Are Congresspeople Omniscient?

[Infactum]

We may discuss this situation under two distinct models for budgetary decision-making. In the first, which we can call the planning model, we assume that decisions on the size of the budget, and hence on total tax revenues, are made by an external chooser who is able omnisciently to read individual preference functions. In the second, or public choice model, we assume that budgetary outcomes emerge from the interactions of citizens themselves, operating under some designated decision rules. - James M. Buchanan, Taxation in Fiscal Exchange

In terms of opportunity cost, what's the difference between the two models?

You'll note in section 3 that he admits that this is too oversimplified to apply to the real world and may only be applicable in a small range of areas. That is, he knows this is a false dichotomy.

To use your language (which you have repeatedly shown to be distinct from professional economic language), the omniscient external chooser is able to better consider the effects of different choices by virtue of being omniscient. However, I realize that you would rather I note that people can consider opportunity cost better when they have more choices.

You do want me to prove a negative.... My claim is not that opportunity costs* do not ensure efficient allocation in all cases (though I do believe this). My claim is that it is not proven that opportunity costs ensure efficient allocation in all cases. The latter is not something on which anyone is going to write a paper, anymore than I could present you with an astronomy paper showing that it is not proven that there is a teacup in the Oort cloud (indeed, I could not present you with an astronomy paper proving there is not a teacup in the Oort cloud either). It is hard or impossible to prove negatives without exhausting (often infinite) possibilities. The only way to do so is by way of counterexample, which are not always easy to construct. The burden of proof is on the positive claim for this reason.

So, since I am skeptical of your claim, give me proof.

I've extensively studied the opportunity cost concept. As far as I know, not a single economist has limited the concept to private goods. If you claim that it is limited to private goods, then the burden is on you to substantiate your claim. Feel free to look over a very small sample of my evidence...opportunity cost passages.

This is why I dislike the use of the term by itself. Everything has an opportunity cost. That is undeniable. What is deniable is that maximizing peoples' apparent opportunity to compare opportunity costs will maximize value in all cases.

Ok, you know that bit about Buchanan's assumptions that you left out about in your response? I went through and looked at his formal assumptions and found that they did not apply to the real world. This made the passages you quoted misleading, as they were bereft of their domain of applicability.

I just want a paper that shows that maximizing ability to compare opportunity cost maximizes total value. You claim to have many. Any such demonstration will rest on some assumptions. I would like to examine those assumptions for things you may have missed. Please, just one link that you believe shows this.

Side note - I sincerely hope that sample is not representative of your sources. We have, in order:

Professor's blog - No link to put the original quote in context with what assumptions were made. Looks like he's explaining a basic point (& => is making many simplifying assumptions)
Austrian Economics - A field that explicitly rejects empirical critique (http://en.wikipedia.org/wiki/Austrian_School).
Buchanan again - Without context or assumptions, but I'm willing to bet the assumptions he's made in the other papers hold.
Eva Mueller - No context. Refers to private goods. Seems to doubt existence of certain preference functions when referring to public policy.
Robert Higgs - Literally a political blog post. Is a professor, but is not his professional work.
Bastiat - From 1850. Not exactly a formal economics paper despite it's apparent foundational worth according to wiki.
Lazear - General review of economics is being quoted.
Derrida - Philospher. Not an economist.
The rest include more Derrida, a "Christian perspective," two bible quotes, a greek myth, Thoreau, Eisenhower, what are hopefully 3 jokes, and Neitzche.

You've got a pretty bad ratio of trained economists to random people saying things that sound good. You have an even worse ratio of formal economics work to watered down (and therefore oversimplified) prose.

I will also note that none of these sources seem meant to show that maximizing ability to compare opportunity cost will maximize value in all cases.

Edit: Ahh well, I did find something:Tax-earmarking and separate school financingJournal of Public Economics. Volume 54, Issue 1, May 1994, Pages 51–63

That's from the abstract. I hope you can access that; I am on a university campus, and it is not always obvious which papers are public. The beginning of section 3 is the where he discusses his results on the equilibria.

Did you not read the paper before you mentioned it? As far as I can tell, his criticism boils down to the prisoner's dilemma. Either the prisoner's dilemma is relevant and I'm just not seeing it...or the author just hasn't thought things through. But I did add a few passages from his paper to my database. Why did you remove the passage that you initially shared? I initially added to this reply all the passages that I had pulled from his paper...but then I removed them when I noticed that you had removed yours.

His conclusion would have been credible if, and only if, he had provided a reasonable defense/explanation of our current system's allocative efficiency. As in, "the current allocation is more efficient because congresspeople are omniscient". Or, "the current allocation is more efficient because the political process as it stands allows citizens to adequately communicate their preferences". But like yourself, he did not substantiate his claim concerning the current system's allocative efficiency.

Tax choice allocation can only be considered less efficient when compared to a system that's more efficient. But our current system is solely based on the assumption of efficiency. Congresspeople are assumed to be omniscient. It's assumed that they can reach inside our heads and pull out our preference rankings. Not all economists accept this absurd assumption which is why there's been considerable work done in the area of preference revelation. (*)

I did not quote out of an abundance of caution. I think I'd be covered by fair use, but frankly that risk isn't worth it for an internet argument (how's that for opportunity cost), and linking was the recommended action of the library's website. If you feel you have the rights to post passages, please do. I was quoting the second sentence in the abstract.

Yes, it boils down to the prisoner's dilemma (a continuous version of it). The prisoner's dilemma is relevant because people can "lie" about their preferences, and, as he puts it, demand an "inefficient bundle of public goods" - that is not an exact quote, but I'm paraphrasing the bottom of page 52. I would be very careful before concluding a trained economist published in a peer reviewed journal has "not thought things through."

