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$ vs. votes

Carlos Cruz writes:

Here’s an economics joke. Two economists are walking along when they happen to end up in front of a Tesla showroom. One economist points to a shiny new car and says, “I want that!” The other economist replies, “You’re lying.”

The premise of this joke is that if the one economist had truly wanted the car then he would have walked into the showroom and bought it. The reason that he didn’t do so is because he evidently has more important things to spend his money on.

The basic economic problem is…

Society’s wants: unlimited
Society’s resources: limited

How people divide their limited dollars accurately reflects how they truly want society’s limited resources to be divided. This is the basic premise of the market.

From the perspective of biology, costly signals are credible signals.

The same is true from at least one perspective in psychology…

“If a woman told us that she loved flowers, and we saw that she forgot to water them, we would not believe in her “love” for flowers. Love is the active concern for the life and the growth of that which we love. Where this active concern is lacking, there is no love.” – Erich Fromm, The Art of Loving

Unlike spending, voting is a cheap signal, so it’s extremely curious that surveys primarily rely on voting instead of spending. There are precious few exceptions to this rule. Here are the ones that I know of…

1. Donating was used to determine whether men or women are better tippers.

2. Donating was used to determine which prominent skeptic to prank.

3. Donating was used to determine which theme to use for the libertarian convention…

$6,327.00 — I’m That Libertarian!
$5,200.00 — Building Bridges, Not Walls
$1,620.00 — Pro Choice on Everything
$1,377.77 — Empowering the Individual
$395.00 — The Power of Principle
$150.00 — Future of Freedom
$135.00 — Life, Liberty and the Pursuit of Happiness
$105.00 — Rise of the Libertarians
$75.00 — Free Lives Matter
$42.00 — Be Me, Be Free
$17.76 — Make Taxation Theft Again
$15.42 — Taxation is Theft
$15.00 — Jazzed About Liberty
$15.00 — All of Your Freedoms, All of the Time
$5.00 — Am I Being Detained!
$5.00 — Liberty Here and Now

Do you know of any others?

How different would the results have been if voting had been used instead of spending? For example, would the theme “Taxation is Theft” have been ranked higher or lower?

Voting and spending are very different things, so they must create very different hierarchies. If you search Google for “hierarchy”… the hierarchy of the results is determined by voting. Each link to a page counts as a vote for it. Google got this idea from how scholarly papers are ranked by citations. Each citation counts as a vote. All the videos on Youtube are also primarily ranked by voting. The only reason that so many people are talking about Jordan Peterson these day is because his video about pronouns received so many votes. His fans, at no cost to themselves, propelled him to prominence. Thanks to his lofty pedestal he now earns around $50,000/month on Patreon.

At the grocery store, on the other hand, we really don’t simply vote for our favorite products. Instead, we use our money to help rank them. The hierarchy of food is determined by spending. Same with clothes, cars and computers.

Voting and spending are used to rank many different things… yet their relative effectiveness has not been formally tested. I wish that I could effectively articulate the absurdity of this situation. What makes it especially absurd is that it wouldn’t be very costly to conduct a decent experiment. It’s not like it would be necessary to spend $5 billion dollars to build a particle accelerator.

Imagine if a bunch of college students rank some books. Here are some potential books…

The Origin Of Species
Harry Potter and the Sorcerer’s Stone
The Handmaid’s Tale
A Tale of Two Cities
50 Shades of Grey
Principia
The Bible
War and Peace
A Theory of Justice
The Cat in the Hat
The Wealth of Nations
The Hunger Games

One group of students would use voting to rank them, while another would use spending. To be clear, the spenders wouldn’t be buying the books. They would simply be using their money to reveal the amount of love they have for each book. All the money they spent would help crowdfund the experiment.

How differently would voting and spending rank these books? Which hierarchy would be better? Which hierarchy would be closer to your own?

My guess is that voting elevates trash while spending elevates treasure. All the biggest improvements to the mainstream are naturally going to come from the margins. So, basically, spending is far better than voting at facilitating the most beneficial social evolution.

Imagine if the same experiment was conducted with beer. Would the students be willing to spend more money to rank beer than books? Colleges could be graded accordingly!

A group of people will have collectively tried a greater variety of beer than any single member of the group. When members compare their own beer preferences to the group’s beer preferences, naturally they will notice the disparities. Then the goal is to identify whether the individual or the group is mistaken. In some cases it will be the individual, in other cases it will be the group. The information that individuals share with the group will largely be for the purpose of eliminating errors.

Spending is the best way for detrimental disparities to be discovered and dispatched. Using another alliteration… earmarking is the examination that will most efficiently eliminate errors.

Here’s Karl Popper…

“If I am standing quietly, without making any movement, then (according to the physiologists) my muscles are constantly at work, contracting and relaxing in an almost random fashion, but controlled, without my being aware of it, by error-elimination so that every little deviation from my posture is almost at once corrected. So I am kept standing, quietly, by more or less the same method by which an automatic pilot keeps an aircraft steadily on its course.” — Karl Popper, Of Clouds and Clocks

Here’s Adam Smith…

“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

As far as I know, even though this passage is perfectly relevant to Popper’s point, he never referred to it. I’m guessing that he wasn’t even aware of it.

We all have very limited perspectives so it’s way too easy to overlook important things. However, our perspectives aren’t equally limited, which is why it’s so beneficial to know the group’s perspective. Are voting and spending equally effective at revealing the group’s perspective? I’m guessing that spending is far more effective… but I could be wrong.

My reply:

There are two questions here, the measurement question and the policy question.

1. The measurement question: How best to measure people’s likes, goals, desires, etc.? Should you ask people what they want, or should you ask them to spend money to convey what they want? This can be considered as a problem in survey measurement, and the best method of measurement will depend on the context. As you note, if the question is, How much are you willing to spend on a car?, it makes more sense to see what people actually spend, than to ask them what they would do? If the question is, What book do you prefer?, then the best approach I think would not be to ask them, nor would it be to ask them to spend money, but rather to see what books they actually read. If the question is, What’s a good slogan?, then I don’t see the point of asking people to spend money, as I don’t see how this relates at all to the larger goals.

2. The policy question: I’ve heard this said before, that voting is a cheap signal and so should not be taken seriously. Oddly enough, the people who make this argument often also make the argument that voting is irrational so people shouldn’t do it. But, of course, voting is only irrational to the extent that it’s not cheap. I’m not particularly sympathetic to the “voting is irrational” argument. Regarding the argument that voting is a cheap signal which we should not use to make decisions: I guess the question here is, what is the alternative? Voting by dollars has the obvious problem that people with more dollars get more votes.

P.S. Lots of comments below. I’d just like to add that there are a lot of things that are neither $ nor votes. For example, I write this blog for free, and all of you are commenting for free. No payment. Nor do we have a voting system here. No $, no votes, we just throw everything out there. So that’s another way to go. The scarce resource that is people’s attention is being allocated, but not in any formal way, not by voting nor by payment. People just look at what they want to look at.

123 Comments

  1. Jacob says:

    Nitpick on the “want” idea: A Tesla 3 costs $46k up-front, and around $39k after tax incentives. If the economics professor were willing to pay $20k would you say they “want” it? I would say so. “I want that” and “I am willing and able to pay the market price for that” aren’t necessarily the same concept.

    More substantial criticism: The “able” point is a key one. If everybody had the same amount of money we could expect spending to reflect peoples desires. As is, people have very different amounts of money, and both their ability and willingness to spend money is different. As you say, people with more dollars get more votes. Glen Weyl has some interesting ideas about this, I think “quadratic voting” is an amazing idea but only when all the voters have the same amount of money. I think he proposed something like “voice credits” to be used by corporate boards, I doubt this would work for public elections. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2003531

    The Seattle “Democracy Voucher” program seems like a good one to me (essentially gives every person some money they can only use to donate to candidates), but of course it needs funding via taxes.

  2. Tom Passin says:

    “2. The policy question: I’ve heard this said before, that voting is a cheap signal and so should not be taken seriously. Oddly enough, the people who make this argument often also make the argument that voting is irrational so people shouldn’t do it. But, of course, voting is only irrational to the extent that it’s not cheap. I’m not particularly sympathetic to the “voting is irrational” argument. Regarding the argument that voting is a cheap signal which we should not use to make decisions: I guess the question here is, what is the alternative? Voting by dollars has the obvious problem that people with more dollars get more votes.”

    Voting is pretty much a poll or survey where you get some time beforehand to study the questions. So it’s going to suffer from most of the problems of polling and surveys.

    Since much spending (if you have enough money, anyway) is impulsive or emotionally driven, I don’t see it as being an especially reliable way to indicate ranking and preferences in a stable or long-term way, either.

    I guess we need a better way, not that I know what it would be.

    • In my opinion, taking a random sample of about 1000 people from the SSN database and paying them 2x GDP/capita each for 4 years to be on a committee that studies important issues and provides an in depth citizens panel opinion on importance of various issues and policy recommendations would go a long way. It’s hard to really understand something complicated like say how to address climate issues, or drug policy, or reform immigration or change educational policy if you don’t spend many hours reviewing the topic. But it’s impossible for a typical citizen to spend all their time reviewing these topics unless they get paid (well) to do it. On the other hand, you might say this is what elected officials are fore. But elected officials are not anything like an unbiased sample from the general population, whereas randomly selected citizens are. Furthermore, once selected, you stay on the committee for the duration regardless of your opinions etc, so the content of your opinion doesn’t jeopardize your participation. Obviously it’d make good sense to replace 1/4 of the panel each year, rather than the whole panel every 4 years.

  3. Reading through the libertarian slogans I was struck with the exclamation point at the end of “Am I Being Detained!” rather than a question mark. Implying a level of excitement and enthusiasm, like some kind of Yakov Smirnoff bit.

  4. Anonymous says:

    I think that people who always think that market prices are the best mechanism for revealing people’s preferences should read Albert O. Hirschman’s fantastic work, Exit, Voice and Loyalty. As he explains, markets work when they work because exit is very cheap. But, there are all kinds of situations where exit is difficult or extremely difficult. It is not easy to become a refugee. In those situations, it is more rational to use some mechanism of “Voice” — try to get the powers that be to respond to grievances. In monopolistic markets, the price sends virtually no signal about what people want, whereas the monopoly may be very interested in surveying its consumers to keep them happy enough to maintain the monopoly. Governments are essentially monopolies, but many markets operate in ways that make exit close to impossible. Then we have all manner of institutions that are capitalistic, but the “consumers” don’t pay — Google, Facebook, etc. The consumers are the product, but they also have to be satisfied. Price provides no signal in those cases. Then, there are an array of in between situations — business that have market power, but still have to compete, business that sell to and advertise to consumers, etc. How good of a signal price is depends on the balance between Voice and Exit. I would think, voting is the best signal about what U.S. citizens think about their government until countries start selling citizenship, and even then.

  5. Lord says:

    Two different things are being measured, breadth through votes and depth through money. It doesn’t make much sense to say one is superior to another or another less valid except in context though the difference is interesting as it opens the way to market segmentation. While some choices can be made individually, some are by necessity determined collectively. This shouldn’t be viewed as binary though. Some votes can be bought through advertising. Selling elections by spending may be every plutocrats wet dream but that doesn’t mean the result would be better for most which is why it usually isn’t that effective.

  6. Albert Hsiung says:

    Cruz’s statement verges on incoherent incoherent.

    He writes:
    “How people divide their limited dollars accurately reflects how they truly want society’s limited resources to be divided. This is the basic premise of the market.

    From the perspective of biology, costly signals are credible signals.”

    I’m unsure why Carlos might believe votes are cheap other than not thinking honestly about what he’s saying for more than a few seconds. Votes are scarce. The idea behind market pricing that he’s getting at is that it assesses your preference for one good relative to the other goods through the scarcity of your money, which is exactly what a political system with limited votes gives you. It assesses your preference for alternatives relative to one another.

    I could see an argument which is not the one Carlos makes which is that voting introduces additional information about the strength of someone’s preferences in alternatives relative to other priorities in one’s life. Which is also vulnerable to philosophical critiques such as the inability to identify one’s passion as separate from one’s circumstances in life as well as the fact that passion is not necessarily an indicator of “correctness” if the democractic imperative is to select a “best” candidate.

    I’m also not sure where Carlos gets the idea that “voting elevates trash while spending elevates treasure.” Even the example he provides is in fact a counterexample to his own claim.

    I also take exception to Carlos’s implicit claim here that there is an objectively correct preference and that is what all voting attempts to measure.

    “When members compare their own beer preferences to the group’s beer preferences, naturally they will notice the disparities. Then the goal is to identify whether the individual or the group is mistaken. In some cases it will be the individual, in other cases it will be the group. The information that individuals share with the group will largely be for the purpose of eliminating errors.”

    I would like it if someone making such controversial claims on voting had read even the fundamental results of voting theory.

