Which allocation method do you prefer?

[Aapje]

Xero has this habit of presenting what looks like some kind of economic system whilst actually presenting a different question. Xero's threads are actually about different ways of voting and thus what his questions explore, practically always, is whether or not system X is a better way of considering how much some individual values object Y than some other system Z.

He phrased it as an allocation question, so I will answer it as stated. One issue with the question is that it assumes that there is a choice that is better in all situations, which ignores that we don't always seek the same outcomes.

For example, take these questions:
1. Do you think that everyone should 'be allocated' enough healthy food to sustain themselves?
2. Do you think that everyone should 'be allocated' as much caviar and champagne as they want?

Both are allocation questions, but I think that most people would answer yes for the 1st question and no for the 2nd. As society seeks to allocate some things in a socialist way and some things in a capitalist way, it is only logical that the allocation mechanism that is chosen reflects that.

but one is a cost you know you have to meet now...

This is actually a known issue for very poor people: that they make decisions that offer the best short term solution, but a bad long term outcome. A common way to deal with insurmountable problems is denial, especially things that happen in the future.

But even rich people often make very irrational choices. One of the biggest weaknesses of rationalist/economist solutions is that there is a mismatch between what people consider a rational allocation in aggregate vs the choices they make themselves. There is no objective reason to prefer the latter over the former.

[Galloism]

It should not as it's unworkable in practice. This does not erase the fact that disparity in the relative value of a dollar is a problem, and a person who spends ten times as much on X may or may not indicate he values it ten times as much. That's a false assumption.

Depending on the nature of the problem however, money should sometimes be removed from the allocation process altogether because more efficient systems may exist for that problem. One of the causes for that may be the disparate value of a dollar between individuals and to avoid shitting on the poor, as you so frequently advocate.

Why do you think that linvoid allocation is unworkable in practice?

Juries currently vote on whether the defendant is innocent or guilty. Would it work for jurors to spend their money on the verdict instead of voting? Sure. You might think it's undesirable but it's obviously workable. What about linvoid allocation? Would it work for the verdict to be determined by percentage of wealth that the jurors were willing to spend on the verdict? It would be easy enough to get income information from the IRS. It wouldn't perfectly reflect wealth but it would be close enough. Wealth inequality would be less of an issue.

Does it matter how strongly a jury believes in a defendant's guilt or innocence? If you support jurors voting... then you don't care about strength of belief. If you support jurors spending their money... then you do care about strength of belief. If you care about what percentage of their wealth jurors are willing to spend... then you care about strength of belief accounting for wealth disparities.

You're the one who always bring up the "problem" of willingness to pay not accounting for disparities in ability to pay. So it's so crazy and ridiculous that you can't imagine any situations where linvoid allocation would be superior to the current allocation methods.

It's not really crazy and ridiculous when one considers voting solves the problem of disparities in pay adequately. Sure, it has its own issues, but I do think it works better than the linvoid system in almost every possible scenario where the current system breaks down.

A jury should be voting rather than spending, because that removes the economic incentives from the equation and they can vote for what they truly believe. Since juries are fact-finding entities, you should want to leave money behind. How much they believe in a fact is not as relevant as "what are the facts". Making sure that the evidence standard is "beyond a reasonable doubt" and that all jurors vote their conscience is all that's required. If anyone has a doubt, then it's a mistrial.

It's really quite simple. How much jurors are willing to spend to jail someone would be a silly system compared with what we have.

[Pope Joan]

I like fairness. It's a wonderful old concept. Fair dealing. Fair play.

It is equity, which was introduced into England as a counterweight against the oppressiveness of the heavy hand of Law.

[Renewed Imperial Germany]

The Marx-Engels Theory of Allocation - "From each according to their ability. To each according to their need."

[Internationalist Bastard]

Medieval allocation- Big guys with big weapons and take what they want "for the war effort"

[Internationalist Bastard]

The Marx-Engels Theory of Allocation - "From each according to their ability. To each according to their need."

For the millionth time, how does one determine need?

[Climalite]

Efficient Allocation

[Morbidity (Ancient)]

For a communist state, I would say the Linvoid allocation.

[Xerographica]

He phrased it as an allocation question, so I will answer it as stated. One issue with the question is that it assumes that there is a choice that is better in all situations, which ignores that we don't always seek the same outcomes.

For example, take these questions:
1. Do you think that everyone should 'be allocated' enough healthy food to sustain themselves?
2. Do you think that everyone should 'be allocated' as much caviar and champagne as they want?

Both are allocation questions, but I think that most people would answer yes for the 1st question and no for the 2nd. As society seeks to allocate some things in a socialist way and some things in a capitalist way, it is only logical that the allocation mechanism that is chosen reflects that.

You sound intelligent! I like that! That's why I'm here! It's harder to find intelligence on other forums.

You're correct that my question assumes that there is a choice that is better in all situations. I believe that, in all situations, it is best to efficiently allocate resources. In all situations it is best to efficiently allocate intelligence. It's never desirable or beneficial to waste intelligence.

You and I are stranded on an island. Would it ever be desirable or beneficial to waste your intelligence? No, of course not. It would be beneficial to put your intelligence to the most valuable uses. It would be beneficial if your intelligence was used to solve the biggest problems.... water, food, shelter, being rescued and so on.

And I'm pretty sure that you'd agree that it would be beneficial if we could communicate with each other. Right? Coincidentally, today I read this relevant blog entry by Paul Romer... Speeding Up: Theory. It might help to start here... Nonrival Goods After 25 Years.

Spending is an important form of communication. There are plenty of things that I'd benefit from you doing on the island. The more that I was willing to spend for an activity... the more valuable it would be to me. The more that I'd be willing to spend... the bigger the problem that you'd be solving. How much would I be willing to spend in order for you to solve the problem of estimating the number of grains of sand on the island? Nothing. How much would I be willing to spend in order for you to solve the problem of water? If water was scarce... then I'd be willing to spend quite a bit.