His claim is that there are a large amount of situations where rational individuals will be inefficient*. He, admittedly, does not show this to be greater or smaller than a central decision, but rather shows that the question is not closed. And that people will tend to defect in many cases. A trivial extension for this is that if they defect in cases where cooperation out-ways the lost efficiency, the centralization is better for that sector.

He also shows that some goods may be "safely" left open for tax choice. This should tell you something about the way you apply opportunity cost to all goods regardless of nature.

*) You realize, of course, that the paper I linked states that we do not need to assume congress people to be omniscient for them to (possibly) be better than tax choice.

*Side note: he characterizes his homo economics as "Favorable" (to a tax choice model, I beleive).

I'm not certain I see a way, do you? I could shoehorn it in if I made wild enough assumptions. There's a reason I put "(some)" in front of multiplayer.

I don't see a way either, which is why I maintain that game theory is largely irrelevant to allowing millions of citizens to shop for themselves in both halves of the economy.

You have once again confused the phrases "Not all of these are ____" and "All of these are not ____"

You take the statement "Not all economic situations require the prisoner's dilemma in their analysis" and concluded "All (or almost all) economic situations do not require the prisoner's dilemma in their analysis."

This is a dangerous mistake to make when trying to speak about things logically. Game theory is relevant, as the linked paper shows.

Partially, I attribute it to the fact that public goods serve many more people than private goods (usually), so they are, by their nature, less dividable. I suspect competition and innovation are what drives the private sector, while it is hard to change the services offered by the government (though not all of these are "public goods" by the real definition).

There's far less diversity of goods in the public sector because public goods are less dividable? Then how do you explain a lack of diversity of private goods in planned/command economies?

The lack of diversity of goods in the public sector has absolutely nothing to do with public goods being less dividable (1). Instead, it has everything to do with a lack of easy exit. For example, if taxpayers could choose where their taxes go...then it's reasonable to assume that a good portion of liberals would withdraw their taxes from the DoD if they perceive that a war is being fought largely for the financial benefit of Halliburton et all. Yet, not sure if you noticed this, but oftentimes liberals are vocal proponents of military intervention when it comes to preventing/stopping genocide / ethnic cleansing (ie Darfur). In other words, they'd be willing to pay for some types of intervention but not other types. As a result, if the unmet demand is substantial enough, a humanitarian branch of the DoD could be split off into a new government organization. In other words, defense is easily dividable. It can be divided to reflect people's diverse perspectives on when military intervention is worth the opportunity cost. Of course I'm not saying that the DoD should be divided, I'm just saying that costless exit is the reason why there's far more goods in the private sector.

Sure it does. Why don't we see as many types of parks as we do novelty keychains otherwise? I don't disagree that the "costless" exit helps diversify the private sector, but it is not the only driving force. Things are almost never that simple.

In 1978 when Deng Xiaoping started helping China transition from a planned/command economy to a mixed economy...they only had the tiniest fraction of private goods available that they do today. If we implemented pragmatarianism tomorrow, then in 30 years we'd have a far greater diversity/variety of public goods available than we do today. This means that the demand for public goods will be far more adequately met than it is today. Just like the demand for private goods in China is more adequately met today than it was 30 years ago.

Wait. Let's say I accept your narrative. You want me to accept that we can extrapolate from a Chinese transition of private goods to an American transition of public goods 35 years later? Do you know why this is a terrible idea?

I would disagree with that. I believe that the system of voting we have now would likely produce a more utilitarian society than implementing your system.

So substantiate any claim you have regarding the allocative efficiency of our current system. Why wouldn't you want to determine whether or not your beliefs are based on anything of substance?

Right now, in this thread, that's not my claim. I am claiming your policy recommendations can be and (if I can) often are wrong, not that mine are always right. I am interested to see if my beliefs are based on substance. This is not explicitly the thread for it, but you are forcing me too think through the situations where centralization is probably optimal (and where it might not be).

I might as well, if I agreed that tax choice resulted in accurate estimates of future value.

Markets incentivize people to accurately estimate future value (1). Pragmatarianism would create a market in the public sector. As a result, taxpayers would be incentivized to accurately estimate future value. More incentive/motivation/effort/interest...would result in far more accurate estimates of future value (2). If you prevent taxpayers from shopping in the public sector, then the logical result is rational ignorance. Take away the carrot...and the mule won't have a good reason to budge.

1) The paper I just posted claimed that they also incentivized to not have this estimate reflected in their allocation (in many cases).
2) As a result, this does not follow.

So you think people would allocate congress an emergency discretionary fund of some sort? Maybe that would help. It still suffers from being a very public good among many less public goods.

People wouldn't have to shop for themselves in the public sector if they didn't want to. Congress would still be there and taxpayers would be welcome to give them as much (or as little) money as they wanted. Just like with every organization, the amount of money that people gave to congress would reflect what congress was doing with the money. If taxpayers perceived that congress was wasting their money (inaccurate estimates of future value), then this would decrease the amount of money that congress received.

Think it about it like this. Right now Elizabeth Warren has far more of a say how taxes are allocated than I do. Is it fair? Sure, she received more votes than I did. If we implemented pragmatarianism, would it be fair for Michael Moore to have far more of a say how taxes are allocated than I would? Sure, he receives far more dollar votes than I do. Clearly more people value his estimate of future value. But do they value his estimate of future value more than they value Elizabeth Warren's estimate of future value? It would behoove us to find out.