    • Epiphyte says:

      Admittedly, coherence is hard. There’s a difference between…

      A. sitting in traffic for 20 minutes and then waiting in line for 30 minutes to vote
      B. voting on Reddit, Facebook, Youtube, or Twitter

      In both cases the vote itself is completely free, but in the first case there is a substantial transaction cost. Is the transaction cost beneficial or detrimental? All else being equal, would elections have better or worse results if people could vote from home?

      Conversely, imagine if everybody had to do 30 pushups before they purchased anything. Naturally this would greatly limit buying. Would this be beneficial or detrimental? Most, if not all, economists believe that it’s beneficial to minimize transaction costs.

      Transaction costs aside, the act of voting and the act of spending are completely different things. If you agree, then you should also agree that they will sort/prioritize things very differently. Will voting or spending sort things objectively better? If you don’t believe so, then why would you argue against replacing voting with spending?

      If you genuinely believe that voting will sort/prioritize something, anything, better than spending, then you should really want lots of experiments to help effectively demonstrate this.

      • Albert Hsiung says:

        “Transaction costs aside, the act of voting and the act of spending are completely different things. If you agree, then you should also agree that they will sort/prioritize things very differently. Will voting or spending sort things objectively better? If you don’t believe so, then why would you argue against replacing voting with spending?”

        I’m not sure you understand what I’m saying. The argument for spending instead of voting goes something like this:

        Money provides a truer signal of how much somebody wants something, creating an efficient allocation of how much of that thing to produce in a world with scarce resources. It might also provide a truer signal of how much somebody wants a particular candidate, producing a more efficient way of choosing a candidate. Votes aren’t a true signal because votes are cheap.

        The problems with this are:

        1. The best candidate is not an efficient allocation of scarce resources.
        2. Votes are not cheap. You get exactly one vote, so voting is a true signal of your relative preferences over candidates.

        It might be clearer by example. Consider a market with 2 commodities, pencils and toys, both made of wood. If you were to just ask people how many pencils and how many toys they want, it’s in everyone’s best interest to give really big numbers for whatever their personal preference is. After all, if you have more pencils or toys than you need, that’s a good problem to have. The problem is that you can only make a finite number of them, and now you have to decide how much wood to allocate to one or another. Giving people scarce money gives a more interpretable signal of the societal desire for each good. The system’s incentives are aligned to produce an efficient outcome.
        Let’s say there are pencils and toys, and an election between Bill Clinton and Al Gore. Why introduce money into the election? Selecting Bill Clinton or Al Gore does not introduce a resource allocation problem. If we just ask people, “do you prefer Bill Clinton or Al Gore”, what could go wrong? People can’t go vote for Bill Clinton 10 times to overrepresent how many people prefer Bill Clinton. Simply knowing whether people prefer Bill Clinton or Al Gore is the point of the election in the first place.
        An argument could be made that introducing money provides cardinal information about by how much people prefer an alternative over another. But that information is not distinguishable from how much money people have, and can be introduced without income effects by just allocating each voter a fixed set of points to allocate between each candidate. If someone allocates all their points to candidate A, that’s because they prefer candidate A by a lot.
        And yes, there are incentive misalignment problems in voting systems with more than 3 alternatives, but there are also demonstrable incentive misalignment problems by introducing wealth effects into politics. In any case, the analogy of voting to efficient markets doesn’t hold, though it’s a little subtle to understand why because the analogy made so little sense to begin with.
        The essential point is that the reasons why money and markets are efficient has nothing to do with voting. The “basic economics problem” of “society’s wants are unlimited while its resources are unlimited” has no relation to voting at all. People want a limited set of candidates ordered relatively based on their preferences.

        “If you genuinely believe that voting will sort/prioritize something, anything, better than spending, then you should really want lots of experiments to help effectively demonstrate this.”

        No, I really shouldn’t. Because if I could create an uncontroversial, well defined “objectively better” metric for a set of alternatives that everyone agrees on for me to test experimentally, then I wouldn’t have people voting for it in the first place. Democratic governance isn’t a machine for minimizing some objective function, it is a value that government should be in some way beholden to the preferences of each person. And, in my opinion, each person equally. This problem is fundamentally philosophical in nature and demands careful philosophical consideration and some mathematical analysis. And indeed, it’s a well studied field in philosophy and economics called social choice theory. What it doesn’t need is people going “oh hey, this kind of sort of looks like a market, we should try and engineer it as such.”

        “If you really think oligarchy fundamentally evil you should want lots of experiments to demonstrate that.”

        • Epiphyte says:

          Imagine that voting and donating are both used to rank economists. With donating, Adam Smith is the top-ranked economist but with voting, John Maynard Keynes is. Is one economist objectively better than the other? I think the real question is… which economist do YOU think is better? If you think that Keynes is better than Smith, then naturally you should prefer using voting to rank economists. To be clear, in this case the limited and very valuable resource that is being allocated is attention. How should society’s valuable attention be divided among all the economists? This question will be answered very differently by voting and spending.

          Voting and spending are two very different ways of ordering our world. It behooves each and every one of us to decide for ourselves which method produces an order that is closest to our ideal world.

          Right now in this world everybody knows who the Kardashians are. I think that this is because of voting. Voting, by definition, is all about the lowest common denominator. The majority is on Twitter voting for stupid things so what floats to the top is crap. Same thing on Youtube and Reddit and Facebook and all the other sites where everybody can simply vote for their favorite content.

          Scholarly papers are also ranked by voting (citations)… the difference is that only academics can vote. The lowest common denominator is higher than on Twitter. But still, it’s the same issue.

          Scholarly papers should be ranked by donations in addition to citations. Then you could decide for yourself which ranking is closer to your preferences.

          • Albert Hsiung says:

            “Voting and spending are two very different ways of ordering our world. It behooves each and every one of us to decide for ourselves which method produces an order that is closest to our ideal world.”

            I’m afraid this statement is complete nonsense. “The preference-aggregation function which is best is the one which produces an ordering most similar to my own preferences.” Well then the best preference aggregation method would be the one which always matches my own preferences exactly. But then, of course, you would have a different preference aggregation method, which is the one which matches yours exactly. And so would everyone else. And how are we to aggregate these preferences over preference aggregation methods and come to a collective decision. Do you see the infinitely recursive logic here?

            I don’t think you have a very clear idea of what exactly a preference aggregation method is supposed to measure. If you already know the right answer and so can choose between aggregations based on which one reproduces it, then what is the value of the aggregation?

            Furthermore, I don’t think you have a very clear idea of what people mean when they say markets efficiently allocate resources.
            “To be clear, in this case the limited and very valuable resource that is being allocated is attention.”
            When an economist talks about how a free market economy efficiently allocates our scarce resources, what they mean is that the share of our limited resources spent one one thing rises or falls in proportion to how much we want it relative to something else as measured by our willingness to pay. Buying more cars comes at an opportunity cost of a lot of food, so I should allocate my money to where it’s important, so that profit signal will lead to more of what’s important being produced. That is, a free market economy is efficient in allocating inputs to production taking people’s willingness to pay as a measure of societal importance.
            It’s fairly clear that the analogy to preference aggregation certainly doesn’t hold. What we want is not to measure “how much do people want candidate a to be ranked higher relative to how much they want food and cars.” Our goal is to measure “how much do people like candidate a to candidate b”, and so using votes where a vote for one comes at the cost of voting for another is perfectly reasonable.

            “Right now in this world everybody knows who the Kardashians are. I think that this is because of voting.”
            Then, to put it as heavily as possible, you are very wrong, and you should feel bad about it because this is supremely easily to verify. People pay lots of money to the Kardashians. Not very long ago, people created a charity and donated large sums to them for no reason. The bestselling books, the highest grossing movies, they’re all “lowest common denominator.” There is no reason to believe this will produce what you think are “good” results, they are merely optimal as defined above which is almost tautological.

            By a similar argument, I believe preference aggregation methods should be tautologically optimal. That is, there are philosophical requirements on a preference aggregation method for its results to be considered valid by definition. For me those are, in the language of social choice theory, pareto efficiency, non dictatoriality, and anonymity. A measurement of what people prefer in general certainly certainly not be considered wrong because you disagree with it, or your goal is to not measure what you prefer but rather to confirm what you believe to be true.

            • Also rationality, in the economic sense

            • Epiphyte says:

              Let’s say that Jane voted for prohibition. Each year enforcement cost her $100 tax dollars. Was this an efficient allocation of resources? It depends entirely on her valuation of prohibition. If her annual valuation is only $1 then it wouldn’t be efficient, same if her valuation was $500.

              Did congress know Jane’s valuation of prohibition? Nope, congress isn’t omniscient, so it’s guaranteed that way too many, or way too few, of society’s limited resources were allocated to the enforcement of prohibition.

              Regarding the Kardashians… my argument is that voting propelled them to fame. You’re arguing that lots of people give them money. Well yeah, they are famous. But again, they are only famous because of voting. Same with Jordan Peterson as I mentioned in my email to Gelman. If it wasn’t for voting on social media then we would never have heard of the Kardashians or Peterson.

              My belief is that voting elevates trash. If your belief is that spending EQUALLY elevates trash… then why would you care if voting is replaced with spending?

              • Albert Hsiung says:

                Noy only does your Kim Kardashian argument fail to address many other examples of markets elevating what you consider trash, some of which you provided yourself, it also fails to provide an example where spending is a good alternative. Your scenario where the market overvalues things because voting elevated them, then the only way for markets to value things effectively is to create an isolated environment with no buzz or communication where implicit voting is impossible. This is a dystopia.

                Your example where a vote chooses prohibition costing $100 when she “values” it at $1 doesn’t make sense. If the cost to her is higher than her valuation, then she wouldn’t have voted for it. At least, the efficiency of the free market rests on this assumption, that if it costs more than her “valuation” (willingness to pay) she won’t buy it. And I don’t understand what you mean by “it wouldn’t be efficient if her valuation is $500?” Why not? Have you ever heard of consumer surplus? What does efficient mean to you? More fundamentally, I think:

                1. This kind of naive example where alternatives can be given a monetary valuation and a monetary cost is rarely true in the types of problems where voting is used. That’s why voting is used.
                2. Congress does not know about Jane’s valuation of prohibition, but it knows about Jane’s valuation of Jane’s prohibition relative to her valuation of no prohibition. It also takes this signal and the equivalent for any other voter as equally important, where the signals strength of spenders cannot be identified from their wealth (diminishing marginal utility of money).
                3. The fundamental value of democratic imperatives decided upon collectively in a system where all citizens have equal votes outranks efficiency for me in any case. Anonymous, pareto efficient, non dictatorial, rational democracy is for me a fundamental value.

                You have failed to provide a well defined notion of what a preference aggregation system should ideally be measuring, let alone how spending captures that, or possible way of testing for which system is “better” as you seem to be so keen on. All of this strikes me as the sort of thing one writes because they’re a libertarian and are attracted to contrarian ideas, but writes it without thinking very hard about it first. Please read some social choice theory. At least Terry Tao’s treatment of Arrow’s General Possibility Theorem. It’s very good at specifying unambiguously the type of thinking required for problems like this.

              • Albert Hsiung says:

                “My belief is that voting elevates trash. If your belief is that spending EQUALLY elevates trash… then why would you care if voting is replaced with spending?”

                My belief is not that spending equally elevates trash. If you look at ranking lists, even aggregated, the bulk of what you define as “trash” is ranked quite low while classics are ranked highly. In most of the domains you specify, the case is the exact opposite of what you seem to believe it to be.

                That aside, I prefer voting because I prefer not oligarchy. Philosophically, I think equal representation is fundamental to fairness of a system for collective action. Do you think that wealthier humans are worth more or also necessarily make better decisions for the collective interest?

                In some sense, the spending voting system has been tested experimentally, many times throughout history, with bad results by my ethical standard.

              • Epiphyte says:

                Albert Hsiung, so yes/no works for prohibition? What about for food? Obviously everybody would vote “yes” for food and voila! Optimal supply?

                Right now Netflix is yes/no for all its content. I think Hulu is too. But what would happen if Hulu switched to subscriber earmarking? In other words, what would happen if, all else being equal, Hulu created a market for its content?

                Netflix: content is ranked by voting (Thumbs up)
                Hulu: content is ranked by spending

                What would happen, if anything, to Hulu’s content? Would Hulu lose or gain subscribers?

                If you understand economics then it should be easy for you to predict the general consequences of Hulu becoming a market. You should know and understand the difference that markets make.

                The fact is that right now neither Hulu nor Netflix are markets. Therefore… markets aren’t that useful? We don’t need markets to reveal the demand for things?

                My theory is that we do need markets to reveal the demand for things. This is true whether we’re talking about nature shows or prohibition. Therefore, what economists should be doing is creating markets and seeing what happens to the supply. The problem is that this isn’t what they are doing.

              • Epiphyte says:

                “Do you think that wealthier humans are worth more or also necessarily make better decisions for the collective interest?”

                Do you think there’s a correlation between income and education? The way the market works is that I give my money/influence/power to the individuals who make decisions that benefit me.