If you agree that it would be beneficial for us to communicate... then you should agree that more communication would be better than less communication. Spending simply allows for more communication.

The production of everything worthwhile requires solving problems. It doesn't matter whether we're talking about healthcare or caviar. And if you're solving the production problems of caviar... you can't be solving the production problems of healthcare... and vice versa. Should you solve the production problems of caviar or should you solve the production problems of healthcare? The best way to answer this question is by spending. Everybody should be free to spend in order to answer the question. Everybody should be free to communicate how much they value the different answers. This is why efficient allocation is the best answer for all situations.

[Xerographica]

A jury should be voting rather than spending, because that removes the economic incentives from the equation and they can vote for what they truly believe. Since juries are fact-finding entities, you should want to leave money behind. How much they believe in a fact is not as relevant as "what are the facts". Making sure that the evidence standard is "beyond a reasonable doubt" and that all jurors vote their conscience is all that's required. If anyone has a doubt, then it's a mistrial.

It's really quite simple. How much jurors are willing to spend to jail someone would be a silly system compared with what we have.

Most economists agree that talk is cheap. Voting is simply a form of speaking. So your argument is backwards. In reality, spending would be a more accurate assessment of belief than voting.

Feel free to share any credible sources that support your argument that words speak louder than actions.

[Galloism]

A jury should be voting rather than spending, because that removes the economic incentives from the equation and they can vote for what they truly believe. Since juries are fact-finding entities, you should want to leave money behind. How much they believe in a fact is not as relevant as "what are the facts". Making sure that the evidence standard is "beyond a reasonable doubt" and that all jurors vote their conscience is all that's required. If anyone has a doubt, then it's a mistrial.

It's really quite simple. How much jurors are willing to spend to jail someone would be a silly system compared with what we have.

Most economists agree that talk is cheap.

Doubtful in of itself, but most economists also do not advocate trying to get juries to pay to express their verdict, partly because it's a perversion of justice, but mostly because it's abjectly retarded.

Voting is simply a form of speaking.

Actually, no, it's not. It's an action. It's using your power as a shareholder to hire an employee and pay them from organizational funds. Electing a president of the US is no less of an action than electing a CEO of Wal-Mart.

In reality, spending would be a more accurate assessment of belief than voting.

In all situations? This is an assertion that requires extreme levels of evidence.

Feel free to share any credible sources that support your argument that words speak louder than actions.

Voting is an action. Vacuuming a floor is also an action. Electing a corporate CEO is an action.

Actions speak loudly. Hiring a person to run the entity in which you hold stake is a significant action.



EDIT: Actually, going back to the jury thing, we pay juries, similar to employees, for their decision making capability. If employees need to pay to express their opinion on a matter of fact, then it should also follow that they need to pay to express opinions on other things over which they have control, such as, for instance, company policy.

So if a company wants to pass a new policy for its employees, instead of just passing it and requiring all employees abide by it, they should have to pay the employees extra to consent to that new policy. If the employee in question bids less than the company, then the employee receives the company's bid and must abide by the new policy. If the employee wins, however, then he is not subject to the new policy, but the company may not fire him or her. That would be engaging in speech rather than paying to change the policy, as hiring and firing are now in the realm of speech, apparently, according to your posts. Money speaks louder than everything, and this is a system which could in no way possibly backfire or lead to any bad results.

We could also do it the other way. If an employee proposes a change in policy - like say that the company must pay an extra $1,000 per year bonus to each employee, then the company must outbid him to squash the new policy, and he gets the result of the company's bid. This is a system that can totally work.

[Aapje]

I like fairness. It's a wonderful old concept. Fair dealing. Fair play.

It's a subjective word though. One person may think it is fair if people who were lucky enough to be born with certain skills get huge amounts of money and people without skills starve. Another person may feel that it's fair to force the skilled person to help the unskilled person.

It's all based on your subjective morality.

[Kilobugya]

"From each according to his abilities, to each according to his needs". The house should go to the family who has the highest need for it, depending of its size, location, and preferences of the ones involved. What would be inefficient is giving a 5-bedrooms house to a family of 3, and a 2-bedrooms house to a family of 8, or giving people houses too far from where they work, or giving an house in the center of the city to someone who likes the peace and quiet of the fields (and then giving a rural cottage to someone who likes the life of the city).

How to implement that is complicated, and can only be approximated. Using money allows to take into consideration people's preferences (how much they consider a nice house important compared to traveling all around the world during holidays, for example), but is not very efficient on the other criteria. So some kind of hybrid system, houses owned by a government agency, with dynamic pricing (the price you pay depend on how much you need it and how much income you have, a family of 3 will pay more if they want a 5-bedroom house than a family of 8, and so on). Details can be fine-tuned but we should strive to approximate "from each according to his abilities, to each according to his needs" as much as we can, that's what efficiency is, not selling to the highest bidder.

[New Chalcedon]

An interesting proposal, OP. But your preference relies upon one thing that is not true, if it ever was. Specifically, that:

The more beneficially you use society's limited resources... the more money you'll earn...

Consider the hedge-fund traders of today. Today, a rapid-turnover speculator can use an available (preferential) line of credit to buy 1,000,000 shares of a particular company for $10,000,000. Due in part to the extra demand for those shares, the market overcorrects on the share price, making those shares sell for $10,050,000 a few minutes later. The trader then sells the shares, pays the bank back and pockets $50,000. Incidentally, due at least in part to the selling of the shares, the price drops to $9,950,000 before settling back at $10,000,000 around an hour later.

What benefit does society - or indeed, anyone who isn't a shareholder in that particular brokerage - derive from this sequence of events? None. For that matter, a compelling case could be made that by artifically "bouncing" share prices to take advantage of tiny fluctuations, society derives a net loss from the broker's actions being repeated thousands of times, which could introduce/exacerbate instability in the market and discourage potential entrants (innovators, new firms, etc.).