Congress, in terms of personal shopping, is easily dividable. Taxpayers should have the freedom to give their taxes to whichever congressperson most closely matches their preferences.

But they would want to. That's the problem. "The prisoner's wouldn't defect if they didn't want to, they could just both keep silent" doesn't work in the dilemma and doesn't work here.

So people value the thing they sacrifice for more than the thing they sacrifice? That contradicts your definition of value as willingness to sacrifice.

If you value x more than you value y, then you don't sacrifice x for y. If you value reading your book more than replying to this thread, then you won't sacrifice your opportunity to read your book.

Excellent, so you agree that people value the things they sacrifice for more than the things they sacrifice? If the answer is yes, then your definition of value as willingness to sacrifice is contradictory. A consistent (non contradictory) stance is important if you want your conclusions to be meaningful.

1) Note that people on SNAP*, as a rule, do not make enough money before taxes to feed themselves**. They receive more money from the government than they pay in.

2) So we implement pragmatarianism. The people eligible for SNAP will allocate most or all of their tax burden (if any) to the SNAP program for obvious reasons. After this, the program is less well funded, relative to the tax burden, than it is now (from (1)).

3) The SNAP program provides no obvious good to anyone not on it, so we hope the rest of the tax base sees the benefit of preventing people from getting desperately hungry enough to begin committing crime. If an insufficient amount of the tax base realizes this, or enough of the tax base lives far away from where any such crime would be committed (and thus have no interest in preventing it, except at maybe another level of abstraction), then the program's only hope of staying funded is altruism.

4) If none of the conditions in (3) are met, then the program will stay underfunded, which means some fraction of the people it funds will be unable to buy food. Therefore, they will starve/die of exposure/possibly turn to crime and be jailed.

I'm not sure how likely this scenario is, but I don't think it's that crazy. It certainly is not impossible. If it happened, would you say the market valued those people more dead than alive?

It's a crazy scenario. There's a demand for eliminating poverty/hunger. If we create a market in the public sector, then this demand will be far better met than it currently is. This is because markets incentivize entrepreneurs to come up with better solutions. So implementing pragmatarianism would reduce poverty at a far greater rate than our current system does.

In the real world, demand revelation meets with the same problem that has long confounded students of democracy. As Anthony Downs and others have shown, rational voters have little or no incentive to spend their time or effort gathering or providing information about their preferences. And even if the information were available, what is the incentive for a bureaucratic (monopolistic) supplier of a public good to give voters the greatest amount of value at the minimum of cost? - Edward H. Clarke

Even if the real demand for the elimination of poverty is significantly less than the pseudo-demand...the taxpayers who are willing to pay for the elimination of poverty are going to be motivated to do their homework in order to give their money to whichever organization is feeding/clothing/sheltering the most people at the minimum cost. This will incentivize producers to come up with more innovative/resourceful/economical/better ways of eliminating poverty.

Are you sure this will be enough to cover the difference in demand versus "pseudo-demand"? 99+% sure? It is perfectly possible that the market values some people (or whole groups of people) more dead than alive. The market is amoral, and, as you say, hard or impossible to predict.

You are claiming proof, I am not. I do see benefits to our current system that would not exist in pragmatarianism. I tried to show these to you and you have rejected them. I am not certain that the loss these benefits out way anythings gained from switching to pragmatarianism, but I think it likely. If you wish to call that a defense, go ahead, but it is nowhere near the level of certainty you claim.

If you were just suggesting that some sector of government provided services be transitioned to a tax choice model, I may or may not agree with you, but it would at least be reasonable. You instead are suggesting that pragmatarianism is better than every other conceivable system due to opportunity cost being the only valuable perspective for maximizing total value. Can you not see how this differs in strength from my claim?

You're claiming that I'm on the wrong path and you're on the right path. So substantiate your claim. Find papers that argue that the opportunity cost concept is limited in scope. Find papers that argue that our current political mechanisms adequately allow citizens to communicate their preferences. Or find papers that argue that our preferences are not needed to determine the optimal provision of public goods. Why wouldn't you want to do these things anyways? If half of your money is going to be spent in the public sector...then isn't your life too short not to discern the efficacy of the current system?

Do you know what is meant by claiming proof? It has a very strong meaning in technical fields (along with the word "theorem"). Everyone, including your worst political enemies, has to agree with you if you have a valid and sound proof. For this reason, claims of proof require intense scrutiny and verification. Reducing to mathematical abstraction is often the only way to ensure validity, as it is difficult to use consistent definitions when speaking. One contradiction in terms renders the result meaningless. Since you have claimed proof, I have endeavored to show that your proof in invalid. I believe I have succeeded in several areas, but unless we agree, nothing is "over."

As for discerning the efficacy of the current system: it would be hard, if not impossible, to construct an experiment that is sensitive to small political changes. Every large political change I've seen has clear and obvious drawbacks (with few obvious benefits). I generally understand (I think) why things are the way they are, though I do not beleive them all to be optimal.

If you're going to throw half of your possessions into a volcano, then wouldn't it be reasonable to make the effort to try and understand the logic of doing so? If you're going to sacrifice your children to the gods of war, then wouldn't it behoove you to take a closer look at the rationale?

You're at a university for goodness sake. How hard is it to walk to the economics department and ask if anybody there is familiar with public finance?

Personally, I've sacrificed the alternative uses of my limited time in order to track down and understand the best of the best arguments that defend our current system. As a result, I'm pretty certain that the people in the not-too-distant future will laugh at the absurdity of allowing 300 people to allocate half our nation's resources. Just like we laugh at the absurdity of allowing a king to control the power of the purse.