                Right now, because of democracy, you assume that congress makes decisions that take my well-being into consideration. My well-being? In the private sector I have to spend so much time and energy going around using my money to inform producers what works for my well-being. I shop and shop and shop. For example, I go to the supermarket and buy some artichokes. In doing so I essentially tell Frank the farmer, “Hey buddy! Good job guy! You correctly guessed that my well-being depends on artichokes! Thanks! Good lookin’ out! Here’s some money! Keep up the good work!” His behavior benefits my well-being, so I have to use my cash to positively reinforce his beneficial behavior.

                Now here you are with the assumption that congress somehow knows what works for my well-being despite the fact that I’ve never once in my life shopped in the public sector. I’ve never once decided to give any of my tax dollars to the EPA, NASA, the DMV or any other organization in the public sector. I’ve never once used my tax dollars to positively reinforce behavior that benefits my well-being. Yet, despite the fact that I’ve never once shopped in the public sector, congress knows what works for my well-being? Woah. This boggles my mind. It blows my mind. It puts my mind into a blender. Your assumption bears repeating with emphasis… *congress knows what works for my well-being despite the fact that I’ve never once in my life shopped in the public sector*. Your assumption is really that shopping is entirely unnecessary. If you truly believe that shopping is entirely unnecessary… then please… don’t hide your insight under a bushel… shout it everywhere… “Hey folks! Shopping is entirely unnecessary! It’s a massive waste of everybody’s limited time and energy to use our money to communicate what works for our well-being! All we need to do is infrequently vote! And occasionally write our representatives!”

                Every democracy has been bundled together with a market. The market, not the democracy, is why these societies have been relatively successful. Societies always work better when we better understand each other’s needs… and markets are far better at revealing our needs than democracies are. Our needs aren’t simple things… they are incredible complex and dynamic. The idea that infrequently voting and occasionally writing our representatives can adequately reveal our needs is the most harmful idea that has ever existed. But it’s not like I can show you all the additional prosperity we would currently be enjoying if it weren’t for democracy.

                However I can show you the difference between voting and spending. All we need to do is use voting and donating to rank economists or books or movies. Then you’ll see the difference between voting and spending and decide for yourself which one is better.

                We both have our own theories. I’m interested in having mine tested… are you interested in having yours tested?

    • Terry says:

      You make a number of good points.

      “Votes are scarce. The idea behind market pricing that he’s getting at is that it assesses your preference for one good relative to the other goods through the scarcity of your money, which is exactly what a political system with limited votes gives you. It assesses your preference for alternatives relative to one another.”

      I came here to say this. Since votes are scarce, voting actually is “costly” in the sense that a vote for A costs the voter the opportunity of voting for B or anyone else. Voting for A, therefore, carries an opportunity cost. Voting is also informative because each vote indicates the voter preferred candidate X to candidate Y. While it is true that a vote does not indicate the intensity of preference, it does indicate preference.

    • Martha (Smith) says:

      “I also take exception to Carlos’s implicit claim here that there is an objectively correct preference and that is what all voting attempts to measure.”

      +1

  7. zbicyclist says:

    Cruz wrote, in the context of books: “My guess is that voting elevates trash while spending elevates treasure.”

    Not really true in the case of books, I’d guess. We’d vote for the classic treasures as being great, but mostly buy popular literature that won’t be read much in 50 years.

    That said, I could have read The Illiad on my Kindle this week, but instead finished the 40th Discworld book (Raising Steam, by Terry Pratchett), and do not regret the many hours of amusement the late Pratchett has given me.

    • Epiphyte says:

      Personally I’ve bought lots of Pratchett’s books, but I never bought my favorite book… Smith’s Wealth of Nations (WON). Eventually everyone will understand that buying isn’t the best system for books. This is simply because books can be digitized.

      People who subscribe to Amazon’s Kindle Unlimited pay $10/month and can read as many of the available titles as they want. All else being equal, imagine if subscribers could spend their fees on the titles that match their preferences. Each month I’d have the opportunity to decide how I divide my $10 dollars between the WON and Pratchett’s books. Even though I really enjoy Pratchett’s books, I’d spend most, if not all, of my fees on the WON. This is simply because it’s far more important to me… I want more people to read it and I want more writers to try and supply an even better economics books.

      This is the only way to level the playing field between the WON and Pratchett’s books. Because right now the playing field isn’t level, it’s guaranteed that the supply of books is really wrong.

  8. Epiphyte says:

    “Voting by dollars has the obvious problem that people with more dollars get more votes.”

    But this “problem” is inherent to markets in general. We really don’t have equal influence at the supermarket or in the housing market. If you truly believe that equal influence is less problematic at prioritizing the use of limited resources (ie attention), then it would be the most beneficial thing in the world to simply test your belief. Show us that voting sorts something, anything, better than spending does.

    For example, show us that voting (equal influence) is better than spending/donating (unequal influence) at sorting your blog entries. For the voting, you could simply create a subreddit on Reddit for your blog. People could vote for the entries that match their preferences. For the spending, people could make donations for the entries that match their preferences. You could take all the money that was donated and spend it to promote your blog or give it to your favorite charity.

    This relatively simple and safe economic experiment would allow us to easily compare how differently your blog entries are sorted by voting and spending.

    The reason why we can reasonably disagree about the effectiveness of different economic (allocation) systems is because relevant experiments are not being deliberately conducted, so we should strongly agree about the necessity of conducting them. As far as I know Glen Weyl hasn’t directly compared the results of “quadratic voting” to the results of straight voting or spending.

    Thanks for sharing my email with your readers!

    • Martha (Smith) says:

      “But this “problem” is inherent to markets in general.”

      I would say instead, “This is a big flaw of markets in general.” i.e., markets are not democratic; they are Orwellian (“”All animals are equal, but some animals are more equal than others.”)

      • Epiphyte says:

        You’re simply saying that democracy is better than the market. My main point is that we need deliberate experiments to reveal whether your belief is true or false.

        • Ben Hanowell says:

          Sorting blog entries <<<<<<<<<<<<<<<<<<<<<< health care policy decisions. The stakes are not nearly high enough for it to be generalizable to politics.

          • Epiphyte says:

            If spending is better than the alternatives at sorting/prioritizing/ranking blog entries, then there’s no reason why the same wouldn’t be true for everything else.

            Which of Gelman’s blog entries is most important to you? In order to answer this question you’d have to think about it. In other words, you’d have to use your brain and all the relevant information that it contains, which is far more information than you probably appreciate. The more people that participate in this process, the more brainpower and information that goes into the results.

            This system either is, or isn’t, the best at determining the relative importance/usefulness of things. There can’t be any exceptions to the rule.

  9. Dale Lehman says:

    Environmental economists have grappled with some of these issues for quite awhile. When valuing things such as natural environments, they have often used surveys to measure people’s values – willingness to pay for clean air, for instance (more specifically, maximum willingness to pay or minimum willingness to accept compensation, which are not as different as you might think). Their survey techniques became quite sophisticated, surpassing most of what typical surveys in other fields look like. But regardless of how sophisticated the surveys become, it is difficult for them to overcome the problem that, once you’ve eliminated the many possible biases, it is difficult to overcome the problem that respondents rarely have any incentive to provide truthful answers – to invest the energy to try to figure out what their preferences really are.

    Which brings me to voting – people are expressing preferences, but what is their incentive to invest the energy to really understand the issues and decide what their preferences are? What, aside from their perceived duty as citizens? What an arcane concept! Of course, the environmental economists usually did not realize that their attempt to measure “values” were burdened by the problem that willingness to pay or willingness to accept compensation only measure a particular kind of value: citizenship values are not an acceptable type of value (unless you are willing to pay something for it). See an old book by Mark Sagoff, The Economy of the Earth, for a great exploration of these ideas.

    So, we have marketplace values which I have faith measure somethings pretty well – but perhaps not at all what we really want to measure for public policy. We have surveys which can try to measure anything, but probably don’t measure anything particularly well. And we have voting, which is another type of measurement. In theory, it should be the best way to measure preferences for public policies, but in practice fall far short. And, in my glass half empty mind, falling further and further short.

    • Epiphyte says:

      “Economic approaches to valuation can help to identify that potential market value, whilst a further stage in the process of conservation is to ‘create markets’ where currently none exist. Market creation is the subject of a separate OECD initiative (OECD, forthcoming).” – David Pearce, Dominic Moran, Dan Biller, Handbook of Biodiversity Valuation A Guide for Policy Makers

      Unfortunately, Pearce died at 63 from leukemia.

      X = how congress (a committee) prioritizes public goods
      Y = how voters (democracy) would prioritize public goods
      Z = how taxpayers (market) would prioritize public goods

      What’s the difference between X, Y and Y?

      The supply of nature shows on Netflix is ultimately determined by some committee or executive. How different would the supply be if it was determined by subscribers directly allocating their own fees to their favorite content?

      It’s the strangest state of affairs that we have and use markets for so many things, but it isn’t really understood what difference a market makes. We don’t know how the supply of nature shows on Netflix would change if subscribers could choose where their fees go, just like we don’t know how the supply of environmental protection would change if taxpayers could choose where their taxes go.

      Right now a certain percentage of Gelman’s blog entries have to do with economics. How would this percentage change if people could use donations to reveal their preferences for the entries?

      I can’t accurately predict exactly how the creation of a market would change the supply, but my best guess is that markets are far better than committees or democracies at balancing the use of limited resources. Is my guess wrong or right? It would behoove us to figure this out sooner rather than later.

      • Dale Lehman says:

        I agree with you, though it depresses me. I have more faith in markets than our political institutions. Many economists rejoice in this, but I do not. Markets can perform wonderful things but they are designed to resolve conflicting values in particular ways. The notion that there are values other than consumer or producer values is not what markets can accommodate. So, it depresses me to believe that our political mechanisms, which (arguably) were designed to include discourse, argument, equity, civility, etc. cannot be trusted to do so, and we are left hoping that markets do a better job.

        • Martha (Smith) says:

          “Markets can perform wonderful things but they are designed to resolve conflicting values in particular ways. The notion that there are values other than consumer or producer values is not what markets can accommodate. So, it depresses me to believe that our political mechanisms, which (arguably) were designed to include discourse, argument, equity, civility, etc. cannot be trusted to do so, and we are left hoping that markets do a better job.”

          +1

      • Terry says:

        “The supply of nature shows on Netflix is ultimately determined by some committee or executive. How different would the supply be if it was determined by subscribers directly allocating their own fees to their favorite content?”

        I have to disagree with this. I think there is very much a market mechanism at work here, it is just a bit hidden.

        Advertisers pay more for ads on shows with more viewers. Therefore, the “committee” will produce additional nature shows as long as the marginal show delivers enough viewers to make advertisers pay enough to cover the costs of the marginal show. More viewers –> more ad revenue –> more nature shows. The number of nature shows is very directly determined by the number of viewers.

        • Epiphyte says:

          Netflix doesn’t have advertisements. But even if it did, watching a nature show doesn’t reveal how much you’re willing to spend on it.

          Here’s my simple preference…

          1. economics shows
          2. nature shows

          On Netflix I spend a lot more time watching nature shows than econ shows. Therefore, nature shows are more important to me? Nope. It’s simply because Netflix only has, or had, one econ show but it has dozens of nature shows. I’m certainly not going to watch the same econ show over and over and over. Therefore, my viewing habits don’t accurately reveal my preferences.

          But imagine if I could divide my fees between econ shows and nature shows. In this case I’d give most of my money to the econ show and the rest to the nature shows. This is the only way that my preferences can be accurately revealed.

          • Terry says:

            It sounds like I got the mechanism wrong. But the point is still valid, I think.

            Netflix gets revenue from subscriptions (and perhaps other sources like licensing rights to its shows). The more that people want to watch its shows, the more revenue it will receive. (If for no other reason than buzz and making people generally enthusiastic about Netflix.) The relationship may not be completely transparent, but Netflix decision-makers clearly want to make more popular shows rather than less popular shows. (Another factor in favor of nature shows is that they are relatively cheap.)

            I guarantee that is a snazzy econ show would make hordes of Epiphyte beat a path to Netflix’s door, Netflix would fund that show. (Also, lots of people like nature shows. A lot of people like them a lot. Few people like econ shows.)

            Ultimately, everything a business does is intended to contribute to the bottom line in some way. Companies often get things wrong or are just plain incompetent, but they are almost always looking to make a buck.

            • Epiphyte says:

              In the absence of subscribers dividing their fees between their favorite content, Netflix doesn’t actually know the value of its content, which guarantees that popular shows are constantly stealing resources (ie the best actors, writers, directors) away from the most valuable shows.

              You’re welcome to argue that Netflix does somehow actually know the value of its content. But then why have any markets? Why have shoppers at Trader Joes spending so much time and using so much mental energy deciding how they divide their money between tamales and pistachios?

      • Jake says:

        > Unfortunately, Pearce died at 63 from leukemia.

        According to your philosophy, maybe he should have just spent more money on ‘not getting cancer.’