This doesn't just happen in the ones-and-zeroes world of high finance, either. Consider the factory owner who needs a source of clean, running water for an industrial process. He sites his factory upon a river to make use of it, letting the waste product flow downstream....past the town established there generations ago. He makes money from selling his goods, but the town has to pay the price of his profits. Where's the efficiency there?

Those are just two of many, many problems with "efficient" market allocation of goods and resources. Fundamentally, however, most of the real-world problems with free-market economics boil down to three particular problems:

1) Human lives are not, and must not become, numbers on a balance sheet;
2) Transactions never take place in a vacuum; and
3) Society is far, far more than the mere sum of its parts - humans are fundamentally irrational economic creatures. (Consider what happens when seniors get too old to work - even today, most families don't just abandon them, as would be the economically rational thing to do...nor do we cease to have children, despite the vast costs child-rearing impose upon anyone who wants to do it right.)

The free market is a powerful, powerful engine. But if it's to work to the benefit of humanity, it must be fundamentally our servant, not our master. With that in mind, I greatly prefer a mixed-market economy with a strong safety net for the disadvantaged and a public sector providing/regulating goods which are particularly characterized by high external impacts upon others (externalities, such as utilities, education, major non-cosmetic healthcare, etc. etc.).

[Aapje]

I believe that, in all situations, it is best to efficiently allocate resources. In all situations it is best to efficiently allocate intelligence.

This is meaningless unless you first establish a goal which has to be reached and explain why this goal is better than other goals that we could choose.

A lot of libertarians seem to do it the opposite way, they argue for a method (free market) and then declare the outcome of the free market to be 'good.' Pretty much by definition: 'it is an outcome of my preferred method, so it must be correct'. It's like throwing a dart at a map to decide on your holiday location and then declaring: 'Guantanamo Bay is the best place to go on holiday, because the dart made me go there.'

My morality goes the other way, I have a goal and then seek to use methods to achieve that goal. IMHO, this is the rational method. The libertarian method is closing your eyes to complexity of the world and pretending that a simple solution can solve complex problems.

It's never desirable or beneficial to waste intelligence.

What does this even mean? Does it mean that you want to ban sports, as it is using your body, rather than your brain? That no one should be mining the metals we need, but the (ex-)miners should sit around and discuss philosophy?

How do you define 'wasting intelligence'? This seems little more than an arbitrary statement that you can use to defend or criticize anything, just by defining stuff you dislike as 'a waste.' Again, this is a meaningless statement unless you explain the goal for which that intelligence should be used.

You and I are stranded on an island. Would it ever be desirable or beneficial to waste your intelligence? No, of course not. It would be beneficial to put your intelligence to the most valuable uses. It would be beneficial if your intelligence was used to solve the biggest problems.... water, food, shelter, being rescued and so on.

Food, water and shelter are just basic needs, but when you go beyond that, your argument runs into trouble.

You may want to be rescued, I may want to stay on the island. Your end goal might be to get back to civilization, my end goal might be to sip bloody mary's on the beach. So from my perspective, it is a waste of effort to build a boat, from your perspective, it is a waste of effort for me to build a distillery.

Again, the goals differ, so the methods can be different then too. And it may give conflict, imagine that you need to chop down all the trees to make a boat for 1 person, but that would take away a major food source for me. Now what?

How much would I be willing to spend in order for you to solve the problem of water? If water was scarce... then I'd be willing to spend quite a bit.

Imagine that you luckily stumbled on a hidden source of fresh water, but keep the location a secret. You will only keep giving me water if I allow you to chop down all the trees. This destroys my dream and will kill me in a few months, but I'll live now.

If you (ab)use your power, you get what you want, merely by virtue of luck (finding the water). Is it right for you to leverage your luck into getting your way, while I slowly starve to death?

Spending simply allows for more communication.

Spending is not communication. Spending is using power.

A dollar is merely a debt that is owed. A debt that I can ask to be repaid by goods or services, by absolving people of their debt (handing over money). In a market economy, that debt is made anonymous, unlike personal debts to a person, which has many benefits and makes it less coercive. But at the end of the day, it's still coercive, as people without money have to do things for those with money to live.

When you go to a starving person and tell him: do a weird dance and I'll give you ten dollars, he doesn't do that weird dance because he suddenly likes doing that dance after you 'communicated' with him. He does it because that money gives him leverage at McDonalds, so they hand over a burger and fries. He is willing to endure unpleasantness because the alternative is worse, but you have still coerced him into doing something he'd rather not do.

The production of everything worthwhile requires solving problems.

Only in the sense that doing anything requires solving problems. The Holocaust took more problem solving than many other things. Yet it was not worthwhile.

Again, the (right) goal must be defined first, then the method chosen. Never the other way around.

Should you solve the production problems of caviar or should you solve the production problems of healthcare? The best way to answer this question is by spending.

Why?

Why is it better for the rich person to eat caviar than for the poor person to have healthcare? Why do you deserve to have healthcare by virtue of where you were born, the money/goods you were given by family, the abilities that you were lucky enough to be born with, etc; while the person without that luck doesn't? Why would I support your methods when they lead to what I find to be immoral outcomes? I want to use my intelligence to come up with a more just system. After all: 'the production of everything worthwhile requires solving problems.'

Besides, why would a poor person respect your arbitrary choice for a system that you like because you benefit from it? Perhaps their skill is that they can be part of a revolution. Perhaps their skill is that they can wield a weapon and kill the rich. Why is your skill at making money in our current system automatically more legitimate than their skill at getting stuff in a different system. Ultimately, your system is not 'opt-in,' it is enforced by men with guns, who force people into your system. How is it not oppression when you force people into a system that oppresses them? And why would people cooperate with a system that victimizes them, rather than resist?

[Aapje]

Spending is an important form of communication.

Voting is simply a form of speaking.

Xerographica, you really need to learn the difference between voicing an opinion and using power.

Although they can coincide, they are distinct and you can't understand anything unless you learn to distinguish between the two.

