the value and importance of ideas. Hayek was given such support for his research, for The Constitution of Liberty, and for the beginnings of Law, Legislation and Liberty. He was supported indirectly, but importantly, via support of the Mt. Pelerin Society, the international society of market-oriented scholars and leaders, a society that was created and maintained almost single-handedly by Hayek. He was supported by lecture invitations to such as the old Volker Fund conferences, where he could try out his ideas, and where so many of my own generation first came to know both the man and these ideas. I cannot list all of those who supported Hayek in those lean years; I do not know who they were. I only know that they were an extremely small group of men and foundations, and I also know that the Realm-Earhart Foundations were almost unique in sticking to Hayek through the very worst of times.
I think we should draw some lessons from this experience. We should, I think, appreciate that ideas matter, and that financial support for the generation of ideas matters. Those who supported Professor Hayek in the lonely years were courageous in their expressions of confidence in the man and the ideas he represented. They were not demanding of him some immediate relevance to then-topical issues of policy; they were not demanding of him that he try to communicate his ideas to mass audiences; they were not demanding of him that he produce fancy numbers to test self-evident hypotheses. - James Buchanan, Notes on Hayek
Fourth, while I don’t see much, if any, benefit in engaging with actually existing conservatism, that doesn’t mean that we should ignore conservative, and libertarian, ideas. You don’t have to be an unqualified admirer of writers like Burke, Popper or Hayek to concede that they made valid criticisms of the progressive ideas of their day, and to seek a better way forward. Some examples of the kind of thing I have in mind
Popper’s critique of historicism. After thirty years in which teleological claims of inevitable triumph have been the stock in trade of Fukuyama and his epigones, the left should surely have been cured of such ideas, but their centrality is evident in the very use of terms like “progressive”. It’s important to recognise that beneficial change is not an automatic outcome of “progress”
Burke and his successors on the need for beneficial reform to be “organic”, in the sense that it reflects the actual historical evolution of particular societies, rather than being based on universal truths that are applicable in all times and places
Hayek on the impossibility of comprehensive planning. No planner can possess all relevant information or account for all possible contingencies. We need institutions that respond to local information and that are robust enough to cope with unconsidered possibilities. In some circumstances, but certainly not all, markets fit the bill. - John Quiggin, After the dead horses
In a totalitarian State or in a field already made into a State monopoly, those dissatisfied with the institutions that they find can seek a remedy only by seeking to change the Government of the country. In a free society and a free field they have a different remedy; discontented individuals with new ideas can make a new institution to meet their needs. The field is open to experiment and success or failure; secession is the midwife of invention. - Lord Beveridge, Voluntary Action
This is a reminder that one of my least-favorite sayings about politics is the idea that democracy is the worst form of government except for the alternatives. Not that I favor dictatorship, but this often seems to me to reflect a failure of imagination. There are lots of non-authoritarian modes of governance, including selecting people by lottery (like we do for juries), plebiscites, direct citizen input (as in this tax choice concept), along with different balances between elected officials, appointees, and civil servants. It’s important to actually think about the flaws in our current approach and whether better ideas exist. - Matthew Yglesias, Giving Taxpayers Choice Could Boost Satisfaction With Big Government And Boost Social Spending
I was writing a simple teaching post, on ideas and increasing returns to scale, in micro and macro. I wrote down "Ideas are non-rival". Then I thought I had better explain what I meant by that. Then I thought about professors, who do research (thinking up new ideas), and teaching (communicating existing ideas to other people). Then I thought about how some professors like research but don't like teaching. Then I thought about this post.
Sure, two people can use the same idea (ideas are non-rival), but can't eat the same apple (apples are rival). But the second person can't use that idea unless the first person communicates that idea to the second person. The first has to teach it, and the second has to learn it, and teaching and learning are (sometimes) costly. The cost of communicating the idea to the second person might even be greater than the cost of the first person coming up with the new idea in the first place. Sometimes it might be cheaper to reinvent the wheel than walk to the library. - Nick Rowe, Are ideas really non-rival?
Here's what Caplan wrote in his entry...
My honest answer begins with extreme disgust. When I look at voters, I see human beings at their hysterical, innumerate worst.
Here's what I wrote in my previous entry...
Everybody perceives that they see society. But this perception is wrong. We don't actually see society. What we actually see is a reflection of society. All we can ever see is a reflection of society. This is because all we can ever know about what's really inside people depends entirely on what they choose to reveal. People's projections create society's reflection.