No, you clearly haven't. If the best argument you've found is a paper from the 50's, that's a problem. If you have concluded that all of these rest on the assumption that congress is omniscient, the that, too, is a problem. The fact that you didn't come across the paper I linked - which literally has "tax-earmarking" in the title and is one the 3rd page of google scholar (though that does depend on query) - speaks to the depth of your literature search.

Right now too many economists love their models, all politicians love their power and too many voters think they are getting a free lunch. We need more people to take a critical look at the assumptions that our current system is based on. After we drop the ridiculous assumptions, pragmatarianism will become imperative.

Ok, just so we're clear here, I have a question. Do you beleive yourself to be better informed on economics than the "too many" economists you mentioned? How many economists would you say this refers to? More than half?

[Infactum]

You'll note in section 3 that he admits that this is too oversimplified to apply to the real world and may only be applicable in a small range of areas. That is, he knows this is a false dichotomy.

There's nothing less applicable to the real world than assuming people's preferences...

First, you seem to make the mistake - again - of missing the middle ground. There are more that the two options: "congress knows nothings about preferences" and "congress is omniscient." Buchanan knows this.

Second, that statement is false. Assuming doubling the number of highways doubles the good derived from highways is clearly false, where as people's preferences can be guessed at accurately in many cases (see, again, starving people and food).

The complexities of modern politics and bureaucracy should not, however, conceal the underlying realities, and gross misunderstanding can result if individual participation in, and reaction to, public decisions is either neglected or assumed away. The omniscient and benevolent despot does not exist, despite the genuine love for him sometimes espoused, and, scientifically, he is not a noble construction. To assume that he does exist, for the purpose of making analysis agreeable, serves to confound the issues and to guarantee frustration for the scientist who seeks to understand and to explain. - James M. Buchanan, Public Finance in Democratic Process

A. Our current system is based on the assumption that congresspeople are omniscient. But clearly they are not omniscient...

[spoiler]

With the help of equations and diagrams, Samuelson showed how the planner would derive for each individual his demand function and the collective consumption goods that would contribute to his utility maximization. In this system, the planner is expected to have an omniscient presence and be able to ascertain individual preferences even when they are not voluntarily revealed. Samuelson attempted to show the combination of public and private goods and their distribution that would maximize social welfare. His concern was with the total community's welfare and with all goods; it did not have much to do with the central reality of the budget in the ordinary world. - A. Premchand, Government Budgeting and Expenditure Controls: Theory and Practice

"Market failure" has always been defined as being present when conditions for Pareto-optimality are not satisfied in ways in which an omniscient, selfless, social guardian government could costlessly correct. One of the lessons of experience with development is that governments are not omniscient, selfless, social guardians and corrections are not costless. - Anne O. Krueger, Government Failures in Development

The Founding Fathers of public choice, in some cases by design and in other cases by accident, effectively leveled the playing field in the debate over the relative merits of governments and private markets. This playing field, by the mid-1950s, had become undeniably prejudiced in favor of an allegedly omniscient and impartial government. - Charles K. Rowley, Public Choice from the Perspective of the History of Thought

Samuelson, laying particular emphasis on the problem of preference revelation, takes as a premise the existence of an omniscient planner. - Christian Bastin, Theories of Voluntary Exchange in the Theory of Public Goods

The new welfare economists view private markets as failing extensively because of perceived weaknesses in property rights, pervasive externalities and public goods and widespread asymmetries in information. In contrast, they view democratic government as benevolent, omniscient and impartial in its role as the White Knight riding to rescue individuals from unavoidable private market failures (Baumol and Oates, 1988). The public choice revolution redressed this bias by analysing government as it is and not as a figment of some excessively cloistered imagination. - Donald Wittman, Efficiency of Democracy?

To accurately choose which vector of policies is wealth-maximizing, the government would need to know how every person would act under these new policies—something which would require omniscience on the part of government agents. - Edward Stringham, Kaldor-Hicks Efficiency and the Problem of Central Planning

In what follows we shall assume an omniscient planner who seeks to maximize social welfare subject to the scarcity constraints of the economy. This is standard practice in normative economics. - Elisha A. Pazner, Merit Wants and the Theory of Taxation

A social efficiency objective implies a single mind to which all resource supply conditions and all consumer attitudes are simultaneously given. Otherwise, there can be no coherent notion of a relevant optimum. The entire notion of a 'social choice' presumes, in principle, the relevance of imagined omniscience. - Israel M. Kirzner, How Markets Work

The complexities of modern politics and bureaucracy should not, however, conceal the underlying realities, and gross misunderstanding can result if individual participation in, and reaction to, public decisions is either neglected or assumed away. The omniscient and benevolent despot does not exist, despite the genuine love for him sometimes espoused, and, scientifically, he is not a noble construction. To assume that he does exist, for the purpose of making analysis agreeable, serves to confound the issues and to guarantee frustration for the scientist who seeks to understand and to explain. - James M. Buchanan, Public Finance in Democratic Process

The possible advantages are, however, greatly increased when the unrealistic assumption of omniscient planning is relaxed and the preference-revelation problems in a world of diverse preferences are explicitly recognized. - John G. Head, Public Goods and Multi-Level Government