[Xerographica]

What benefit does society - or indeed, anyone who isn't a shareholder in that particular brokerage - derive from this sequence of events? None. For that matter, a compelling case could be made that by artifically "bouncing" share prices to take advantage of tiny fluctuations, society derives a net loss from the broker's actions being repeated thousands of times, which could introduce/exacerbate instability in the market and discourage potential entrants (innovators, new firms, etc.).

Speculation is generally beneficial. Bob back in the day had information which led him to believe that there was going to be a famine. So he purchased lots of food. If Bob's information was correct... then he would profit from his foresight. It would be beneficial for society because the shift in the price of food would reflect his correct information and transmit the gist of it to the rest of society. Consumers and producers would behave more beneficially. If Bob's information was incorrect... then he would suffer a loss and his influence/power/control would diminish accordingly.

It's beneficial for prices to reflect everybody's correct bits of relevant information. You're rewarded when you help push prices in the correct direction. The more correct information prices reflect, the more beneficially people behave. This is why minimum wages and other price controls are problematic. We need the price of labor to reflect whether or not there's a surplus of labor. We really don't want workers moving to areas that have a labor surplus. And we really want businesses moving to areas that have a labor surplus. Incentives really matter.

In modern day times there are lots of ways for speculators to cheat. And of course I'm against cheating.

This doesn't just happen in the ones-and-zeroes world of high finance, either. Consider the factory owner who needs a source of clean, running water for an industrial process. He sites his factory upon a river to make use of it, letting the waste product flow downstream....past the town established there generations ago. He makes money from selling his goods, but the town has to pay the price of his profits. Where's the efficiency there?

The efficiency is that we roughly know people's valuations of the factory's products. The inefficiency is that we don't roughly know people's valuations of clean water. Consider the issue of war/peace...

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

Peace, like clean water, is a public good. But people aren't given the option to spend their taxes on public goods. Instead, we rely on representatives. Which is extremely problematic...

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other. - Knut Wicksell, A New Principle of Just Taxation

Those are just two of many, many problems with "efficient" market allocation of goods and resources. Fundamentally, however, most of the real-world problems with free-market economics boil down to three particular problems:

1) Human lives are not, and must not become, numbers on a balance sheet;
2) Transactions never take place in a vacuum; and
3) Society is far, far more than the mere sum of its parts - humans are fundamentally irrational economic creatures. (Consider what happens when seniors get too old to work - even today, most families don't just abandon them, as would be the economically rational thing to do...nor do we cease to have children, despite the vast costs child-rearing impose upon anyone who wants to do it right.)

The free market is a powerful, powerful engine. But if it's to work to the benefit of humanity, it must be fundamentally our servant, not our master. With that in mind, I greatly prefer a mixed-market economy with a strong safety net for the disadvantaged and a public sector providing/regulating goods which are particularly characterized by high external impacts upon others (externalities, such as utilities, education, major non-cosmetic healthcare, etc. etc.).

You believe that it's necessary to know people's valuations of private goods but it's not necessary to know people's valuations of public goods. You're incoherent. Unfortunately, you're the rule rather than the exception. The consequences of your incoherence are extremely detrimental. It's a given that people are going to behave less beneficially. If you want people behaving more beneficially then it would behoove you to sit down and confront your incoherence. Seriously contemplate the fact that nobody is a mind-reader. Count how many times you benefit from something and don't spend your money to communicate the size of your benefit. In other words... count how many times you cheat.

I cheat a lot. Yesterday I enjoyed reading lots of Paul Romer's blog entries. I wrote a blog entry and used my words to communicate my enjoyment of his blog entries. But did I give him any money? Nope. I cheated. Am I the exception or the rule? The rule. Your mind can't fathom the total amount of cheating that occurs in a country each day. My mind can't fathom it. Nobody's mind can fathom it. It's too big to fathom. The damage that's done is too big to fathom. The goal should be to minimize cheating. The goal should be to maximize the honest/accurate communication of valuation. When everybody's valuations are far more accessible, everybody's decisions will be far more valuable. When Paul Romer knows everybody's valuations of his blog entries, his decision to blog or not will be far more valuable. When you know everybody's valuations of your NS posts, your decision to post or not will be far more valuable.

[Koninkrijk Zeeland]

The free market should allocate things.

[Forsher]

Xero has this habit of presenting what looks like some kind of economic system whilst actually presenting a different question. Xero's threads are actually about different ways of voting and thus what his questions explore, practically always, is whether or not system X is a better way of considering how much some individual values object Y than some other system Z.

He phrased it as an allocation question, so I will answer it as stated. One issue with the question is that it assumes that there is a choice that is better in all situations, which ignores that we don't always seek the same outcomes.

For example, take these questions:
1. Do you think that everyone should 'be allocated' enough healthy food to sustain themselves?
2. Do you think that everyone should 'be allocated' as much caviar and champagne as they want?

Both are allocation questions, but I think that most people would answer yes for the 1st question and no for the 2nd. As society seeks to allocate some things in a socialist way and some things in a capitalist way, it is only logical that the allocation mechanism that is chosen reflects that.

but one is a cost you know you have to meet now...

This is actually a known issue for very poor people: that they make decisions that offer the best short term solution, but a bad long term outcome. A common way to deal with insurmountable problems is denial, especially things that happen in the future.

But even rich people often make very irrational choices. One of the biggest weaknesses of rationalist/economist solutions is that there is a mismatch between what people consider a rational allocation in aggregate vs the choices they make themselves. There is no objective reason to prefer the latter over the former.

Actually, when your alternative is "not eating" or "not getting to work", going to the doctor is functionally the same as drinking away your pay cheque. This doesn't require much thought. You must eat to live... and not eating creates a need to go to the doctor. Not going to work ultimately leads to all sorts of issues such as unemployment and this can also ultimately end up creating a need to see a GP (or even a specialist). It doesn't matter that health checks are important and useful. It does matter that they might not be needed, ever: being poor means you are forced to play the lottery.