There are two main methods for people to reveal/communicate/project their preferences...
1. stated preference = voting, surveys, polls, Facebook "Likes"
2. demonstrated preference = willingness to pay/spend/sacrifice
Do both these methods create an equally accurate reflection of society? Of course not. As Nassim Taleb would say... voting doesn't have skin in the game...
Ralph Nader had a heuristic for war. He said that if you are going to vote for war, you should have a member of your family--a descendant, a son or grandson--on the draft. And then you can vote for war. - Nassim Taleb, Skin In The Game
As Alex Tabarrok would say... voting doesn't have a tax on bullshit...
Overall, I am for betting because I am against bullshit. Bullshit is polluting our discourse and drowning the facts. A bet costs the bullshitter more than the non-bullshitter so the willingness to bet signals honest belief. A bet is a tax on bullshit; and it is a just tax, tribute paid by the bullshitters to those with genuine knowledge. - Alex Tabarrok, A Bet is a Tax on Bullshit
Anybody who knows anything about Bryan Caplan knows that he's willing to put his money where his mouth is. This is how Caplan works. This is really not how voting works.
Voting doesn't require skin in the game. Voting doesn't have a tax on bullshit. This means that the reflection that voting creates of society is bullshit. Again, with emphasis.... the reflection that voting creates of society is bullshit.
Yet...
My honest answer begins with extreme disgust. When I look at voters, I see human beings at their hysterical, innumerate worst.
Don't you get the sense that Caplan is judging humanity by its opinions? Doesn't it sure sound like he's judging the book by its cover?
Here's another economist doing the same thing...
Is it possible to make progress towards this inclusive state in the United States at the moment? I would’ve said yes 15 years ago, 10 years ago, 5 years ago, but today I do feel more pessimistic than ever about the United States and about the world. Of course, I’m not surprised that there is a huge amount of discontent among some segments of the voting public, and some of this is entangled with fear from and hatred against immigrants and minorities. But the extent of this hatred has been a shock to me. - Daron Acemoglu, Stop Crying About the Size of Government. Start Caring About Who Controls It.
And another economist who did the same thing...
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Historians are mistaken in explaining the rise of Nazism by referring to real or imaginary adversities and hardships of the German people. What made the Germans support almost unanimously the twenty-five points of the "unalterable" Hitler program was not some conditions which they deemed unsatisfactory, but their expectation that the execution of this program would remove their complaints and render them happier. They turned to Nazism because they lacked common sense and intelligence. They were not judicious enough to recognize in time the disasters that Nazism was bound to bring upon them.
The immense majority of the world's population is extremely poor when compared with the average standard of living of the capitalist nations. But this poverty does not explain their propensity to adopt the communist program. They are anti-capitalistic because they are blinded by envy, ignorant, and too dull to appreciate correctly the causes of their distress. There is but one means to improve their material conditions, namely, to convince them that only capitalism can render them more prosperous. - Ludwig von Mises
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To argue that the Holocaust and WWII accurately reflected the German society is to pretend or assume that voting creates an accurate reflection of society. Nothing could be further from the truth...
As was noted in Chapter 3, expressions of malice and/or envy no less than expressions of altruism are cheaper in the voting booth than in the market. A German voter who in 1933 cast a ballot for Hitler was able to indulge his antisemitic sentiments at much less cost than she would have borne by organizing a pogrom. - Loren Lomasky, Democracy and Decision
Mises didn't know better. Daron Acemoglu doesn't know better. Bryan Caplan doesn't know better? That's not true. Of course Caplan knows better. Yet, I sure do get the sense that he somehow kinda forgets that the reflection of society that voting creates is bullshit.
We really shouldn't judge society by its bullshit reflection.
So that was one issue that I had with Caplan's entry. Another issue that I had with his entry was that there was something super strangely absent... a viable alternative to voting. Are there any viable alternatives?
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
Is quadratic voting a viable alternative to regular voting? A quick google search did not provide Caplan's answer to this really good question. On the other hand, a quick google search does provide Cowen's answer to this really good question. Is Caplan's answer the same as Cowen's? I'd sure like to know.
Personally, I definitely think that quadratic voting is a lot better than regular voting. With quadratic voting at least there's some skin in the game. At least there's some tax on bullshit. At least there's some reflection/communication/projection of preference intensity. But I'd really love to hear Glen Weyl explain why he thinks that it's better than straight buying and selling votes. I'd also love to hear him explain whether he thinks that quadratic voting is better than coasianism.