    • yyw says:

      I don’t think it’s realistic to expect voters to understand issues and how policies will impact outcomes important to them in the long term when experts examining historical data have a hard time agreeing on the effects of policies (and many people are not cognitively equipped to understand complex issues.) I guess the hope is that by aggregating the noisy estimates from all voters, democracy will get it right (or not too terribly wrong) majority of the time. I don’t know if this is true or not, but it certainly has worked better than alternative systems so far.

    • Martha (Smith) says:

      “So, we have marketplace values which I have faith measure somethings pretty well – but perhaps not at all what we really want to measure for public policy. We have surveys which can try to measure anything, but probably don’t measure anything particularly well. And we have voting, which is another type of measurement. In theory, it should be the best way to measure preferences for public policies, but in practice fall far short. And, in my glass half empty mind, falling further and further short.”

      +1

  10. Joe says:

    Voting is a costly signal, but not because of the “costs” of waiting in line or whatever.

    It’s a costly signal because you might end up being pivotal. If, for whatever reason, you don’t vote for the candidate you *actually* prefer and your vote changes the election, then you’ve paid a real cost.

    Which also means that voting is “costlier” in close elections. Anecdotally, I’ve seen that play out. I know many people who are willing to vote for a third party in an election that won’t be close, but wouldn’t actually consider it if they were in a swing state/district/etc.

  11. Phil says:

    About twenty years ago I read “The Armchair Economost” by Steven Landsburg. I enjoyed it quite a bit but found parts of it irritating for various reasons. For instance, he hypothesized that if some rare monkey that we didn’t even know about were to go extinct, we wouldn’t miss it very much. Isn’t that tautological? If we don’t know it exists, how could we miss it? (He used this thought experiement to justify his belief that identifying and protecting endangered species is a waste of money, as I recall).

    Another thing that seemed wrong to me is his assertion that he would be embarrassed by his daughter if she were to recycle: nobody is paying her to do it, so if she were to do it she’d be doing it for a stupid reason. Now, I am not a big fan of people who think they are ‘saving the planet’ by recycling, and it is in fact true that some recycling programs don’t really make sense, but as a blanket statement that it is wrong to recycle (or, by implication, to do anything else that helps others but doesn’t directly help you) unless you are paid to do so…well, if that’s really how he feels, which I doubt, then I wish we didn’t have people like him around.

    I wrote Landsburg a letter — this was Back In The Day, when sending something written on paper was not a zany idea — pointing out some things in the book that didn’t make sense to me and asking a few questions about his thinking. With regard to the rare monkey idea, I said that if some Shakespeare play that we didn’t know about were to be destroyed, we wouldn’t miss it either.

    Somewhat to my surprise, Landsburg responded to my letter — I think he just wrote a few things in the margins of the paper and mailed it back to me — but he didn’t really address most of my issues. But hey, busy guy, professor and writer, and it was nice of him to respond at all.

    Unfortunately he missed a bunch of my points, perhaps my fault for not addressing them better; for instance, he said we would really miss that Shakespeare play that we didn’t know about. Huh?

    Also, I had included my email address and he circled the ‘.gov’ part and wrote AHA! (I was a postdoc at a govenment research lab, at the time). This was probably the most irritating part of his response. Dude, you’re a tenured economics professor with a .edu email address, don’t be throwing stones at us postdocs!

    I mention all of the above merely to get as much mileage out of that exchange with Landsburg as I can. But I have finally reached the part that is relevant to this post:

    One of Landsburg’s chapters was about environmental regulation. As I recall, he’s against it, or at least he was against it when he wrote his book, or else he pretended to be. His idea is that if you don’t like a factory upwind of you polluting your air, you can pay them to stop. In this chapter he did the usual economist thing that Andrew has discussed on this blog many times: when an outcome agrees with his perception of how the world should be, he says “see, people generally behave rationally” but when he disagrees with a choice people make he says “people are behaving irrationally, but since I am an Economist I can explain their error…” In discussing pollution, he said it’s irrational for people to vote for pollution controls, since people who want to live in less polluted circumstances can move to where there is less pollution or can pay polluters to pollute less, and (he asserts) those would be better outcomes. In my letter to Landsburg I said it seemed to me that if the outcome of voting is different from the outcome of The Market, one way that could happen is if people with a lot of money have different preferences from people who don’t have a lot of money, so as far as the outcome that maximizes happiness for everybody it’s not clear to me that the market is a good way to do it, maybe you only make the rich people happy. Unfortunately his only comment on this was something like “You seem to have studied more than just physics” which seemed vaguely flattering but mostly just frustrating because I had raised what I felt was a valid and interesting point and he didn’t even try to address it.

    I wonder whether Landsburg really thinks we’d be better off without the Clean Air Act and the Clean Water Act…air quality like that of the current Asian megacities, rivers catching fire like the Cuyahoga did back in the 1960s…presumaby he does think that, and maybe _he_ would prefer that world, but a majority would not.

    Basically I think there are at least two things going on, when comparing ‘voting with your dollars’ to ‘voting with your ballot’: (1) the former gives people with more money a bigger influence, AND (2) voting “doesn’t cost anything” so it doesn’t necessarily accurately signal people’s preferences. Of course there’s also (3) people don’t always understand the consequences of their vote — indeed, perhaps they nearly never understand it completely — but as I write this I realize that people don’t fully understand the consequences of their spending, either, so maybe that’s a wash.

    Of course, sometimes voting does cost people something. Here in California, we have the ridiculous “propositions” system in which We The People can directly vote on ballot measures. Should kindergarten teachers be required to have a degree in children’s education? Let’s vote on it. Should there be a limit in how much hospitals can charge to provide dialysis? Let’s vote on it. (I did not make these examples up). Anyway, we can directly vote on bond issues, and on sales tax changes, and a lot of other stuff, some of which allow you to figure out or estimate how much it’ll cost ya. This is true of local measures too: should the City of Berkeley increase the property tax by $X per parcel, with the funding being used to fund such-and-such. To the extent that the result of ‘one vote per person’ is different from the result that would happen if we had ‘one vote per dollar contributed’, you see the difference in preferences between people with different amounts of money (or at least different willingness to pay).

    • Dale Lehman says:

      Your story resonates perfectly with me. The Endangered Species Act is about as clear an example as you could ask for. It is the legal embodiment of bad economics – protecting species “regardless of cost” can never make economic sense. Instead, economists prefer the “rational” approach of weighing costs and benefits. So, save the California condor, but forget the snail darter. But that is why the Act was passed – precisely because it is bad economics. It represents a value that economics does not permit (unless you do the mental contortions required to interpret saving all species regardless of cost as representing people’s willingness to pay large or infinite amounts for the principle – a tautological argument). As per your story, economists’ reactions to Sagoff’s book were “he’s not an economist and clearly does not understand economics.” However, he understood precisely what environmental economists do – it was the economists that did not understand the rules of their own discipline.

      • The Endangered Species Act really and truly is a terrible idea though as actually worked. It makes far more sense to say give a varying budget to species protection and then have a panel of a mixture of ecological experts and everyday citizens hash out the relative importance of each considered species based on how difficult it will be to get meaningful population improvements as well as how important those species are to typical citizens….

        I think lack of participatory methods in regulation is a major roadblock to efficient law. See above where I describe a simple random sample of citizens be paid to provide in depth direction and feedback to the govt. Even if they want to, how can elected officials do a good job of serving the overall desires of constituents when they have almost zero information regarding those desires?

    • Terry says:

      “Now, I am not a big fan of people who think they are ‘saving the planet’ by recycling, …”

      What kind of ridiculous common-sense is this? Don’t you know that this is the INTERNET, and that you should be spewing all-caps UNHINGED NONsENSE RATHER ThAN IdIoTiC COMMON SENSE?

      OMG! I am just like SO , you know, like I just CAN’T EVEN.

      (Smiley thingy to indicate humor.)

    • Terry says:

      “But I have finally reached the part that is relevant to this post:”

      Take your time, take your time. The monkey thing is pretty interesting.

      I don’t get Landsburg’s monkey thing. If you didn’t know anything about the monkey, it still seems reasonable to be sad that it is extinct. Monkeys are interesting. One more monkey would make the world a more interesting place. In fact, monkeys would be a worthwhile unit of measurement for how interesting the world is.

      • Phil says:

        What I had _thought_ he meant was that if we didn’t know that something existed, we couldn’t “miss” it : in normal parlance, to miss something requires being familiar with it in the first place so that you regret its absence. So you can’t miss either a monkey species or a Shakespeare play that you didn’t know existed in the first place.

        But I guess that’s not what he _actually_ meant, because he responded that we would “miss” the Shakespeare play that we didn’t know about.

        I’m with you, Terry: if I somehow knew that there was a monkey species somewhere that hadn’t been discovered yet, and a Shakespeare play that hadn’t been discovered yet, I’d be pretty happy about both. If I could only choose to save one, I might well choose the monkey species. I’d be more likely to spend $3000 to go see some monkeys in the wild than to spend $30 to go see another “Timon of Athens” or “Cymbeline” or “Coriolanus”… after all, I’ve had 54 years to go see these and haven’t chosen to do so (although I guess I’d have to seek them out because I don’t think they’re performed very much), and I have taken many wildlife-watching vacations.

        Anyway, I think I misinterpreted Landsburg’s point. I think all he really means is that he’s not interested in monkeys (and he’d be the one to know) and also that nobody else is either. But the latter claim is ridiculous, if that’s really what he meant. And what else could he mean, when he said we would miss the Shakespeare play but not the monkey? I dunno, someone can ask him. Honestly I think he was just taking a gratuitous swipe at tree-huggers: it appears from the intertubes that he just doesn’t like people who care about ‘the environment’, although I didn’t know that when I read his book, which, by the way, I liked.

    • Epiphyte says:

      Voting and spending are very different things, so they must have very different results. My main point is that we can and should use simple experiments to see and understand the difference.

      On Facebook I’m a member of an orchid group that has around 3500 members. Recently the group creator posted a poll…

      Should selling orchids in our group be allowed?

      1. No (41 members)
      2. Yes (8 members)

      How different would the outcome have been if spending (donating) had been used instead?

      So we can certainly debate whether it’s problematic to make rich people happy, but the proof is in the pudding. Let’s conduct some tests to figure out whether voting or spending makes better decisions.

      • Terry says:

        “Voting and spending are very different things”

        I think this is a major reason Cruz’s original post is confusing. Commenters are incorrectly assuming that spending is all about divvying up the world and isn’t it a shame the rich get more of the pie.

        But spending is also very much about revealing preferences across products. Do people prefer economical small cars to more spacious big trucks (taking into account the truck’s higher cost)? Is the new LG TV better than the Samsung? Consumer spending ruthlessly reveals which products are better than their competing products. This is extremely valuable socially. I can just walk into a Best Buy and be reasonably sure I am going to buy a reasonably good TV if I just buy one of the most popular ones. Yes, the rich get more TV’s, but everyone gets better TVs.

        • Martha (Smith) says:

          “Consumer spending ruthlessly reveals which products are better than their competing products.”

          I’m skeptical about “better”– it often just reveals which products are better marketed.

          (Consumer reviews, on the other hand — at least if they’re not censored …)

          • Terry says:

            I’ll grant that markets are often highly distorted by all sorts of manipulations, but you only have to look at the catastrophes of communism to see how much better markets are.

            While markets are far from perfect, they at least provide a mechanism that tends to push production in the right direction. Communism couldn’t even produce a reasonable amount of minimally acceptable toilet paper.

    • Terry says:

      “His idea is that if you don’t like a factory upwind of you polluting your air, you can pay them to stop.”

      Often, when economists chuckle about how irrational people are, it is because their model fails to capture important aspects of the real world. In this case, the transaction costs to paying polluters to stop is absurdly high. Coase was very upfront about this in his seminal paper. (Landsburg’s argument is just the Coase Theorem.) It is interesting to actually read the earlier papers and see how aware they were of the shortcomings of their models, and it is interesting to see how many economists have lost this real-world practicalness.

      • Epiphyte says:

        You vote for environmental protection and congress correctly guesses your WTP for it? If congress can correctly guess just how important the environment is to you, then why can’t they also correctly guess just how important this blog is to you?

        How you spend your money in the market communicates how important things are to you. I don’t think that this process can be effectively replaced by some committee guessing your preferences. But I might be wrong. My main point is for us to use simple experiments to compare the different economic systems.

        At a dog show, for example, a committee ranks the dogs by importance. Alternatively, voters could rank the dogs. Donors could also rank the dogs. All the money that was raised could be given to the Humane Society.

        Each of these three very different systems would rank the dogs differently and we would be able to see and compare the results.

        • Terry says:

          I agree that having a committee decide something is often a very bad idea, especially a government committee. It often descends into naked expressions of power.

          But we also have to be realistic about when a market mechanism is likely to work, and when it is not. Paying polluters not to pollute is not a very good idea usually. Getting Netflix to produce shows people like is a lot more doable.

          • Epiphyte says:

            A committee ranking (prioritizing) show dogs is the equivalent of congress ranking public goods (ie environmental regulation). Donors ranking show dogs is the equivalent of taxpayers ranking public goods.