You've got $100. $20 gets spent on habitation costs (mortgage/rent, utilities etc.). $10 is spent meeting interest on debts that your were forced to accumulate because you aren't able to save. $10 is spent on work/travel/school/clothing related costs. The remaining $60 is spent on food... and you try to make this go further (so there are inferior products in here). Budgeting won't help... you're already spending what you have very efficiently.

Now, if a trip to your GP costs $1, you have to reduce one of these other categories. Spend less than $20 in the first category and you could be homeless, without power or without water. Yeah, not going to reduce this. Spend less than the first $10? Hmm, there goes the car... or maybe the fridge... And now you have to spend $12 on this. So, not going to reduce this either. Spend less than the second $10. This seems promising. You've already cut back on the school stuff (the kids haven't ever been on a school trip, been to watch the visiting performers or even bought anything at the gala/fair), so you're considering finding a cheaper way to get to work... except you've probably already done that (at least to the best of your abilities). The clothes are largely second hand, and you need your job so much that you can't risk being late... Given we've assumed efficient spending, I therefore assume the $10 is the absolute minimum that can be spent here (i.e. any cut backs probably mean not replacing worn out shoes, etc.). So, you're left with food... and I argue that regardless of whether we take a long or short term decision here, you choose food over the GP. In the short term, you have to eat... so you eat. In the long term, you have to eat better, i.e. more expensively.

It's late and I feel maybe I've just said the same thing three times so I'll briefly consider the final point... prefer in what sense? From a social point of view, it is better that you have some sort of system which is fair*. From an individual point of view, it is better that you have some sort of system that maximises individual sense of success. This second bit is possibly fulfilled with Xero's "fair allocation" depending on how "finder's keepers" you suppose the average person's mentality is but the point is, "linvoid" allocation is/does neither.

*In the sense I noted above... i.e. fair balances both the agency and the humanity of at least three parties (consumer, producer/seller and third parties).

Spending is an important form of communication.

Voting is simply a form of speaking.

Xerographica, you really need to learn the difference between voicing an opinion and using power.

Although they can coincide, they are distinct and you can't understand anything unless you learn to distinguish between the two.

I maintain that this is a sufficient response to my earlier point.

[Dumb Ideologies]

I support a mathematically inefficient allocation where the free market as it currently operates determines who gets most stuff and bureaucrats in offices try to plug the holes. I oppose radical solutions based on a mythical infinitely rational homo economicus.

[Xerographica]

I believe that, in all situations, it is best to efficiently allocate resources. In all situations it is best to efficiently allocate intelligence.

This is meaningless unless you first establish a goal which has to be reached and explain why this goal is better than other goals that we could choose.

A lot of libertarians seem to do it the opposite way, they argue for a method (free market) and then declare the outcome of the free market to be 'good.' Pretty much by definition: 'it is an outcome of my preferred method, so it must be correct'. It's like throwing a dart at a map to decide on your holiday location and then declaring: 'Guantanamo Bay is the best place to go on holiday, because the dart made me go there.'

My morality goes the other way, I have a goal and then seek to use methods to achieve that goal. IMHO, this is the rational method. The libertarian method is closing your eyes to complexity of the world and pretending that a simple solution can solve complex problems.

The goal is the maximization of benefit and progress. Given that values are entirely subjective, this goal can only be achieved when people are free to spend their money in order to communicate what they consider beneficial/progressive.

It's never desirable or beneficial to waste intelligence.

What does this even mean? Does it mean that you want to ban sports, as it is using your body, rather than your brain? That no one should be mining the metals we need, but the (ex-)miners should sit around and discuss philosophy?

How do you define 'wasting intelligence'? This seems little more than an arbitrary statement that you can use to defend or criticize anything, just by defining stuff you dislike as 'a waste.' Again, this is a meaningless statement unless you explain the goal for which that intelligence should be used.

We both agree that the Holocaust was a waste of intelligence. This means that we both agree that the Jews could have been put to more valuable uses. Do we agree exactly what those valuable uses could have been? Probably not. Hence the point of markets.

Spending simply allows for more communication.

Spending is not communication. Spending is using power.

A dollar is merely a debt that is owed. A debt that I can ask to be repaid by goods or services, by absolving people of their debt (handing over money). In a market economy, that debt is made anonymous, unlike personal debts to a person, which has many benefits and makes it less coercive. But at the end of the day, it's still coercive, as people without money have to do things for those with money to live.

When you go to a starving person and tell him: do a weird dance and I'll give you ten dollars, he doesn't do that weird dance because he suddenly likes doing that dance after you 'communicated' with him. He does it because that money gives him leverage at McDonalds, so they hand over a burger and fries. He is willing to endure unpleasantness because the alternative is worse, but you have still coerced him into doing something he'd rather not do.

We must have different definitions of "communication". My willingness to spend $10 dollars for the starving person to do a dance clearly and obviously transmitted information about the intensity of my preferences. Is it necessary to know the intensity of people's preferences? Would society somehow work better without this information being transmitted?

Spending is communication and power. Yes, I had the money/power to get the starving person to do something that I wanted him to do. But it's strange to say that the fact that I gave him his best possible option counted as coercion. You didn't give him a better or worse option. If my action counts as coercion... then how shall we characterize your lack of action? Where were you? Were you there as well but too poor to help provide the starving person with a better option? So, somehow poor people have a monopoly on morality? Somehow it's moral not to earn money? Working is immoral?

The liberal goal would be to make it illegal to pay starving people to dance. It would obviously result in people starving to death... but hey, at least it prevented "coercion".

The supply and variety of better options is a function of the efficient allocation of resources. I'm sure that you can understand that the inefficient allocation of Jews (The Holocaust) severely decreased the supply and variety of better options. The more efficiently resources are allocated, the greater the supply and variety of better options.

Why is it better for the rich person to eat caviar than for the poor person to have healthcare? Why do you deserve to have healthcare by virtue of where you were born, the money/goods you were given by family, the abilities that you were lucky enough to be born with, etc; while the person without that luck doesn't? Why would I support your methods when they lead to what I find to be immoral outcomes? I want to use my intelligence to come up with a more just system. After all: 'the production of everything worthwhile requires solving problems.'