Is coasianism a viable alternative to voting? Coasianism would replace voting with spending. Participants would have a certain amount of time to spend as much money as they wanted on their preferred option. Whichever option received the most money would be the most valuable option. The "losing" side would get their money back. Plus, they would get all the money spent by the "winning" side. So coasianism is actually a win-win situation. Participants would either get their preferred option... or they would get something that they value even more. In order to prevent perverse participation... the "market" would be blind. The totals would only be revealed after the "market" closed. Would there still be speculators? If so, then they would quickly learn a fundamentally important lesson the hard way...
It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other. - Knut Wicksell, A New Principle of Just Taxation
As far as I know, coasianism is a recent invention. So it makes sense that Caplan hasn't already analyzed it. But will he analyze it now? Will he compare coasianism to quadratic voting? Will he compare them both to vote buying/selling? Will he compare all three of them to regular voting?
Caplan has lots of kids.... I don't have any kids. So he can correct me if I'm wrong... but if little kids are playing with something that they shouldn't be playing with... generally the best strategy isn't to directly take the item away from them. The best strategy is to offer them a better item. Perhaps in some cases this isn't the best strategy. Like if they are playing with a loaded gun.
Sure it's really reasonable to see see democracy as a loaded gun... but none of us who might perceive it as such are in a position to take it away from citizens. And even if we were in such a position... would we really want to take advantage of our authority?
Watch "Milton Friedman on Libertarianism (Part 4 of 4)". The interviewer starts to ask him a hypothetical..."if you were dictator for a day" question and Friedman quickly interrupts him and says with great emphasis, "If we can't persuade the public that it's desirable to do these things, then we have no right to impose them even if we had the power to do it!" Here's the extended version.
Part of the beauty of the free-market is that entrepreneurs, at least in theory, don't have the authority to directly take products away from citizens. Entrepreneurs have no choice but to provide consumers with better products. And it's entirely up to consumers to decide for themselves whether the new products are truly better than the old products. In the multitude of consumers there is safety.
Liberals really don't see the beauty of builderism. They see that working in a sweatshop is a terrible option but they really do not risk their own resources in order to provide the workers with better options. Instead they endeavor to get sweatshops shut down. They also vote for higher minimum wages, stricter regulations and more benefits for workers. Liberals shoot workers in the feet by skyrocketing the barriers to entry... which makes it far less likely that entrepreneurs will provide workers and consumers with genuinely better options.
Some liberals are somewhat exceptional...
Each of us has a finite number of resources. So where are you going to put your resources? Where are you going to put your time and your money? Are you going to put it into trying to elect somebody into this current system that's broken? Or are you going to put that into building something? - Margaret Flowers
What's voting? Voting is an idea. All ideas are products. So voting is a product. And Caplan, probably more than anyone, knows and understands exactly what's wrong with this product. He knows exactly where there's room for improvement. And fortunately, in this case, nothing really prevents him from selling/creating a better product. Ideas don't have artificial barriers to entry. As far as voting is concerned, nothing technically prevents Caplan from engaging in builderism...
1. explaining why voting is bullshit
2. offering a better alternative
Hmmm... and I suppose that there is a decent amount of division of labor involved. Specialization does increase productivity. To use a volleyball analogy... one person sets the ball and another person spikes it. Caplan sure has done a really wonderful job of setting the ball. So isn't it unreasonable to expect him to spike it as well?
I don't think that I would have been able to invent coasianism without Coase or Caplan. But it certainly can't be the case that I can spike the ball on my own. Replacing voting with a better product will require a multitude of spikers.
In theory, Caplan should be especially interested in products that might be better than voting. So it seems pretty logical that he would make the effort to review the alternatives to voting and use his considerable energy and expertise to help spike the best ones.
When it comes to Caplan and any given voting alternative... here are four courses of action...
1. He can explain why it's a good alternative
2. He can explain why it's a bad alternative
3. He can ask for explanations
4. He can ignore the alternative
Which course of action is the least beneficial?
Let's say that, thanks in no small part to Caplan, we do manage to creatively destroy voting. As a result, society's reflection will be a lot less bullshit. Will Caplan be happy with what he sees? I'm guessing that he'll be happier... but it's doubtful that he'll be perfectly happy. It's very likely that he'll spot some flaws. But at least the flaws will be real. So if he barks up a tree, the cat that he sees in the tree won't be a mirage cat. What happens when Caplan and 300 million other citizens are far less likely to bark up the wrong trees? Progress. A lot more progress in a lot less time.