            If donors are better than a committee at ranking show dogs, then taxpayers must be better than congress at ranking public goods.

            Basically, we can use dog shows to prove that market economies are better than command economies.

            • Terry says:

              I realize I have been garbled in my thinking about what a committee is. You seem to be thinking of an expert panel of some sort. If so, you have to think more about the structure and mechanisms of the committee to understand how it will perform. Government is one type of committee, while dog show judges are a very different type.

              It is easy to think of bad committees. But it is also surprisingly reassuring that there are some very good committees. I am thinking of standards set by engineering societies. If I had to pick a dictatorship, it would be a dictatorship of engineers. Of course, then all sorts of bad people would pretend to be engineers, so please don’t implement an engineering dictatorship based on my say so.

              • Epiphyte says:

                It’s true that dog judges and congress are different types of committees, and it’s certainly the case that some types of committees are better than others. But my best guess is that all types of committees are less effective than markets at sorting/ranking/prioritizing things. And my main point is that we need to conduct simple and safe economic experiments to test and compare the relative effectiveness of committees, markets and democracies at ranking things.

                The expert judges at a dog show presumably are very knowledgeable about dogs, but as a group they can’t have more collective dog knowledge than everybody at the show. Everybody at the dog show must have at least some dog knowledge, even if it’s simple and subjective things like chihuahuas are ugly and rottweilers are scary. But it’s a fact that everybody’s dog knowledge isn’t equally useful or important. This is why it’s a problem that democracy would give everybody equal influence on the dog rankings.

                The market is the most effective method because it would incorporate the maximum amount of dog knowledge, but weighted according to its importance.

                The knowledge differences between committees, democracies and markets are not only relevant to dog shows… they are just as relevant to public goods. The amount of knowledge that congress has about public goods is vanishingly small in comparison to the amount of knowledge that the entire public has about public goods. Unfortunately this incredible disparity in knowledge can’t be seen. If it could be seen then everybody would easily grasp the immense stupidity and harm of allowing a small group of people to prioritize public goods for the entire country.

                What I’m trying to do is to encourage the direct small scale comparison of committees, democracies and markets. So far I haven’t had much success getting the ball rolling.

              • Terry says:

                Epiphyte

                “What I’m trying to do is to encourage the direct small scale comparison of committees, democracies and markets. So far I haven’t had much success getting the ball rolling.”

                Any concrete examples of possible tests?

              • Epiphyte says:

                Terry, every decision made by a committee or democracy can also be made by a market. Toyota has to decide how to divide its considerable resources between gas vehicles and electric vehicles. Who makes this decision? The board, an executive? I don’t know. But I do know who should make this decisions… donors. Everybody in the world should be given the opportunity to make a donation of any amount for their preferred option. How donations are divided between the two options would reveal how Toyota’s resources should be divided between them.

                I’m on a relatively new website called Cent. Recently somebody submitted the very first porn post and now there’s a debate whether porn should be allowed. The founder could make the decision, or some committee… but my preference is to let donors decide.

                “We are biased toward the democratic/republican side of the spectrum. That’s what we’re used to from civics classes. But the truth is that startups and founders lean toward the dictatorial side because that structure works better for startups. It is more tyrant than mob because it should be. In some sense, startups can’t be democracies because none are. None are because it doesn’t work. If you try to submit everything to voting processes when you’re trying to do something new, you end up with bad, lowest common denominator type results.” — Peter Thiel, Girard in Silicon Valley

                How come he didn’t even mention allowing donors to make decisions? Each and every day the market makes countless humongous decisions yet Thiel never even considered the possibility of allowing the market to directly guide an organization. It’s hard for me to wrap my mind around it.

          • An important point is the role of information asymmetry and cheating. What’s to keep the factory from taking my money and polluting more and then telling me they’re polluting less and then asking for more money to pollute “even less” or the like.

            What’s to keep them from using the money I give them to open a second factory and then asking me to pay to reduce that one’s pollution? What’s to keep random people from opening their own pollution sources just to extort protection money

            • Terry says:

              Yes. There are many, many problems with Landsburg’s proposed solution. The free rider problem is another gigantic one.

              Going back to the original Coase paper, it is hard to see how Landsburg can propose this as a solution. A major effect of the paper was to make people think seriously about transaction costs.

            • Epiphyte says:

              You’re sitting on a bench in a park. I sit down next to you and start smoking. Since I’m not omniscient, I can’t read your mind to know how bothered you are by my smoke. You could simply tell me that my smoke really bothers you. You could also simply get up and sit on some other bench. Here’s an alternative. You write down the least amount of money you’d be willing to accept as compensation and I write down the most that I’d be willing to pay to compensate you. After we finish writing our amounts we show them to each other…

              You: $3
              Me: $7

              I win the right to continue smoking and you win $7 dollars in compensation, which is an amount that you yourself consider to be more than fair. It’s a win-win situation. This was Coase’s main point.

              From my perspective this solution is perfect for something like the issue of abortion. Each year each side submits an amount and the side that submits the highest amount gives that money to the other side.

              • Note that first off I want to say that the basic point about markets being a generally good thing I totally agree with, I’m a pro-market person. But now I have to do this:

                You’re sitting on a bench in a park, and Bill Gates sits down next to you and says “gee, I’m in the mood to murder someone and it turns out today it’s you, how about you write down the most amount of money you’ll give me to not be murdered and I’ll write down the most amount of money I’m willing to pay you to your estate to be able to murder you with this delicious bowie knife I have here in my hand, and we’ll see what happens”

                You write down: All the money that I have, which is about $31,500

                He writes down: 1.5 Million dollars

                He then proceeds to disembowel you slowly and writes out a check to your heirs. Problem solved, another efficient market solution!

              • Keith O’Rourke says:

                Daniel:

                Gory but good.

              • Anonymous says:

                “You’re sitting on a bench in a park. I sit down next to you and start smoking…
                I win the right to continue smoking and you win $7 dollars in compensation, which is an amount that you yourself consider to be more than fair. It’s a win-win situation.”

                Its win-win if we ignore the transaction costs. I, personally would not want to engage in constant negotiations of that sort. I would just leave.

                In this particular case, custom greatly reduces transaction costs. In certain areas, it is (or was) ok to smoke. If you ddn’t like that, you didn’t go there. In other areas it isn’t ok to smoke. If you break the rule, you get yelled at, and are thereby penalized. Interactions are minimal, which minimizes transaction costs. The main transaction cost is the societal struggle to establish these norms.

              • Dale Lehman says:

                Daniel’s reply is very good. I’ll add my own horror at Epiphyte’s suggestion. This is a perfect solution for abortion? I guess you don’t believe that ethics have any place in society other than what they are worth to you in dollars. Messy though it is, issues like abortion require – require – discourse, discussion, debate. And, if a society or community mean anything at all, it requires a way to make decisions after those three Ds. To propose anything less is to deny our humanity and reduce us to purely transactional animals. I repeat: markets are very good at doing some things, but there are some things they do not do well at all. Like deciding issues such as abortion.

              • Epiphyte says:

                Dale, for some reason Daniel assumes that I’d be forced to agree to Gates’ indecent proposal. It’s a pretty terrible assumption. The Coase method would be entirely voluntary. Just like rock, paper, scissors is entirely voluntary.

                Regarding the three Ds… these wouldn’t go out the window just because voting was replaced with spending to decide the abortion issue.

                Let’s put the Coase spending aside and consider slavery in America. When America was founded slavery was legal. Most likely the majority would have voted for it to be legal. But imagine if spending had been used to decide its legality. More specifically, consider if donating had been used. Both sides of the debate would have made donations to the government and whichever side made the biggest donation would have had its way. How much money would each side have donated? The more money that they donated, the more attention the issue would have received, and the more it would have been debated/discussed.

                With this method the minority would have quickly outspent the majority. Slavery would have been made illegal much earlier and without a Civil War. Each side would clearly have seen and known each other’s strength, so no need for a war to reveal what everybody could clearly see and know.

                When gay marriage was debated I honestly didn’t pay much attention to the issue. Just like I don’t pay attention to most social issues. But if donating had been used instead of voting, and lots of money was donated, then I would have paid a lot more attention to the issue. It would obviously be a serious social issue given that huge sums of money were spent on it.

                Spending is far more effective at allocating attention than voting is. With voting it’s guaranteed that we pay attention to the wrong things. But I might be wrong. My main main point is that we need to conduct experiments to test the relative effectiveness of voting and spending at ranking things.

              • Epiphyte says:

                Anonymous, with the current state of technology it isn’t very practical to use the Coase method for relatively small issues. But I do like the idea of a candid camera situation where you sit next to random strangers in a park and ask whether they’d be willing to use the Coase method to decide if you should smoke or not. These are the kinds of shows that would be on Netflix if subscribers could earmark their fees to the most valuable content.

                Anyways, the point of my example wasn’t to suggest using the Coase method in those types of small situations. The point was to illustrate that the Coase method can be used to find an optimal solution in big situations… such as the entire country deciding whether abortion or marijuana or prostitution should be legal.

        • Martha (Smith) says:

          “My main point is for us to use simple experiments to compare the different economic systems.

          At a dog show, for example, a committee ranks the dogs by importance. Alternatively, voters could rank the dogs. Donors could also rank the dogs. All the money that was raised could be given to the Humane Society.

          Each of these three very different systems would rank the dogs differently and we would be able to see and compare the results.”

          +1

          (Whew, this is almost like grading papers — but more fun because I don’t have to give grades, and don’t have to comment on every “paper”. :~) )

      • Martha (Smith) says:

        “Often, when economists chuckle about how irrational people are, it is because their model fails to capture important aspects of the real world. “

        +1

    • jrkrideau says:

      In discussing pollution, he [Landsburg] said it’s irrational for people to vote for pollution controls, since people who want to live in less polluted circumstances can move to where there is less pollution or can pay polluters to pollute less, and (he asserts) those would be better outcomes.

      Strangely enough there still are a lot of people living in Flint Michigan. I wonder if he would care to discuss this.

      Of course, one could argue that he is correct if we look at the caravans of refugees on the Mexican-USA border. One can move. And that has been going well.

  12. Peter Dorman says:

    My apologies if this point has already been made, but I couldn’t bring myself to read through all the comments. (But then why would anyone read mine?) The claim that markets better reflect “preferences” than voting does implies a single latent preference ordering, a unitary self. But there is a ton of theory and evidence behind the notion that we are, all of us, actually bundles of selves. I first encountered this idea eons ago when I read G. H. Mead and then was taught sociological role theory in the classroom. Later I discovered the formal multiple self models that were in vogue in the 80s and 90s. It seemed common sense to me, even though I’m an economist. (It’s one of many reasons I have no sympathy for welfare economics.) There’s a big difference between asking someone what they think would be best for them individually and what they think would be best for the community of which they’re a part — the consumer role vs the citizen role.

    There’s a separate tradition in political theory that sees the primary democratic benefit of voting not in the talley but the process it culminates if there is a norm that requires public justification for one’s choice. Here we are in Dewey’s world. I suppose it might be possible to have such a process if the final stage were an auction, but then we’re back in role theory, yes? A practical example is jury process. Should juries take a vote or hold an auction? Even if resources were perfectly evenly distributed, I’d vote for the vote (ahem) because it implicitly arises from a “we” perspective, which means jurors can be expected to justify their choices in a deliberative process. (More precisely: in a jury vote, the strength of any individual vote is measured by its tenacity and the persuasiveness of the arguments given for it, not, as in an auction, by how much satisfaction it gives the juror to make this choice.)

    • Epiphyte says:

      The majority voted that Socrates was guilty and then they voted for his execution. Perhaps his supporters made some impassioned pleas on his behalf, but words can’t effectively convey value. How different would the outcome have been if voting had been replaced with spending? Everybody would have clearly seen and known the cost, and benefit, of Socrates to society.

      Imagine if Socrates was on trial for murder and jury spending revealed that his social benefit was greater than his social cost. Then he would essentially get away with murder.

      I don’t see the point in justice being blind to a person’s social benefit. If a scientist who can potentially cure cancer is sentenced to life in prison, then society would be majorly screwed by justice.

      Even if you disagree with my theory that spending is better than voting, you should still want to see experiments that compare the results of jury voting and spending.

      • Dale Lehman says:

        Epiphyte
        You are determined to ignore the points that Peter Dorman has so eloguently made. If your point is that we could make all decisions via spending rather than voting, then I surely agree with you. If your point is that the outcome, in many cases, would be better than with voting, then I agree in a more limited way. If all you care about is the resulting allocation of resources, then I’ll agree. But the whole point is that more is at stake than simply the outcome. Even if we could find a benevolent dictator who was omniscient and could produce efficient results, I would not want to live in such a system. Why not? Because I care about more than just the outcome. The process matters. Our human dignity (with all of its sores) also matters to me.