Besides, why would a poor person respect your arbitrary choice for a system that you like because you benefit from it? Perhaps their skill is that they can be part of a revolution. Perhaps their skill is that they can wield a weapon and kill the rich. Why is your skill at making money in our current system automatically more legitimate than their skill at getting stuff in a different system. Ultimately, your system is not 'opt-in,' it is enforced by men with guns, who force people into your system. How is it not oppression when you force people into a system that oppresses them? And why would people cooperate with a system that victimizes them, rather than resist?

Er, pragmatarianism is enforced by men with guns? LOL. In case you missed it, we don't have a pragmatarian system. So the current system is not mine. Strangely enough though, most anarcho-capitalists reject pragmatarianism because they perceive that it would be enforced by men with guns. My typical response is to ask them what the demand is for coercion. Of course they don't know the answer. And they don't quite grasp that it's problematic that they don't know the demand for coercion or any other public good.

In a pragmatarian system I'm not exactly sure if I would give my taxes to the police if they arrested you for tax evasion. Maybe if you were super rich? But what would your motive be? Why would you want less influence/power/control in the public sector? If all the wealthy people wanted less power in the public sector then they'd simply boycott congress until the tax rate was lowered.

[Aapje]

being poor means you are forced to play the lottery.

No, you are only forced to choose between healthcare and food when (basic) healthcare is not provided in such a way that people no longer have to choose between food and healthcare.

Again, it is a choice to set up a system that forces people to choose between the two, rather than a system where people don't have to make such a choice, by enforcing solidarity.

You've got $100. [etc, etc]

Your example completely ignores the existence of a government and the fact that market systems are typically way more complex than 1 person making a deal with 1 person.

It's unfortunately rather typical of my discussions with libertarians, there's an enormous lack of knowledge & understanding. "If people would just abandon all these rules that were made for a reason, which I fail to understand, then everything would magically work out." It's a rather horrid mix of ignorance and magical thinking.

From an individual point of view, it is better that you have some sort of system that maximises individual sense of success.

That is true in more egalitarian systems, that allow everyone to achieve some measure of success in life, even when they were born without the money, power or abilities that allow one to 'win' in a pure free market system.

Pure free market systems minimize the individual sense of success, creating very few winners and many losers.

[New Chalcedon]

What benefit does society - or indeed, anyone who isn't a shareholder in that particular brokerage - derive from this sequence of events? None. For that matter, a compelling case could be made that by artifically "bouncing" share prices to take advantage of tiny fluctuations, society derives a net loss from the broker's actions being repeated thousands of times, which could introduce/exacerbate instability in the market and discourage potential entrants (innovators, new firms, etc.).

Speculation is generally beneficial. Bob back in the day had information which led him to believe that there was going to be a famine. So he purchased lots of food. If Bob's information was correct... then he would profit from his foresight. It would be beneficial for society because the shift in the price of food would reflect his correct information and transmit the gist of it to the rest of society. Consumers and producers would behave more beneficially. If Bob's information was incorrect... then he would suffer a loss and his influence/power/control would diminish accordingly.

Speculation is beneficial, up to a point, in that it can correct prices which are currently above or below a value which accurately indicates relative demand and supply for a good. But I believe that we, as a society, are engaging in it far past that point. There was no "inside information" in my hypothetical for a reason - speculators today don't need to have any pertinent information to begin a run on a particular company.

Incidentally, regarding your example of grain speculation: It led to the French Revolution. I'm not kidding - one of the major causes of the famine which undermined the monarchy's popular support was rampant speculation on the price of grain. All it took was one year of widespread (but not universal - indeed, France could still feed itself even with the famine) bad harvests, combined with grain-trade liberalization. Instead of the royal hand moving grain from unaffected provinces to famine-stricken provinces then selling it at a moderate price (as had been previously done, to ensure food supply stability), the speculators' actions resulted in immense price spikes all across France as they bought up grain where it was plentiful (causing landowners to greatly increase their rental and price demands), then sold it at several thousand percent markup in the afflicted regions (causing widespread poverty there). Within two months, bread riots were a commonplace thing in every city in France, as large numbers of working-class people could no longer afford even bread to keep themselves alive. It took over a year for the King to settle matters down again, and the ongoing suspicion (due to the lack of early intervention) that the Crown had deliberately allowed the famine to spread fatally undermined the monarchy's support among the urban classes.

Whenever someone tells me that speculation is inherently good, I laugh at them. Sometimes I stop laughing before they start looking at me funny. Besides the Flour War (described above), there's the South Sea Company, Black Tuesday, the Panic of 1893 and many, many other cases of speculators blowing the marketplace up in their quests for individual profit before all else. Including, incidentally, the leadup to the Global Financial Crisis.

Speculation has its role to play in a functional marketplace. But it causes immense ills when it outgrows that role.

It's beneficial for prices to reflect everybody's correct bits of relevant information. You're rewarded when you help push prices in the correct direction.

The example I gave, of the stock price being "bounced" to generate a return off nonexistent change? That's a common tactic on the part of speculators today. So, once again: What "pushing" did that person do in my example? The stock was already correctly-valued - all his action achieved (besides making his firm money coming and going) was to induce instability in the share price. And yes, that too is a common effect today.

The more correct information prices reflect, the more beneficially people behave.

Mhm. Of course they do. Because as we all know, humans are economically rational beings.

This is why minimum wages and other price controls are problematic. We need the price of labor to reflect whether or not there's a surplus of labor.

And bedamned to those who starve because "the price of labour" won't keep a roof over their heads, eh? I recommend Jonathan Swift's works to you, one in particular. As far as the broader question of the (un)wisdom of price floors goes, labour is not broccoli - the conditions in which I use your labour matter infinitely more than those in which I use a head of broccoli. It won't object to being chopped up into small pieces, or spread out to make up the part of four heads' worth of broccoli in recipes, or left in the sweltering heat for days at a time. Why? Because those things produce no suffering, whereas using labour in any of those fashions does. And broccoli does not object to being bought at half-price, but labour almost invariably does - for good reason.