I'll finish by sharing some ideas about ideas....
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It is ideas that determine social trends that create or destroy social systems. Therefore, the right ideas, the right philosophy, should be advocated and spread. - Ayn Rand, Playboy Interview
***
It turns out that most of our country is empty for a very good reason: people derive great value from concentrating together in urban areas. First, proximity reduces transportation costs, so producers benefit from being close to their suppliers and customers. Second, more people living in one place means deeper and more diverse markets for both products and labor. With a large enough urban population, niche markets that appeal to only a small fraction of consumers become profitable to serve. Employers have a better pool of potential workers to draw from, while workers have greater choice in prospective employers. And third, people living and working close to one another can take advantage of “information spillovers”: cities expand opportunities for exchanging ideas and information, thereby facilitating both innovation and the accumulation of human capital. - Brink Lindsey, Low-Hanging Fruit Guarded By Dragons
***
Here is another critical point. Rarely does a new idea come into existence and cause just one change. Every change creates a new and different situation, potentially creating further opportunities to be taken advantage of by other alert and insightful individuals. In an open competitive system, there is no reason why the process of discovery and adaptation should ever come to an end state in which new insights can no longer be made and change is no longer possible. - David Glasner, In Praise of Israel Kirzner
***
This process by which the new emerges is best understood in the intellectual sphere when the results are new ideas. It is the field in which most of us are aware at least of some of the individual steps of the process, where we necessarily know what is happening and thus generally recognize the necessity of freedom. Most scientists realize that we cannot plan the advance of knowledge, that in the voyage into the unknown — which is what research is— we are in great measure dependent on the vagaries of individual genius and of circumstance, and that scientific advance, like a new idea that will spring up in a single mind, will be the result of a combination of conceptions, habits, and circumstances brought to one person by society, the result as much of lucky accidents as of systematic effort. - Friedrich Hayek, The Case For Freedom
***
The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote. Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this had rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost. The intellectual revival of liberalism is already underway in many parts of the world. Will it be in time? - Friedrich Hayek, The Intellectuals and Socialism
***
Orthodoxy of any kind, any pretense that a system of ideas is final and must be unquestioningly accepted as a whole, is the one view which of necessity antagonizes all intellectuals, whatever their views on particular issues. Any system which judges men by the completeness of their conformity to a fixed set of opinions, by their "soundness" or the extent to which they can be relied upon to hold approved views on all points, deprives itself of a support without which no set of ideas can maintain its influence in modern society. The ability to criticize accepted views, to explore new vistas and to experience with new conceptions, provides the atmosphere without which the intellectual cannot breathe. A cause which offers no scope for these traits can have no support from him and is thereby doomed in any society which, like ours, rests on his services. - Friedrich Hayek, The Intellectuals and Socialism
***
These intellectuals are the organs which modern society has developed for spreading knowledge and ideas, and it is their convictions and opinions which operate as the sieve through which all new conceptions must pass before they can reach the masses. - Friedrich Hayek, The Intellectuals and Socialism
***
I have already referred to the differences between conservatism and liberalism in the purely intellectual field, but I must return to them because the characteristic conservative attitude here not only is a serious weakness of conservatism but tends to harm any cause which allies itself with it. Conservatives feel instinctively that it is new ideas more than anything else that cause change. But, from its point of view rightly, conservatism fears new ideas because it has no distinctive principles of its own to oppose them; and, by its distrust of theory and its lack of imagination concerning anything except that which experience has already proved, it deprives itself of the weapons needed in the struggle of ideas. Unlike liberalism, with its fundamental belief in the long-range power of ideas, conservatism is bound by the stock of ideas inherited at a given time. And since it does not really believe in the power of argument, its last resort is generally a claim to superior wisdom, based on some self-arrogated superior quality. - Friedrich Hayek, The Constitution of Liberty
***
Every act of competitive entry is an entrepreneurial act; every entrepreneurial action is necessarily competitive (in the dynamic sense of the word). To compete is to act (or to be in a position to act) to offer buyers a more attractive deal, or to offer sellers a more attractive deal, than others are offering. To do so it is necessary to discover situations where incumbent market participants are offering less than the best possible deals, and to move to grasp the profits made possible by filling the gap so created by the incumbents. Such activity is strictly entrepreneurial. To act entrepreneurially is to enter a market with a new idea, with a better product, with a more attractive price, or with a new technique of production. Any such act necessarily competes with others. - Israel Kirzner, How Markets Work
***
But unfamiliarity is a disadvantage which, when there is any real value to an idea, it only requires time to remove. And in these days of discussion, and generally awakened interest in improvement, what formerly was the work of centuries, often requires only years. - J.S. Mill, Representative Government
***
But I want to draw your attention to something more, to an aspect that allowed Professor Hayek to endure the lonely years, an aspect that may too readily be overlooked. Hayek’s position was made more tolerable by a few sources of external financial support, a few scattered persons with access to funds who recognized the value and importance of ideas. Hayek was given such support for his research, for The Constitution of Liberty, and for the beginnings of Law, Legislation and Liberty. He was supported indirectly, but importantly, via support of the Mt. Pelerin Society, the international society of market-oriented scholars and leaders, a society that was created and maintained almost single-handedly by Hayek. He was supported by lecture invitations to such as the old Volker Fund conferences, where he could try out his ideas, and where so many of my own generation first came to know both the man and these ideas. I cannot list all of those who supported Hayek in those lean years; I do not know who they were. I only know that they were an extremely small group of men and foundations, and I also know that the Realm-Earhart Foundations were almost unique in sticking to Hayek through the very worst of times.