        You might ask: how much am I willing to pay for these preferences of mine? My answer – none of your business. Nor do I care how much you are willing to pay to see your spending vs voting experiments. I’ll take my luck with trying to argue/persuade/convince others that some things should not be up for bid. And, yes, I’ll be disappointed often.

        • Epiphyte says:

          I’m not sure how you separate human dignity from the outcome. During Mao’s command economy millions and millions of people starved to death because resources were majorly misallocated. After Mao, when Deng Xiaoping gradually begin creating a market economy, resources were more efficiently allocated and millions and millions of people were lifted out of poverty.

          So I really have no idea what you’re talking about saying that human dignity matters more to you than the outcome. Maximum human dignity is entirely dependent on a maximally beneficial outcome.

          All I want is for SCIENCE to determine whether or not there’s a correlation between markets and human prosperity. I really don’t think that what I want is unreasonable. If you’re arguing against using science to find the truth, then perhaps you need to engage in some serious introspection… or something.

          • Keith O’Rourke says:

            I think Dale just is thinking more along these lines, what I value should inform how I act to best achieve what I value. Science just addresses the how to best achieve.

            https://andrewgelman.com/2017/09/27/value-set-act-represent-possibly-act-upon-aesthetics-ethics-logic/

            p.s. It appears the fentanyl free market in China is being efficiently re-allocated into Canadian real estate https://globalnews.ca/news/4149818/vancouver-cautionary-tale-money-laundering-drugs/

            • Dale Lehman says:

              Yes, what Keith said.
              I am tiring of this exchange, but at the risk of more: I don’t doubt the ability of markets to promote prosperity better than communism, or any other system (although there are aspects of European socialism that I might argue are better than the American variety of capitalism). But I am not willing to equate prosperity with human dignity. Of course, meeting basic human needs to essential to both. But it is wrong to believe that Science can settle issues such as abortion, endangered species protection, immigration policy, etc. Science has a role to play, but it is wrong to want experiments to see how market “solutions” compare with others (such as voting, representative democracy, etc.). Thought experiments are fine – we economists are used to such things. Real experiments to see how markets would determine abortion policy are not.

              • Epiphyte says:

                I’m not saying that we should immediately experiment with using donations to determine abortion policy. What I have said is that we should use donations to rank dogs at a show. Then we could compare the donation rankings with the voting rankings and the committee (judges) rankings. Would you object to this experiment?

                I’ve also suggested that we use donations and democracy to rank/sort/prioritize Gelman’s blog entries. Would you object to this experiment?

                My theory is that markets are the best at ranking/sorting/prioritizing things. If my theory is true for dog shows and blog entries, then it will also be true for abortion policy.

              • There is obviously no “one true ranking” which we are trying to “get closest to”, so we could for example somehow objectively determine whether Markets or Voting do a better job. If we vote on whether markets or voting do a better job, we’ll probably get a different answer than if we bid on whether they did a better job ;-)

                Basically, yes/no voting is a system in which we have unweighted opinion, each participant gets to influence the aggregate by a similar amount. Markets are a system where we have weighted opinion, and strength of preference can be involved up to a limit of “all the money an individual agent has”, which has its own distribionn which may or may not be associated with how the agent has provided utility to society in the past (plenty of people get rich scamming the world or via inheritance or violent drug dealing, other people get rich inventing and marketing critical technologies)

                My own personal preference is for score voting. In this system each person is given a score vote say between 0 and 100 on each thing we’re voting for. All votes have the same maximum so historical accumulation of wealth is not relevant, but still nuance of preference can be involved through giving say 0 to a thing you hate or 33 to something you dislike or 59 to something you kind of like or 80 to something you like a lot or 100 to something you really want. It’s the buddhist middle path that avoids turning every question into “what do Bill Gates and Jeff Bezos think?”

              • Epiphyte says:

                There isn’t “one true ranking”? Here are two things…

                1. Starting World War 3
                2. Curing cancer

                Is one thing objectively better than the other? No? Therefore… what?

                How about… is one thing more beneficial than the other?

                Here’s a list of possible pets…

                – hamster
                – canary
                – elephant
                – cat
                – cobra
                – walrus
                – chimpanzee
                – dog
                – wolf
                – tarantula
                – white shark
                – lemur
                – alligator
                – ferret
                – goldfish
                – raccoon

                Do all these animals make equally beneficial pets? No, therefore one of them is more beneficial than all the others. We can use different methods to rank these possible pets by benefit…

                – voting
                – score voting
                – quadratic voting
                – donating
                – committee

                Each method will rank the animals differently. This means that one ranking will be more correct than the others. The most correct ranking is the one that will result in the maximum benefit for pet owners.

                Now, if people utilize the different rankings then they will figure out which ranking is the most correct/beneficial. This is true whether we’re talking about pets, books, blogs, movies, music, restaurants, economists, universities, countries or anything else.

              • Is one thing objectively better than the other? No? Therefore… what?

                No, one thing is not objectively better than another therefore we need a mechanism to resolve conflicting values. Let’s just modify your list:

                1) Genocide of European Jews
                2) Research towards Curing Cancer

                is one thing “objectively” better than another? If it’s obvious to everyone that (1) is much worse than (2) (and it’s obvious to me) why then was there a successful Nazi party and Hitler succeeded in rounding up and killing 8 million jews with many people cooperating? Obviously Kim Jong Un might think your “Starting WWIII” might be a good idea under some circumstances, better than working on curing cancer.

                Conflicting values is *precisely what we’re discussing here* that you don’t get that suggests we’re pretty much done here. This is inherent basic first principles of econ stuff. In fact if everyone valued everything the same, you wouldn’t need economics, you’d just start with the universally most important thing and produce a bunch of that, and then go down the list until you ran out of resources.

              • Epiphyte says:

                “…why then was there a successful Nazi party and Hitler succeeded in rounding up and killing 8 million jews with many people cooperating?”

                “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, Geoffrey Brennan Democracy and Decision

                Voting and spending are *not* the same thing. This means that they will *not* have the same exact consequences. They will *not* rank things exactly the same. What we are, or should be, discussing are ways to quantify and clarify the different results of voting and spending.

                My theory, as I said in my email, is that voting elevates trash. Hitler’s rise to power *supports* my theory, but obviously for most people it is not a definitive indictment of voting. So it’s imperative that the results of voting and spending be formally juxtaposed. A direct comparison of their results will clearly reveal their relative effectiveness at ranking things.

                If my theory is correct, but we don’t replace voting with spending, it means that there will be another Hitler. It’s only a matter of time.

              • That a market would have made it harder for Hitler to come to power doesn’t negate the fundamental point I was making: There IS NO OBJECTIVE VALUATION by which we can compare the goodness of outcomes.

                Sure, we could do a bunch of experiments, and then see the outcomes, and then some people who like the outcomes under markets could decide they like markets better, and some people who like the outcomes under voting system X_i for all i can decide they like each voting system…

                I’m not saying the experiments aren’t useful, just that the idea we can “decide which is better” is basically a non-sequitur. It may be that far more people keep golden retrievers as pets than exotic animals, but people DO keep rattlesnakes and piranha and skunks as pets, other people work for zoos and keep crocodiles and elephants. There is no objective “best pet” nor is there an objective “best system for ranking different pets”. For example the system “Just ask Joe what he likes and do that” is a system that Joe will consider much better than any other system, and this goes for each Joe.

              • Epiphyte says:

                “…but people DO keep rattlesnakes and piranha and skunks as pets…”

                Yes, this is correct. Values are entirely subjective. But it’s a basic fact that there is one pet that society values more highly than all the other pets. This is the pet that provides society with the greatest benefit.

                Pets can be measured by weight. This is an objective measurement. Pets can also be measured by benefit. This is a subjective measurement, but it is still a measurement. It is a yardstick that can be used to measure and compare pets.

                When it comes to measuring pets by benefit, my theory is that donating is far better than voting is.

                Just like there is one pet that is most beneficial, there is also one of Gelman’s blog entries that is most beneficial. Which blog entry is it? We can guess, but right now we don’t know.

                Right now we live in an era when we don’t know which of Gelman’s blog entries is the most beneficial. Just like people lived in an era where they didn’t know that the world is round. What difference did their ignorance make? What difference does our ignorance make?

                Our ignorance must be incredibly detrimental. Lots of people are overlooking Gelman’s most beneficial entry, how could they not? It’s not like Gelman lifts his most beneficial entry high on a staff for every visitor to see and greatly benefit from. Like the rest of us, he doesn’t know which of his entries is the most beneficial.

                Zoom out and try and imagine all the most beneficial things that each and every one of us overlooks on a daily basis. How much benefit are we all missing out on? It’s an incredible amount of benefit.

                The crazy thing is that it wouldn’t be that difficult to figure out which of Gelman’s entries is the most beneficial. We could simply Paypal him a donation of any amount for whichever entry we have derived the most benefit from. Whichever entry received the most donations would be the most beneficial one.

                Not only would this system help enlighten us, it would also help combat the problem of free-riding. Two very big birds would be killed with one stone.

                Did you read Peter Dorman’s comment? He said that he couldn’t bring himself to read all the comments. Well yeah, just like I couldn’t bring myself to read all of Gelman’s blog entries. But how many of his entries have we collectively read? All of them? This is why ranking has to be a group endeavor. Voting is a group endeavor but a vote can’t quantify value. Value can only be quantified by sacrifice. Therefore, in order to reveal which of Gelman’s entries is the most beneficial, we all need the opportunity to make a donation for whichever entry has provided us with the greatest value.

                1. Do you object to people donating to Gelman?
                2. Do you object to donors indicating which entry they value most?

                Hopefully your answer to both questions will be “no”.

              • As I’ve said many times, I think your core point, that Markets provide huge benefit in terms of information aggregation and ranking etc is absolutely on point. When it comes to say ranking Gelman’s posts, or my comments, I’d be happy to know what people find helpful, and I’ve put a lot of effort into commenting, so please, send your donations along ;-)

                But when it comes to deciding things that are essentially ethical, such as for example whether or not we should have slaves and who the slaves should be, or whether or not we should have genocide and who will be slaughtered, I just don’t buy that the question of how much anyone is willing to pay to be allowed to commit atrocities is of any relevance. I think this simply shows that there are some things that can’t and shouldn’t be bought or sold. In particular things involving third parties. The relevance of my Bill Gates trying to murder you example is that pollution from a factory is a lot like someone coming along trying to murder you. Murder by aerosol cadmium is maybe slower than disembowling but it’s still you, a third party, dying of pollution while the primary parties, say a factory in your backyard, and the people in south africa who buy their products who are “voting” with their dollars. Nor do I think the fact that say you are (hypothetically) a struggling young college student with no real money saved should give you zero say in things, though with a pure dollars decision you would have zero say. You might convince a few people to step up and donate to your cause… but basically the market system isn’t omniscient, it can’t know for example that you’re about to unleash on the world a revolutionary new technology that everyone in the world would pay $10k each for glady, if only you could get over your wretched asthma…

                so, basically I agree that we should engage markets more widely, but I disagree with this taken to the extreme of *ability and willingness to pay should be our one true definition of worth* which is kind of the position you seem to be arguing for.

              • Put another way when you say ” But it’s a basic fact that there is one pet that society values more highly than all the other pets.” I deny this has any meaning until you provide a definition for what it means for “society to value” something. When you do that you’ll wind up either with an uninteresting tautology

                “society values is defined by Epiphyte as willingness to pay, and therefore willingness to pay is the best way to evaluate society values basically by definition”

                which is only of interest to you and people who agree with you, or it’ll be wrong

                “society values something by function f(x) and therefore willingness to pay is not as good as f(x) basically by definition, but might be an OK approximation”

                since there is obviously no one true definition f(x) that all people will agree on when it comes to “society values” we’re left basically with “Epiphyte thinks people should value things by willingness to pay, and therefore Epiphyte thinks willingness to pay is how society should evaluate its values” which to paraphrase Jeff Lebowski “That’s just like, your opinion man”

                We could for example do all your experiments involving willingness and ability to pay vs a wide variety of voting systems including my example of score voting, and then everyone score-votes on which system they’d like to use ;-)

                I tend to agree with your opinion, but it’s still basically an opinion that some kind of “scientific” experiments can at best provide some vague but fake shine of fake objectivity on top of.

              • Epiphyte says:

                “Murder by aerosol cadmium is maybe slower than disembowling but it’s still you, a third party, dying of pollution while the primary parties, say a factory in your backyard, and the people in south africa who buy their products who are “voting” with their dollars.”

                How many times have I tried to put public finance in the best possible nutshell? Evidently not enough.

                The factory product is a private good while combating pollution is a public good. Given that people can benefit from public goods without paying for them, they are subject to the free-rider problem, which means that people’s donations will be less than their valuations, so public goods will be under-supplied and private goods will be over-supplied.

                Private goods and public goods compete for society’s limited resources. Imagine that you and I are engaged in tug of war. Except, I can only pull the rope with my teeth. This is what it’s like when public goods try and compete with private goods for resources. It isn’t a fair contest.