The traditional approach describes the allocation and distributive failures of the market, and the normative role of government in correcting those failures. Tax revenues from several sources are put into a single pot, a general fund, from which public services are provided. Equity in raising taxes is judged by ability to pay rather than by the benefit criterion on which earmarking is based. In the orthodox account, the government is shown to act as an omniscient and benevolent institution which improves on the market outcome and achieves an efficient allocation of resources. Traditional theory employs the device of a 'social welfare function' which guides an independent decision-taking budgetary authority. Critics of this account argue that in this approach, 'the government' is a black box into which voter preferences are fed and from which outcomes, which are claimed to be welfare-maximizing, emerge. - Margaret Wilkinson, Paying for Public Spending - Is There a Role for Earmarked Taxes

The well-known Samuelson (1954, 1955) public goods articles offer a good example. Samuelson titles his first article “The Pure Theory of Public Expenditure,” indicating that his analysis of a possible market failure in the production of public goods is, in fact, not a theory, but the theory, of public expenditure even though the article contains no analysis of how government would succeed in producing public goods where the market would fail. The only way Samuelson's public good theory can be a theory of government expenditure is if the government is an omniscient benevolent dictator. - Randall G. Holcombe, Make Economics Policy Relevant: Depose the Omniscient Benevolent Dictator

Though an old theme, Samuelson’s rigorous analysis of public goods in a general equilibrium setting (Samuelson 1954) captured the attention of a wide range of theorists, and soon became the center of fiscal theory. Wicksell’s concern with how to secure preference revelation was noted but set aside as unmanageable by economic analysis. Implementation of budget choice was again left to an omniscient referee. - Richard A. Musgrave, Public finance and three branch model

The problem would disappear if government were omniscient, as implicitly assumed by Hotelling, but government is not omniscient and throughout his career Coase has insisted very sensibly that in evaluating the case for public intervention one must compare real markets with real government, rather than real markets with ideal government assumed to work not only flawlessly but costlessly. - Richard A. Posner, Nobel Laureate: Ronald Coase and Methodology

PPB analysis rests upon much the same theoretical grounds as the traditional theory of public administration. The PPB analyst is essentially taking the methodological perspective of an "omniscient observer" or a "benevolent despot." Assuming that he knows the "will of the state," the PPB analyst selects a program for the efficient utilization of resources (i.e., men and material) in the accomplishment of those purposes. As Senator McClelland has correctly perceived, the assumption of omniscience may not hold; and, as a consequence, PPB analysis may involve radical errors and generate gross inefficiencies. - Vincent Ostrom and Elinor Ostrom, Public Choice: A Different Approach to the Study of Public Administration

B. The political process does not come close to allowing citizens to adequately communicate their preferences...Democracy, the Market, and the Logic of Social Choice


C. ???

What is your C? If I can't read your mind, and you can't communicate your true preferences to me, then how can I possibly know your true preferences? How can resources be efficiently allocated when people's preferences are not entered into the equation?

You're hanging out with two of your friends trying to decide what to watch on netflix. If you don't allow your friends to give their input on which movie to watch, then how can the allocation be efficient? Well...you can simply assume their preferences. You can simply assume that they are irrational. You can simply assume that they would have tricked you into defecting.

If it's considerate to allow your friends to share their input, then it's considerate to allow everybody to share their input on what the government does. And as the paper I shared above logically argues, when it comes to sharing input, the political process doesn't hold a candle to the market process.

We've been over this. Public good created is not zero sum, which means efficiency of allocation is not the only variable when discussing utility. See discussion of value below.

To use your language (which you have repeatedly shown to be distinct from professional economic language), the omniscient external chooser is able to better consider the effects of different choices by virtue of being omniscient. However, I realize that you would rather I note that people can consider opportunity cost better when they have more choices.

Are you now seriously arguing that congresspeople are omniscient? How can you consider the opportunity cost better when you have more choices?

No, you gave me a false dichotomy, so I gave you a smarmy answer. An omniscient actor is actually better than me at determining my opportunity cost. I acknowledged this smarm in the second sentence.

This is why I dislike the use of the term by itself. Everything has an opportunity cost. That is undeniable. What is deniable is that maximizing peoples' apparent opportunity to compare opportunity costs will maximize value in all cases.

If people's freedom maximized value in all cases then people would be infallible. Obviously people make mistakes, but values are subjective, which is why we need other people to determine whether or not our use of society's limited resources is a mistake.

How do you define the word "mistake?"

I just want a paper that shows that maximizing ability to compare opportunity cost maximizes total value. You claim to have many. Any such demonstration will rest on some assumptions. I would like to examine those assumptions for things you may have missed. Please, just one link that you believe shows this.

Side note - I sincerely hope that sample is not representative of your sources. We have, in order:

Professor's blog - No link to put the original quote in context with what assumptions were made. Looks like he's explaining a basic point (& => is making many simplifying assumptions)
Austrian Economics - A field that explicitly rejects empirical critique (http://en.wikipedia.org/wiki/Austrian_School).
Buchanan again - Without context or assumptions, but I'm willing to bet the assumptions he's made in the other papers hold.
Eva Mueller - No context. Refers to private goods. Seems to doubt existence of certain preference functions when referring to public policy.
Robert Higgs - Literally a political blog post. Is a professor, but is not his professional work.
Bastiat - From 1850. Not exactly a formal economics paper despite it's apparent foundational worth according to wiki.
Lazear - General review of economics is being quoted.
Derrida - Philospher. Not an economist.
The rest include more Derrida, a "Christian perspective," two bible quotes, a greek myth, Thoreau, Eisenhower, what are hopefully 3 jokes, and Neitzche.

You've got a pretty bad ratio of trained economists to random people saying things that sound good. You have an even worse ratio of formal economics work to watered down (and therefore oversimplified) prose.