As a rule, I don't approve of price ceilings or floors on most goods. But human labour, that's an exception to the rule. Because human labour is not an ordinary good.

We really don't want workers moving to areas that have a labor surplus.

Labour has intrinsically less mobility than capital - as a share of their ready assets, almost any company will spend far, far less moving its production to a new locale in response to a price incentive than a family or even a lone worker will. It can be done by the latter, but is worth doing only when the price disparity has become very significant indeed. Consider: I currently live in a rented accommodation. Would I move two doors down, far less across the city, for a $10/week rent cut? No, of course not - the considerable work and inconvenience created by the move would far outweigh the benefit of the rent cut. But, if I were to behave in a perfectly economically-rational manner, I would make the move - because human inconvenience and suffering has no part in an economically-rational calculation, and no place in an economically-rational world.

And we really want businesses moving to areas that have a labor surplus. Incentives really matter.

Remind me; how's that working out for America? Businesses moved to areas which had labour surpluses - they moved overseas. And it doesn't matter if there's a minimum wage or not; the $2.50/hour which Chinese manufacturing workers get paid (circa 2015) simply won't keep an American worker alive, far less in a position to purchase the goods that he's making. Ford, for all his stupidity on race relations, sussed that out - a mass-consumption economic model can only work when people are making enough money (by and large) to afford the very goods or services they're producing.

Incidentally, while we're still on the topic of labour-market economics: What do you advocate to be done when automation displaces the 35-40% of jobs it's expected to over the next decade? That's actually a low guess, for a Western economy - I've seen estimates as low as 42% (CEDA's estimation of the impact on Australia) and as high as 48% (Deloitte's estimation of the impact on Switzerland) - but I wanted to be generous to you, give you a smaller problem to solve. When a large chunk of the workforce, perhaps even a majority of it, is simply superfluous to the production of goods and most services, what would an economically-rational autocrat do?

In modern day times there are lots of ways for speculators to cheat. And of course I'm against cheating.

That's mighty big of you.

This doesn't just happen in the ones-and-zeroes world of high finance, either. Consider the factory owner who needs a source of clean, running water for an industrial process. He sites his factory upon a river to make use of it, letting the waste product flow downstream....past the town established there generations ago. He makes money from selling his goods, but the town has to pay the price of his profits. Where's the efficiency there?

The efficiency is that we roughly know people's valuations of the factory's products. The inefficiency is that we don't roughly know people's valuations of clean water. Consider the issue of war/peace...

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

Peace, like clean water, is a public good. But people aren't given the option to spend their taxes on public goods. Instead, we rely on representatives. Which is extremely problematic...

At least the representative wants to be re-elected, and so has an incentive to at least pretend to care what their constituents have to say. Does the factory owner give a damn what the townsfolk have to say about his factory? No.

Also, you completely failed to answer the point I made, which was fundamentally about externalities: What does the "free market" do when persons A and B engage in a transaction, the byproduct of which impacts person C? The "free market" does nothing in that situation - it doesn't impose a river-cleaning tariff on the factory owner, it doesn't order financial compensation to the townsfolk who are harmed by the pollution and it certainly doesn't set a limit on the amount of goods to be made (and thus pollution produced). Instead, the "free market" settles on a price/quantity of the good to be made and sold as if that cost simply didn't exist, because no-one involved in the transaction has to pay it. But that cost still exists - someone (in this case the town) pays a price which is simply imposed on them by outside forces.

As problems with the free market go, it's one that's acknowledged by all but the most stubborn of Austrian adherents. It is acknowledged to work in both directions, incidentally: not only does the free market overproduce goods with negative externalities, it underproduces goods with positive externalities - benefits for people not engaged in the transaction.

It is impossible for anyone, even if he be a statesman of genius, to weigh the whole community's utility and sacrifice against each other. - Knut Wicksell, A New Principle of Just Taxation

Anyone can quote an author to look good. Have you actually read Wicksell as I have Adam Smith, or were you just looking for a libertarian quote to suit your demand of the moment?

Those are just two of many, many problems with "efficient" market allocation of goods and resources. Fundamentally, however, most of the real-world problems with free-market economics boil down to three particular problems:

1) Human lives are not, and must not become, numbers on a balance sheet;
2) Transactions never take place in a vacuum; and
3) Society is far, far more than the mere sum of its parts - humans are fundamentally irrational economic creatures. (Consider what happens when seniors get too old to work - even today, most families don't just abandon them, as would be the economically rational thing to do...nor do we cease to have children, despite the vast costs child-rearing impose upon anyone who wants to do it right.)

The free market is a powerful, powerful engine. But if it's to work to the benefit of humanity, it must be fundamentally our servant, not our master. With that in mind, I greatly prefer a mixed-market economy with a strong safety net for the disadvantaged and a public sector providing/regulating goods which are particularly characterized by high external impacts upon others (externalities, such as utilities, education, major non-cosmetic healthcare, etc. etc.).

You believe that it's necessary to know people's valuations of private goods but it's not necessary to know people's valuations of public goods.

I believe only one of those. In fact, I believe that you have fundamentally misinterpreted everything I have said on the topic. I believe that it's not necessary to know "people's valuations of private goods", but rather that it is necessary for someone to form a social valuation of those goods, including effects that their production processes and any byproducts - good or bad - have on society as a whole. I also believe that a government is probably the best body to do so, with all of it's flaws, because no government seeks to preside over poverty or misery. I don't believe that the government (or any central body under a different name) needs to know peoples' valuations of particular private goods in and of themselves, because the government is not, and should not be, in the business of telling the private sector how much to produce, but rather to use incentives to encourage the market's production of private goods to move closer to the current understanding of socially-optimum production levels.