                The government tries to make the contest more fair by forcing people to pay for public goods. This is perfectly fine and reasonable, the problem is that all the tax dollars are spent by a small handful of politicians who have absolutely no idea what your valuation is of environmental protection or any other public good. Therefore, it’s guaranteed that the wrong amount of environmental protection will be supplied.

                The solution is to allow each and every taxpayer to decide for themselves how many of their tax dollars they give to the EPA. I refer to this as “pragmatarianism” and I’ve spent many years trying to promote it. Here are the two most common objections…

                1. Taxpayers are ignorant about how much environmental protection is truly needed
                2. Wealthy taxpayers would have too much influence

                Eventually I realized that taxpayers are basically subscribers, so pragmatarianism would theoretically work with any subscription based system… such as Netflix.

                So I started arguing that Netflix subscribers should have the freedom to earmark their fees to their favorite content. Did anybody object that subscribers don’t know how many nature shows are truly needed? Nope. Did anybody object that some subscribers would have too much influence? Nope. Instead, people objected that Netflix already knows the demand for nature shows. Except, how could Netflix possibly know how many of my subscription dollars I’d allocate to nature shows? Right now I don’t even know this.

                Eventually I realized that the problem is simply that people don’t understand that consumer spending is the only way that demand can be revealed. This lesson could be taught by having donors rank dogs in a show or Gelman’s blog entries.

                You don’t object to using donations to rank Gelman’s blog entries, but you do object to using spending to rank public goods such as environmental protection. But if we did use donations to rank Gelman’s blog entries then, in theory, you’d come to appreciate the necessity of using spending to reveal the demand for things… including environmental protection. It wouldn’t take long for you to understand and appreciate just how useful markets truly are.

              • You’re determined to not understand me.

                “You don’t object to using donations to rank Gelman’s blog entries, but you do object to using spending to rank public goods such as environmental protection”

                I don’t object to using spending to rank public goods such as environmental protection, but I do object to claiming that this is somehow the “objectively best” way. above I even said that the current system is a terrible one that misallocates resources. I’ve said multiple times that I agree with you about the generally good properties of markets. We’re talking past each other now, and I’ve had enough.

                My sole point is this: there is no *right* way to do this that can be determined by some algorithm or whatnot that is unambiguous and agreed upon by everyone.

                That being said, markets are generally quite good, but they suffer from a variety of problems, one of which is the problem of principality. That is, when one or a small number of people have all or most of the money. They also suffer from gaming, where people buy government favoritism or whatnot so they get rich and have a bigger say than they otherwise would. They also suffer from the problem of historical wealth accumulation not necessarily reflecting good decision making. If Jeff Bezos and 10 other uber rich people want to create an enormous uber-burning man and light all the world’s great art on fire in the desert, they can by buying up the art as a seemingly harmless way, and then transporting it all to the desert and lighting it on fire. If they keep just a few pieces, they might even perversely increase the value of those pieces of art so much that they actually make money! This is kind of like the way the Finance industry set the financial system on fire from 2004-2008 and then came out of it smelling like roses by 2011 because the government printed money and bought the bonds they had.

                Markets also suffer from asymmetry of information, where people can lie to you or cover up facts so that you will pay more thinking that you are getting more, or not pay for something because you don’t know that it’s good. People set up click farms in Malaysia to create fake reviews of goods that don’t work… They also suffer from many other problems.

                Sometimes, it may be important to overcome some of these issues. For example score voting overcomes principality. Everyone gets the same amount of starting “score” and then can allocate it to the issues. This also avoids problems associated with historical cheating/gaming/fraud where people start out with more money because they “stole” it by cheating or getting the government to set things up to make them rich, or printed money and gave it to themselves etc.

                Ethical considerations can determine when pure markets vs score voting vs other forms of voting vs special privileges vs other decision rules should be the method of choice. There *is no objective scientific way* to determine when each system should be used. In some sense it’s just a meta-negotiation.

                But I am done with this discussion now because it doesn’t seem to be going anywhere. You are an advocate, an advocate for something that I generally agree with: markets are good for resource allocation, but you do not at all seem interested in hearing any real argument offered by people here who are also well versed in economics (several of the other posters here such as are Economists for example Dale Lehman may well be the particular Dale Lehman who’s Professor of Economics at Alaska Pacific University, we have multiple other Econ professors who regularly read this blog and participate as well).

            • Martha (Smith) says:

              Daniel Lakeland said:
              “Conflicting values is *precisely what we’re discussing here* that you don’t get that suggests we’re pretty much done here. This is inherent basic first principles of econ stuff. In fact if everyone valued everything the same, you wouldn’t need economics, you’d just start with the universally most important thing and produce a bunch of that, and then go down the list until you ran out of resources.”

              +1
              (Amen?)

  13. Dale Lehman says:

    Since Epiphyte apparently knows a few things about economics, I don’t want the economic subtleties and digressions to leave some important points out. In welfare economics, there are two major criteria for judging policies. A Pareto improvement is something which makes everyone at least as well off, and some better off. The determination of whether or not someone is better off is made on the basis of either maximum willingness to pay for something you don’t have, or minimum willingness to accept compensation for giving something up. There are subtle (important, but I think inessential for this discussion) issues related to asymmetric information and free-rider effects. One big criticism is that these measures are dependent on income (although, even there, there is economic theory that suggests that the two measures – willingness to pay and willingness to accept – will not be as different as they might seem). There is no escaping the fact that income plays a role in determining value in the sense of markets. To be fair, however, voting and political institutions are not immune to the role of money either. A practical comparison of systems is more meaningfully based on comparing realistic, rather than ideal, systems (Victor Goldberg, writing about administered contracts, Bell Journal, circa 1976, is a wonderful exposition on this).

    What Epiphyte has not mentioned yet is the use of the Potential Pareto criterion. This states that a policy improves social welfare if everyone can be made at least potentially as well off. The “potential” does not require that compensation be paid, only that the winners gain at least as much as the losers lose. It seems that Epiphyte’s experiments are relying on this Potential Pareto Criterion. I don’t think I need to explain that a giant leap of logic is required to move from actual Pareto improvements to potential Pareto improvements. Many economists are content to make that leap. I, for one, am not. I believe the ethical issues surrounding whether values can be summed in this manner are not answerable by science, as Daniel has repeatedly been saying.

    A number of us seem to reject the idea that markets are appropriate for all resource allocations – I certainly reject that. Markets automatically add values across individuals: if I am willing to pay $10 for a scarce item and you are willing to sell that item for $8, then there is a $2 total gain between the two of us if we trade. If trading is voluntary, and no better trades are available, then this trade is a Pareto improvement, by definition (though our disparate incomes might still concern some people).

    When we move to public goods – or more generally to resource allocations in the public sphere (including things like abortion, endangered species protection, etc.), then our monetary valuations become harder to determine. Coase’s insight was that if we define property rights, and transaction costs are negligible, then voluntary trading works just as well as it does in markets for private goods. For example, if we decide that women have a right to abortions, and if there are no transactions costs, then the number of abortions will depend on how much someone (or someones) is willing to pay to stop an abortion compared with how much that woman is willing to accept to give up her right to an abortion. Just like the $10 and $8 example above.

    What I am not willing to do – and others apparently as well – is want to experiment with deciding abortion issues in this manner. I don’t doubt that we could create/facilitate markets to allocate everything. What I object to is the notion that we should do so. As imperfect as our political mechanisms are, I believe they are more appropriate for some kinds of decisions than are markets. I’d much rather find ways to improve the functioning of these political institutions than to suggest that it would be better to remove these from the political sphere into the realm of markets.

    Sorry to prolong this discussion. I have given up on trying to change Epiphyte’s mind, but I thought some of the more important economic issues might be getting lost.

    • Dale, I’ve often thought that where markets work best is where repeated interactions with the market are possible on a relatively frequent basis, and the transactions are relatively small compared to a typical quantity of disposable income for the people involved in the market. This ensures that a relatively large number of people are potentially involved in this market, and that through time *real* information about the products or services can be transmitted from person to person so that people are actually getting what they think they are getting.

      Compare that to say the purchase price of a VanGogh painting that has been sold only 4 times since it was painted, is housed in a dark room, and you have to pay about 4x US GDP/capita to even get a viewing prior to bidding. There is in some sense nothing reliable about the transaction price in terms of signaling “societal value” in such circumstances. On the other hand, coffee bean futures that transact a few hundred times an hour we can be pretty sure reflect a reasonable aggregation of information about the quality and reliability of the bean supply coming out of say Peru.

      Economists sometimes seem to get lost in equilibrium theory assumptions without considering the all important role of the dynamic bidding/asking/transactions that lead to the equilibrium. Suppose for example that coffee bean futures for beans delivered from the Zorbatz plantation (population 11, 20 acres of exclusive growing area in the highly sought after Gorblatzia region) transact about once a month, and bid/ask updates occur at most once a week and are for small quantities relative to the total production (5 pound bags). Under these conditions we can call the market “illiquid” since if someone wants to purchase say 1/3 of the annual production (say around 10000 5 pound bags), they really will have no idea how much it would cost them.

      Suppose further that the weather and growing conditions change weekly in Groblatzia. The information we get from transaction prices or even the bid-ask spread updates simply doesn’t reflect very much about the actual number of 5 pound bags that will be delivered at the end of the growing season, nor about the quality of said beans or their ultimate desirability after this quality has been tasted and written up in Gorblatzian Coffee Bean Connoisseur magazine.

      If we choose say 10,000 similar goods, sorting these goods on price per unit of consumption will give essentially as much information about desirability ranking as generating random numbers. You can’t get information for free (this is essentially the second law of thermodynamics), and information requires *attention* and we have limited attention. Purchasing attention is possible, but basically becomes impossible when the value of improving the price accuracy is too low compared to the cost of buying someone’s time to pay attention to the prices.

      So, in the end, we do things like buying a bundle of party favors for our kid’s birthday parties that includes a little keychain flashlight, and 30% of the flashlights are dead on arrival, and the rest last about 18 button presses, and we paid $0.75 each for 25 of them, and we really didn’t find it very satisfying but the shitty factory that makes them is still netting $25M/year on this and 100 other junk products, and with this $25M they are easily able to purchase the services of people who will suppress and distort the reviews and general societal transmission of information about the product… and will move on to producing some other junk once it’s relatively widely known that the keychain flashlights are crap.

      What’s the point? I guess it’s mostly that idealizations are just that, and in reality we approach those idealizations in certain areas of life, and are nowhere near them in others.

      I’m particularly concerned about things like pure market solutions to say endangered species in large part because what’s needed is attention so we can aggregate information, and what we’re likely to get is uninformed essentially random number generation, and by the way once species are gone there’s no possibility to go back to the market and buy a few more of them. I believe my proposal (above somewhere) to recruit a random selection of citizens and a random collection of ecologists and pay both groups to pay attention in detail to the question of how we should allocate resources to environmental conservation would likely produce much better results than simply setting up a website saying “here are 150,000 different kickstarter projects on environmental problems, by law you must spend 4% of your income on them as a tax but you get to allocate it yourself!”

      I know I’m not likely to spend say 10 minutes each on actually understanding even 10% of those problems (150000 minutes is about 2500 hours, or a little more than full time employment for a year). We don’t get information for free magically from markets.

      • Dale Lehman says:

        I think it is true that more infrequent/illiquid transactions yield less reliable information. It is analogous to the statistical properties of sample sizes – the information is reliable, but very noisy. The Van Gogh that sells for $4 million one week does tell you something about its value to that particular buyer and seller, but not much about the value of the next Van Gogh that will be sold.

        You raise a number of other points. Infrequent transactions bring in all types of concerns expressed by behavioral economists. Information is highly imperfect and people often don’t behave rationally under such circumstances. It gets far worse if the transactions are significant, as you suggest (just think about major health care decisions: should I get shoulder surgery?). While it is tempting to not rely on markets in such circumstances, we should bear in mind that the alternatives are often worse. Having my health insurer make these decisions has its own obvious problems. Having a government commission make these decisions has a different set of problems. This goes to some of Epiphyte’s points. I personally don’t believe that markets can work well for health care decisions, but that is not a view shared by many economists.

        Environmental issues introduce more complexity. Decisions about endangered species will be poorly made by markets (let the snail darter die). You don’t like the endangered species act – it will certainly make poor ecological decisions (many endangered species are no longer a meaningful part of their ecosystem). On the other hand, somebody needs to express the ethical view that species have a right to exist – regardless of their utility to humans. So, I like your suggested random selection of citizens and ecologists, although I might want to open that to include ethicists and economists (well, maybe not the economists) as well. Experiments like that seem highly worthwhile to me.

        • Fortunately in a quality random selection of citizens (ie. a mersenne-twister RNG seeded from random.org used on the Social Security Administration database of all citizens) some of them will be ethicists and economists already, and perhaps the market is already doing a good job of allocating the appropriate fraction of people to those roles ;-) so all we need to do is ensure that the size of the sample of people is sufficiently large to include approximately the right fraction of economists and ethicists. It seems likely that somewhere between 1000 and 5000 people would be enough to get a very very good sample of the citizenry including even rather rare birds such as ethicists ;-)

          There is no question in my mind that it’s easy to make worse systems than markets. But I don’t think that’s the same as saying markets are the best system for all decisions, and clearly you agree.