I will also note that none of these sources seem meant to show that maximizing ability to compare opportunity cost will maximize value in all cases.

First off, kudos for actually looking through the passages. But I think you're barking up the wrong tree if you're looking for perfection. What you simply need to look for is any economist who argues that the opportunity cost concept is only applicable to the private sector. Here are some more passages for you to read and discern why, exactly, these economists are concerned with the alternative uses of society's limited resources...

You don't get to assume you're right and insist I prove you wrong or agree with you. If I believed everything I couldn't disprove, I'd be Christian, Muslim, Pagan, Buddhist, and basically every other religion with vague enough teachings. That's why we put the burden of proof on the positive claim.

See section 2 of This paper by Amartya Sen. It discusses a brief overview of when the market is shown to work for private goods and what assumptions go into that. It includes citations of the important works if you want to google scholar them. One of the major assumptions is lack of "externalities." Public goods are (partially) defined by the fact that they contain positive externalities. Ergo, the canonical proof that shows markets maximize value (Or, to use your words "the opportunity cost concept") does not apply to public goods.

That is not to say it is theoretically impossible to do public preference revelation. The bidding schemes mentioned earlier (and in that paper) present methods for doing so, but they are rather complex. They are also not the system you are advocating. Indeed, my argument against such systems would be much weaker.

In determining the marginal costs of producing a publicly provided
good or service, it is important to emphasize that these are not simply
financial or accounting costs, but economic or opportunity costs – that is, the economic value of the benefits that could have been obtained had the resources used to produce the good or service been used for their most highly valued purpose. - David Duff, Benefit Taxes and User Fees in Theory and Practice

The economic approach stresses the fact that any expenditure always has an opportunity cost, i.e. a benefit that is sacrificed because money is used in a particular way. For example, since biodiversity is threatened by many factors, but chiefly by changes in land use, measures of value denominated in monetary terms can be used to demonstrate the importance of biodiversity conservation relative to alternative uses of land. In this way, a better balance between 'developmental' needs and conservation can be illustrated. To date, that balance has tended to favour the conversion of land to industrial, residential and infrastructure use because biodiversity is not seen as having a significant market value. 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

The notion of opportunity cost refers to the fact that the allocation of resources to biodiversity conservation necessarily means those resources cannot be allocated to something else. From an economic perspective, the money value of the resources allocated to conservation approximates the benefit that is sacrificed for conservation. Hence, for the instrumental value rule to be obeyed, it must be the case that the benefits (positive changes in human well-being) from conservation must exceed the costs of conservation (the well-being foregone). In essence, this is the resource allocation rule that would be used in economics. - David Pearce, Dominic Moran, Dan Biller, Handbook of Biodiversity Valuation A Guide for Policy Makers

While the philosophical debate is extensive, complex and largely confined to academic publications, it does have direct relationships to the practical problem of how to make decisions in a world where resources are limited. The relationships are sometimes weak, however, as with discussions that ignore the finitude of resources and hence the central place that has to be occupied by the concept of opportunity cost. Any practical decision-making criterion has to account for the benefits that are sacrificed by biodiversity conservation. This involves either a formal procedure, such as cost-benefit analysis, or some political process. - David Pearce, Dominic Moran, Dan Biller, Handbook of Biodiversity Valuation A Guide for Policy Makers

The economic approach is clearly not restricted to material goods and wants, nor even to the market sector. Prices, be they the money prices of the market sector or the "shadow" imputed prices of the nonmarket sector, measure the opportunity cost of using scarce resources, and the economic approach predicts the same kind of response to shadow prices as to market prices. Consider, for example, a person whose only scarce resource is his limited amount of time. This time is used to produce various commodities that enter his preference function, the aim being to maximize utility. Even without a market sector, either directly or indirectly, each commodity has a relevant marginal "shadow" price, namely, the time required to produce a unit change in that commodity; in equilibrium, the ratio of these prices must equal the ratio of the marginal utilities. Most importantly, an increase in the relative price of any commodity - i.e., an increase in the time required to produce a unit of that commodity - would tend to reduce the consumption of that commodity. - Gary S. Becker, The Economic Approach to Human Behavior

War costs a nation more than its actual expense; it costs, besides all that would have been gained, but for its occurrence. - J.B. Say, A Treatise on Political Economy

Once the option has been made for a public-sector project, still another choice must be confronted, and this also involves a choice-influencing cost, an obstacle to decision. Once currency has been issued, and the decision has been made to expand public-sector spending, the choice among separate public employments of the funds must be faced. The choice-influencing cost of the new post office building is the subjective value that the decision-maker places on the new school building that might be constructed instead. - James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory

Even at the cost of lining up with Friedman, I’d be pleased if the idea that war is a mostly futile waste of lives and money became conventional wisdom. Switching to utopian mode, wouldn’t it be amazing if the urge to “do something” could be channeled into, say, ending hunger in the world or universal literacy (both cheaper than even one Iraq-sized war)? - John Quiggin, War and waste

Even where the explicit goals of the organization are to help non-donors, this rule—that the consumers guiding production decisions are the donors—still applies. Suppose, for example, the organization is a charity giving alms to the poor. In a sense, the purpose is to benefit the poor, but the actual consumers here, the guides to production decisions, are the donors, not the recipients of charity. The charity serves the purposes of the donors, and these purposes are in turn to help the poor. But it is the donors who are consuming, the donors who are demonstrating their preference for sacrificing a lesser benefit (the use of their money elsewhere) for a greater (giving money to the charity to help the poor). It is the donors whose production decisions guide the actions of the charity. - Murray Rothbard, The Myth of Neutral Taxation