I think we should draw some lessons from this experience. We should, I think, appreciate that ideas matter, and that financial support for the generation of ideas matters. Those who supported Professor Hayek in the lonely years were courageous in their expressions of confidence in the man and the ideas he represented. They were not demanding of him some immediate relevance to then-topical issues of policy; they were not demanding of him that he try to communicate his ideas to mass audiences; they were not demanding of him that he produce fancy numbers to test self-evident hypotheses. - James Buchanan, Notes on Hayek
***
Fourth, while I don’t see much, if any, benefit in engaging with actually existing conservatism, that doesn’t mean that we should ignore conservative, and libertarian, ideas. You don’t have to be an unqualified admirer of writers like Burke, Popper or Hayek to concede that they made valid criticisms of the progressive ideas of their day, and to seek a better way forward. Some examples of the kind of thing I have in mind
Popper’s critique of historicism. After thirty years in which teleological claims of inevitable triumph have been the stock in trade of Fukuyama and his epigones, the left should surely have been cured of such ideas, but their centrality is evident in the very use of terms like “progressive”. It’s important to recognise that beneficial change is not an automatic outcome of “progress”
Burke and his successors on the need for beneficial reform to be “organic”, in the sense that it reflects the actual historical evolution of particular societies, rather than being based on universal truths that are applicable in all times and places
Hayek on the impossibility of comprehensive planning. No planner can possess all relevant information or account for all possible contingencies. We need institutions that respond to local information and that are robust enough to cope with unconsidered possibilities. In some circumstances, but certainly not all, markets fit the bill. - John Quiggin, After the dead horses
***
In a totalitarian State or in a field already made into a State monopoly, those dissatisfied with the institutions that they find can seek a remedy only by seeking to change the Government of the country. In a free society and a free field they have a different remedy; discontented individuals with new ideas can make a new institution to meet their needs. The field is open to experiment and success or failure; secession is the midwife of invention. - Lord Beveridge, Voluntary Action
***
This is a reminder that one of my least-favorite sayings about politics is the idea that democracy is the worst form of government except for the alternatives. Not that I favor dictatorship, but this often seems to me to reflect a failure of imagination. There are lots of non-authoritarian modes of governance, including selecting people by lottery (like we do for juries), plebiscites, direct citizen input (as in this tax choice concept), along with different balances between elected officials, appointees, and civil servants. It’s important to actually think about the flaws in our current approach and whether better ideas exist. - Matthew Yglesias, Giving Taxpayers Choice Could Boost Satisfaction With Big Government And Boost Social Spending
***
I was writing a simple teaching post, on ideas and increasing returns to scale, in micro and macro. I wrote down "Ideas are non-rival". Then I thought I had better explain what I meant by that. Then I thought about professors, who do research (thinking up new ideas), and teaching (communicating existing ideas to other people). Then I thought about how some professors like research but don't like teaching. Then I thought about this post.
Sure, two people can use the same idea (ideas are non-rival), but can't eat the same apple (apples are rival). But the second person can't use that idea unless the first person communicates that idea to the second person. The first has to teach it, and the second has to learn it, and teaching and learning are (sometimes) costly. The cost of communicating the idea to the second person might even be greater than the cost of the first person coming up with the new idea in the first place. Sometimes it might be cheaper to reinvent the wheel than walk to the library. - Nick Rowe, Are ideas really non-rival?
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