          If we understand the problem in terms of information gathering there are two kinds of information that are important: 1) subject specific information about the topic, ecology etc provided by the experts in that area and 2) general information about the population’s preferences and beliefs about what is right to do etc (provided by the random sample of citizens).

          Juries work kind of ok, and they’re subject to all sorts of biases during voire dire. My suggestion would be to pay the random citizens enough that they’d be unlikely to turn the job down, maybe make it semi-mandatory, for example allow only up to 10% non-participation due only to medical issues, or allow the chosen citizen to pay 2x what the job pays so as to fund 2 random replacements for each person trying to opt out, which would take care of issues like a CEO making 10 Million a year having to participate in a full time 4 year govt committee where he only makes 100k/yr.

          • Note also that even for say 5000 random citizens, paying them around 2x GDP/capita (let’s round off to 100k/yr for ease of calculation) the cost of this citizens committee is around $5e8, Compare this to say the $3.3e12 tax revenue of the government. Surely setting up 10 of these citizens committees each on a separate topic (say Health Care, Education, Poverty, Science, Arts, Defense, Crime, …) cost $5e9 being about 0.1% of the federal tax revenue would be a HUGE bargain in the reduced waste alone. I can’t see any good reason not to do this right away.

            • Dale Lehman says:

              There actually were some experiments along these lines. Years ago, there were some experiments in public utility regulation that involved putting a group of citizens together and having experts present their views for the citizens to make a recommendation (I believe it was in Texas, but I have not kept up with whether any such experiments were continued). Also, I believe many environmental issues in Canada are decided by judges- who hire their own “independent” experts to advise them. These examples have problems, of course, and are not quite what you are suggesting. But I’m all for experimenting with a variety of such things – just not with how bidding would resolve these issues. And that’s because I don’t think the answer is particularly useful (and I suspect you agree).

              Another area where this comes up is regarding autonomous vehicle programming. You are probably aware of the variations of the “trolley problem” that involve asking people to make choices between the autonomous vehicle running over the woman pushing a baby carriage or the gang member wearing a hoodie (or myriad other comparisons). Those experiments do not interest me much. I simply don’t think that popular vote is the right way to determine these things. I don’t think having people bid real money to see how they rank those lives is right either. So, how would I make those choices? With great difficulty, with a ponderous collaborative procedure, and one that is highly inefficient!

              • I specifically think the power of high quality random selection, selection of a large pool so that even people who are in a marginal 1% group tend to get several participants, and explicitly pay well for people’s time has a lot to recommend it. More ad-hoc designs such as 3 “independent” experts advising a judge are not in any way substitutes ;-) but I take your meaning in terms of there have been tried some “outside the box” citizen committee type experiments.

                Now, how should my citizens committee make their decisions? I’d argue for score voting, it has many of the nice properties of markets, but eliminates the uneven playing field that prioritizes the rich over others. For decisions about say how best to allocate capital to production of potatoes, rich potato farmers might well be the best people to make those decisions. But there’s no reason to think that rich potato farmers should decide how best to allocate resources towards say government scholarships for electrical engineering students.

                https://en.wikipedia.org/wiki/Score_voting

            • Sweeten the deal, make the pay tax free, and include a health-care plan. Almost everyone would be taking home more with 2xGDP/capita tax free than they are now, so participation rate is going to be very high.

        • “…but not much about the value of the next Van Gogh that will be sold. “

          Or the price of the *same* VanGogh tomorrow if the *one* current owner happens to die on the way home from the auction in a car crash and the estate needs to sell it.

          • Dale Lehman says:

            New trolley experiment: would you run over the person that just bought the $4 million Van Gogh or the young painter who may (or may not) become the next Van Gogh? Now I’m just getting silly….

    • Epiphyte says:

      Is Pareto more relevant to this discussion than Buchanan is? A while back on a forum I was debating economics with some guy and I shared the following quote…

      “Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of “as if” functions that are maximized. But these “as if” functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will.” – James M. Buchanan, Order Defined in the Process of its Emergence

      Here’s part of the response that I received…

      “You’re using as a defense a quote from the single worst President in American history to justify as generalizable the very quote that I picked from you as a representation of your system’s generalizable failure. It is fitting that someone whose legacy is synonymous with the rabid defense of arbitrary social structures based on the conflation of holding socioeconomic power with the capacity to exercise socioeconomic power is your preferred tipple.”

      :/

      Was James Buchanan Jr. really the worst president? So who was the best president? I know that the best modern economist by far is James M. Buchanan. He did the best job of standing on Adam Smith’s shoulders…

      “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

      That was Buchanan destroying Samuelson’s argument that a market couldn’t work for public goods…

      “But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has” –   Paul Samuelson, The Pure Theory of Public Expenditure

      Samuelson believed that, because of the free-rider problem, the Invisible Hand couldn’t work for public goods. But as Buchanan pointed out, if people were given the opportunity to earmark their own taxes, then the free-rider problem wouldn’t be an issue and the Invisible Hand would work just as well for public goods as it does for private goods.

      You say that you’ve given up on changing my mind, but I’ve explained exactly what would change my mind. Simply show me something, anything, that is better prioritized/ranked/sorted by the Democratic Hand than the Invisible Hand. For example, show me that voting is better than donating at sorting Gelman’s blog entries. This would change my mind. What, exactly, would change your mind?

      The Democratic Hand ranks Samuelson’s The Pure Theory of Public Expenditure (~10,000 citations) much higher than Buchanan’s The Economics of Earmarked Taxes (335 citations). How differently would the Invisible Hand (donations) rank these two papers? This question is me attempting to stand on Buchanan’s shoulders.

      Would your papers be higher or lower ranked by the Invisible Hand? Of course there’s a chance that they would be lower ranked, so naturally this might discourage you from conducting relevant experiments. Except, if you did conduct such an experiment, then wouldn’t the Invisible Hand highly rank the subsequent paper?

      Money either is, or isn’t, the best way to measure the usefulness of things.

      • Dale Lehman says:

        Enough with the name dropping already. Save it for an economics blog.
        You want examples:

        I like the voting has prioritized endangered species protection more than the way markets do. If you don’t want to use the Endangered Species Act, then look at marine protection within the 200 mile limit – it’s not perfect, but has worked fairly well in the US. Compare that with the market solution in international waters.

        I like the Oregon prioritization of medical treatments in their Medicaid system. A year of lengthy public discussion was used to prioritize different treatments. They were painful discussions by a rare and good example of a public process that involved debate, discussion, and decisions. The actual line drawn between what would and would not be covered by Medicaid was determined by the State legislature. Unfortunately, from my point of view, the legislature was not very generous. But I like the prioritization more than I like the way voluntary exchange allocates health care resources. With health care especially, the entanglement of willingness and ability to pay is a severe problem (echoing Ben’s comments below).

        • Epiphyte says:

          Name dropping? We’re discussing public finance so I referred to the most relevant economist… James Buchanan. Are you familiar with his work? Most economists are not.

          When you say that voting has prioritized the protection of endangered species higher than the market has, I don’t think you’re really hearing or understanding me.

          The market in the private sector is subject to the free-rider problem. This means that public goods will be too lowly ranked and private goods will be too highly ranked. Therefore, I’m really not suggesting that we eliminate taxation and rely on voluntary contributions to fund public goods. Instead, I’m suggesting that we create a market in the public sector. Taxpayers would still have to pay taxes, but they would be able to choose where they go.

          Do you understand? When you criticize the market *in the private sector* for ranking public goods too lowly, you’re missing my argument by a mile.

          I really appreciate that free-riding is a real problem. Chances are good that the amount of money that you donate to Gelman’s blog is less than the amount of benefit that you derive from it. This problem could be reduced by giving donors the “perk” of using their donations to rank the blog entries. But the real solution is for taxpayers to have the opportunity to allocate their taxes to educational blogs such as this one.

    • Martha (Smith) says:

      “What I am not willing to do – and others apparently as well – is want to experiment with deciding abortion issues in this manner. I don’t doubt that we could create/facilitate markets to allocate everything. What I object to is the notion that we should do so. As imperfect as our political mechanisms are, I believe they are more appropriate for some kinds of decisions than are markets. I’d much rather find ways to improve the functioning of these political institutions than to suggest that it would be better to remove these from the political sphere into the realm of markets.”

      Thanks. This paragraph, plus your discussion of Pareto improvement and Potential Pareto criterion, help clarify and summarize the possible misunderstandings that have been going on in the discussion of this post.

    • Ben Hanowell says:

      Epiphyte is also grossly underestimating the degree to which rich individuals could sway policy in their favor at the expense of others in a society as unequal as ours. The argument also tacitly assumes that willingness to pay = ability to pay.

      • Epiphyte says:

        Your ability to pay is a function of other people’s willingness to pay for your labor…

        “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

        Moore’s ability to pay is so considerable simply because millions of people are willing to pay for his movies. Am I happy with the amount of money/influence/power that Moore has? Definitely not, but it’s not like I’m going to advocate for arbitrarily reducing his influence. It would be the epitome of conceit for me to override the spending decisions of millions of grown adults. It’s their prerogative to help Moore compete resources away from other uses. I think they are making a mistake, but maybe they aren’t.

        Right now I think society is making a huge mistake by allowing a small group of politicians to spend everybody’s taxes. So here I am solely relying on persuasion and information to try and change people’s minds. The alternative is anathema to me.

        • If only most rich people got rich because they produced stuff that people liked to buy instead of say using their hedge funds to buy up companies and then forcing the company to take on enormous debt to pay out an enormous dividend which they pocket, and then sell off the now strip-mined company encumbered with enormous debt to index funds owned by everyday people’s 401ks, meanwhile piping the dividend through a number of holding companies associated with Panama to avoid paying taxes… or the like.

          Another good method is to get the government to grant you a monopoly on something you didn’t even invent, then wait for someone to use the idea, which is relatively obvious to most people in your field, and then pop up from under a bridge and sue this productive company (Patent Trolls ™).

          In fact the biggest problem with current state of affairs in public policy is how widespread this kind of gaming is and how it distorts the power and influence not of people who produce stuff but of people who creatively find ways to destroy value and extract money.

          If you’re worth $1M to $20M you’re probably a creator of something good, if you’re worth upwards of $200M you’re probably a government supported rent seeker. In between is a mix.

          • Epiphyte says:

            We have a command economy in the public sector, so of course money is going to be inefficiently allocated. But the solution is to replace the command economy with a market economy.

            Try and imagine that there’s a market in the private sector and a market in the public sector. Then what? Well, the key difference is that there won’t be any fixed prices in the public sector. This means that people’s payments will more accurately reflect their valuations. Producers in the public sector will make better informed decisions, which will benefit taxpayers, and they will naturally want to spend more and more money in the public sector. The tax rate will go up, the public sector will expand, the private sector will shrink and shrink until it’s completely gone. The tax rate would be 100% and nobody would ever have to buy anything.

            Admittedly it’s hard to imagine a market with a 100% tax rate. I’ve found it helps to think about soup kitchens. When taxpayers can start choosing where their taxes go, some of them are going to give some of their tax dollars to soup kitchens. But it’s doubtful that taxpayers are going to evenly distribute their taxes among all the soup kitchens. Instead, taxpayers are going to efficiently distribute their taxes to soup kitchens. This means that the best soup kitchens will get the most money, which will allow them to better serve more people. It will be a virtuous cycle until everybody eats at soup kitchens and nobody eats at restaurants. Nobody would ever have to buy food, everybody will have easy access to the widest variety of delicious and nutritious food. For all intents and purposes, food would be a public good.

            I refer to a market system with a 100% tax rate as “pragma-socialism”. But it’s not exactly like I need to defend or promote such a system. If the market in the public sector is truly better than the market in the private sector, then we will naturally arrive at pragma-socialism.

            Right now traditional economics is incoherent. Free-riding (payment < valuation) is a bad thing yet consumer surplus (payment < valuation) is a good thing. So then what's the optimal amount of money that consumers should spend on something?

            Let's say that your annual valuation of Gelman's blog is $20 dollars. What is the optimal amount of money that you should donate? Well, if you donate $15 dollars then your consumer surplus is $5 dollars. So is $15 optimal? From my perspective it isn't. This is simply because the $15 dollars doesn't accurately communicate to everyone your true valuation of his blog. Therefore, the optimal payment is the one that accurately reflects your true valuation of his blog… $20. This is why I'm pretty sure that the market in the public sector will be more effective than the one in the private sector.

  14. Ben Hanowell says:

    In a society with massive income inequity, pay-for-play voting could lead to monstrous outcomes due to the fact that humans exhibit self-interest and some games are zero sum. Democracy is a mechanism designed to alleviate that problem. I vehemently oppose any effort to experiment with a government where money drives political power EVEN MORE than it already does.

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