Nevertheless, the classic solution to the problem of underprovision of public goods has been government funding - through compulsory taxation - and government production of the good or service in question. Although this may substantially alleviate the problem of numerous free-riders that refuse to pay for the benefits they receive, it should be noted that the policy process does not provide any very plausible method for determining what the optimal or best level of provision of a public good actually is. When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money? There is a whole economic literature dealing with the willingness-to-pay methods and contingent valuation techniques to try and divine such preference in the absence of a market price doing so, but even the most optimistic proponents of such devices tend to concede that public goods will still most likely be underprovided or overprovided under government stewardship. - Patricia Kennett, Governance, globalization and public policy

In determining the application of the revenue sum derived, a second choice must be made between the satisfaction of alternative wants by public economy. If more is spent for armaments, less can be spent for education. - Richard A. Musgrave

But economic costs, as envisaged in the marginal-cost-pricing approach, are not simply accounting costs. The fundamental economic concept of cost is opportunity cost, or the value of the benefits that could have been obtained had the inputs been used for some other purpose. From this perspective, the cost of, say, a park does not consist simply of the tangible construction and operation costs recorded in financial accounts. Instead, the relevant cost is the (highest) value that the land would realize if it were used for some other purpose, such as logging or residential development. - Richard M. Bird and Thomas Tsiopoulos, User Charges for Public Services:
Potentials and Problems

But, no matter whether a particular society has a capitalist price system or a socialist economy or a feudal or other system, the real cost of anything is still its value in alternative uses. The real costs of building a bridge are the other things that could have been built with the same labor and material. This is also true at the level of a given individual, even when no money is involved. The cost of watching a television sitcom or soap opera is the value of the other things that could have been done with that same time. - Thomas Sowell, Basic Economics 4th Ed: A Common Sense Guide to the Economy

You've already sent me off on two wild source goose chase source trawls that have left me little better informed than when I started. You'll forgive me If I am suspicious of the efficacy of the third. If you think one of these demonstrates your point, please point me to it.

Do you know why paragraphs by themselves are all but useless as actual information?

Yes, it boils down to the prisoner's dilemma (a continuous version of it). The prisoner's dilemma is relevant because people can "lie" about their preferences, and, as he puts it, demand an "inefficient bundle of public goods" - that is not an exact quote, but I'm paraphrasing the bottom of page 52. I would be very careful before concluding a trained economist published in a peer reviewed journal has "not thought things through."

Again, here's that scenario that perfectly models the public sector (1)...

Imagine a river right next to a soup kitchen. When you arrive at the soup kitchen to volunteer you notice that there's a group of people picking up trash along the river.

Where's the prisoner's dilemma? How is it relevant/applicable? In this scenario you simply consider the circumstances, evaluate where the need/value/benefit is greatest, and allocate your time accordingly. It would be exactly the same thing if taxpayers could shop in the public sector. (2)

1) Trivially false. Setting aside the impossibility of perfect model, you only include 2 goods, when nontrivial game theory results require 3+. The real public sector has more than 2 goods as well. You fail note that the real game you're setting up is how these things are funded, which makes it misleading at best. Also, none of those goods have direct benefit to the volunteers, again excluding most nontrivial game theory.

2) False for reasons discussed in (1) and from the previous paper I linked about the prisoner's dilemma.

Sure it does. Why don't we see as many types of parks as we do novelty keychains otherwise? I don't disagree that the "costless" exit helps diversify the private sector, but it is not the only driving force. Things are almost never that simple.

Are you arguing that allowing taxpayers to shop in the public sector wouldn't greatly increase the quality/quantity/variety of public goods? (1)People want abundance/value...which is why they reward the producers who provide them with abundance/value. The fact that consumers can withhold their reward incentivizes producers to be more economical, resourceful and innovative.

1) Of course not. Again, you confuse "some" and "all." Some of the lack of variety of public goods comes (probably) from the nature of public goods. Some of the variety of public goods might come from market forces. Those two statements are not contradictory.

Wait. Let's say I accept your narrative. You want me to accept that we can extrapolate from a Chinese transition of private goods to an American transition of public goods 35 years later? Do you know why this is a terrible idea?

It's a terrible idea because...the laws of economics don't apply to China or America?

Right here and now there are an infinite amount of different things that I could do with words (a resource). I could arrange them in countless ways. It's a given that some ways are going to make more sense to you than other ways. It's a given that some allocations are going to provide you with more utility than other allocations. Which is exactly why I need your feedback. I wouldn't need your feedback if values were objective. But they aren't. They are subjective. There isn't an efficient allocation of words if your preferences are assumed/disregarded/ignored. This concept is applicable and relevant to any and all resources.

No, because you are attempting to derive the laws of economics from 1 data point and extrapolating. Consider the following two arguments:

Gravity makes things fall. Earth is a planet with gravity. Things on earth fall at 9.81 m/s2. We determine our law of physics is that planets with gravity have things fall towards them at 9.81 m/s^2. Mars is a planet with gravity. Therefore things on Mars fall at 9.81 m/s2.

Markets change the variety of goods. China has private goods. China's transition to a private market increased the variety of private goods. We determine our law of economics is that transitioning to a market increases the variety of goods. The USA has public goods. Therefore transitioning to a public market will increase the variety of public goods.

What is wrong with the first argument that isn't wrong with the second?

Right now, in this thread, that's not my claim. I am claiming your policy recommendations can be and (if I can) often are wrong, not that mine are always right. I am interested to see if my beliefs are based on substance. This is not explicitly the thread for it, but you are forcing me too think through the situations where centralization is probably optimal (and where it might not be).