As far as public goods go, I again don't particularly believe that it's necessary for any government to know how much people value (read: are willing to pay for) public goods, because the government has a compelling social interest in producing an adequate supply of those goods to meet the basic needs of society as a whole, which is an interest that no private-sector producer ever holds.

You're incoherent. Unfortunately, you're the rule rather than the exception. The consequences of your incoherence are extremely detrimental. It's a given that people are going to behave less beneficially. If you want people behaving more beneficially then it would behoove you to sit down and confront your incoherence. Seriously contemplate the fact that nobody is a mind-reader. Count how many times you benefit from something and don't spend your money to communicate the size of your benefit. In other words... count how many times you cheat.

Your patronizing ad hominem remarks are duly noted, and dismissed. When it comes to assessments of my worth, I'll take the grades I was given over the course of multiple degree programmes (one of which was incidentally a Bachelor's Degree in Commerce, with a major in Economics) over the smug, self-satisfied remarks of a random stranger on the Internet. After all, my academic assessors had an incentive (since you love that word) to evaluate my work impartially and fairly rather than scoring cheap points at someone else's expense.

I cheat a lot. Yesterday I enjoyed reading lots of Paul Romer's blog entries. I wrote a blog entry and used my words to communicate my enjoyment of his blog entries. But did I give him any money? Nope. I cheated. Am I the exception or the rule? The rule. Your mind can't fathom the total amount of cheating that occurs in a country each day. My mind can't fathom it. Nobody's mind can fathom it. It's too big to fathom. The damage that's done is too big to fathom. The goal should be to minimize cheating. The goal should be to maximize the honest/accurate communication of valuation. When everybody's valuations are far more accessible, everybody's decisions will be far more valuable. When Paul Romer knows everybody's valuations of his blog entries, his decision to blog or not will be far more valuable. When you know everybody's valuations of your NS posts, your decision to post or not will be far more valuable.

Given that nobody's willing to pay you to post here, why do you do so? If you were a rational economic being (i.e., not "cheating"), you would not post in this forum. Indeed, you, as Economically Rational Man, would engage in only the barest minimum of leisure activities needed to physically and psychologically support you as you tirelessly work to produce for your own gain, and those activities would be carefully structured so as to ensure that they aligned with your next task's requirements. Economically Rational Man works 12-hour days, six days a week - the most that the human body and mind are capable of sustaining on a long-term basis.

But of course, Economically Rational Man does not exist. He cannot exist, since Economically Rational Man would die out in almost the same generation in which the species came about - having children is an inherently economically irrational decision, after all. What's more, Economically Rational Man would never appreciate art, watch films or read a book without some economic incentive to do so. Economically Rational Man would never purchase nor commission sculptures, his buildings would be Spartan and functional and his transportation would be designed and chosen solely on the basis of efficiency. In short, the world of Economically Rational Man would be as cold and gray as the stereotypical Communist factory town. Ebenezer Scrooge lived the life of Economically Rational Man, until the events of A Christmas Carol, but I doubt that either you or I would enjoy living his life.

[The Intergalactic Universe Corporation]

Efficient allocation allows the full potential of the resources to be maximised, unlike fair allocation which will cause economic growth to stagnate and make the poor poorer and everyone worse off overall.

[Aapje]

Given that values are entirely subjective, this goal can only be achieved when people are free to spend their money in order to communicate what they consider beneficial/progressive.

That only makes sense if everyone has the same amount of money to start with, because then everyone can equally maximize their benefits, based on their own needs. If you have unequal buying power, people with more money can get way more benefits. Why is this optimal?

For example, don't you believe in the law of diminishing returns? Because that would suggest that some wealth redistribution will increase the average benefits, because the more benefits people already have, the more money is needed to get the same effect.

This means that we both agree that the Jews could have been put to more valuable uses.

Do we agree exactly what those valuable uses could have been? Probably not. Hence the point of markets.

This sounds rather sociopathic. The killing of Jews wasn't wrong because they had better uses, it was wrong because they are people with human rights.

Look at the mentally handicapped, they were killed because they couldn't be productive citizens. Do you think that this was right? Or that letting them starve in a free market system where people have to work for their food is right? Do you think that they lost the right to live when they 'decided' to be born with a mental handicap?

We must have different definitions of "communication". My willingness to spend $10 dollars for the starving person to do a dance clearly and obviously transmitted information about the intensity of my preferences.

That's certainly not true. A rich person could spend that 10 dollars without really caring for the dance. In contrast, if a poor person for whom $10 has to buy a week worth's of food would be willing to offer 'just' a dollar, that would indicate far stronger intensity of preference.

Again, your argument is only true if everyone has the same amount of money to start out with and thus values that $10 the same. This is obviously not true.

But it's strange to say that the fact that I gave him his best possible option counted as coercion.

In my opinion, not helping people in trouble when you can help, is immoral.

If my action counts as coercion... then how shall we characterize your lack of action? Where were you?

Perhaps I was unaware (and far away). Perhaps I alone do not have the means to help everyone in this situation.

And perhaps I voted for a system that removes the arbitrariness of depending on benefactors and created a system of government benefits. A system that you want to demolish.

So, somehow poor people have a monopoly on morality? Somehow it's moral not to earn money? Working is immoral?

These are all straw men that do not follow from my arguments. I can see why you want to paint the alternative to your system as something extremist, because then the flaws in your arguments look smaller by comparison.

It's not immoral to earn money. It's immoral to be lucky in a way that allows you to earn a lot of money, without wanting to share some of that with the less lucky.

The liberal goal would be to make it illegal to pay starving people to dance. It would obviously result in people starving to death... but hey, at least it prevented "coercion".?

I'm going to stop here and leave you to your silly straw men. Social-democrat systems in the real world provide a safety net and if you ever become a honest debater, you can try to argue why your system is better than one with a safety net.

For now, let me just say that your lack of knowledge, combined with bad debating techniques and a lack of logic is extremely off putting.