There is no "optimal" without you. If there was, then there would be absolutely nothing wrong with allowing one person to allocate all the resources. But in the real world, as long as you exist, then without your input, without your valuations of the opportunity costs, the output can never be optimal.

1) The paper I just posted claimed that they also incentivized to not have this estimate reflected in their allocation (in many cases).
2) As a result, this does not follow.

Again, and again, what's your standard for efficiency? If you want to claim perfect knowledge of everybody's preference functions, then why don't you work at Subway and guess exactly how people are going to want their sandwiches? Let me know how that goes for you.

I don't want to claim perfect knowledge and neither does the paper. The paper shows that in those cases where the preference functions have the properties assumed AND people can guess that they might have that general shape (not exact vals, general shape), then the market will center suboptimally*. If a central actor could also guess a general shape, it could get closer to the optimum.

Guessing the general shape is not impossible. To use your example, I'm pretty sure that most of the people who come to Subway want a sandwich.

*This is also true if they are perfect preference maximizers, so weakening this assumptions makes them worse at maximizing their own value.

But they would want to. That's the problem. "The prisoner's wouldn't defect if they didn't want to, they could just both keep silent" doesn't work in the dilemma and doesn't work here.

What? The way you allocated your words doesn't make any sense to me.

You said "People wouldn't have to shop for themselves in the public sector if they didn't want to." Giving your money to congress is equivalent to choosing the cooperative option (indeed it is choosing the best knowable cooperative option for an honest congress). Therefore this statement is equivalent to "The prisoners wouldn't defect if they didn't want to, they could just both keep silent." Where "keeping silent" is cooperating with each other.

Excellent, so you agree that people value the things they sacrifice for more than the things they sacrifice? If the answer is yes, then your definition of value as willingness to sacrifice is contradictory. A consistent (non contradictory) stance is important if you want your conclusions to be meaningful.

If somebody puts bros before hoes, then they value their bros more than their hoes. Where's the difficulty? Where's the contradiction?

The contradiction comes when you say that you value something based on what your willing to sacrifice for it. You seem to agree that you value it more MORE, meaning that the value is disconnected from what you are willing to sacrifice. You seem to assume they're directly connected when you ask questions like "If you value the highway so much, why didn't you spend money on it?"

This definition has other problems as it makes your argument circular:

This, as I understand it, is your argument.
1) People's value of something is based on how much they sacrificed.
2) We can let people sacrifice to see how much they value things.
3) We know that they sacrificed for the things they value most because (1).

Are you sure this will be enough to cover the difference in demand versus "pseudo-demand"? 99+% sure? It is perfectly possible that the market values some people (or whole groups of people) more dead than alive. The market is amoral, and, as you say, hard or impossible to predict.

Nobody truly benefits when society's limited resources are misallocated. You don't gain opportunities when you waste your mind...or any other resource.

But do all people benefit when the market is allocated "properly"? That is the question. The answer is not obviously yes.

If you haven't seen it already, check out the illustration that I shared in this thread...Government Success vs Market Success.

This question is actually interesting:

If we don't know the breadth/depth of market failure, then can we ever honestly say that the government is successfully supplying something that there's an actual demand for?

We can only predict the breadth and depth of market failure based on models and empirical studies. Knowing it is hard. This doesn't mean we should go ahead and do it however. We don't have a study that says cigarettes cause lung cancer in humans, so we don't "know" that. We don't have this study because it was determined that it was too likely to be true and would therefore the study would mean giving many people lung cancer.

Similarly, the only way to know how badly the market would fail at public goods would be to let it fail. There are good reasons to beleive it would fail at providing things we know fairly certainly are useful(see previous paper), so it is dangerously irresponsible to implement it until those concerns are addressed.

[Infactum]

First, you seem to make the mistake - again - of missing the middle ground. There are more that the two options: "congress knows nothings about preferences" and "congress is omniscient." Buchanan knows this.

Knowing something about preferences isn't good enough. I know you're a human male...therefore, I'll spend your money for you...on the same things that I spend my money on? Really? Your middle ground is resource allocation by hasty generalization. Seriously go shopping with somebody. When you do so, take note of the disparities between your preferences. Please report back the contents of your respective shopping carts.

Yes, the allocation of produced goods will be less efficient. I have never argued otherwise. For some goods, however, the government can create more of them than individual choosers. This has the possibility of balancing the lesser efficiency and even overcoming it. This means the less efficient, but cooperative, central government does better than the more efficient individuals in terms of utility. Indeed, I think it happens quite often, but until you accept the possibility I don't think that discussion is worth having.

Guessing the general shape is not impossible. To use your example, I'm pretty sure that most of the people who come to Subway want a sandwich.

Great, so allow taxpayers to make primary choices...and then have government organizations make the secondary and tertiary choices. Look over my latest exchanges with Yaltabaoth.

Private sector...

Primary choices - eating, sleeping, reading, working, playing
Secondary choices - if eating then...Taco Bell, Subway, McDonalds
Tertiary choices - if Subway then...Black Forest Ham, B.L.T., Cold Cut Combo

Public sector...

Primary choices - defense, environment, education, healthcare, transportation (taxpayer)
Secondary choices - if environment then...EPA (government)
Tertiary choices - if EPA then...habitat conservation, pollution reduction, (government)

Honestly, that's exactly the opposite of what would be useful. Government would be much better at guessing "primary" choices than it would at secondary or tertiary. I can predict the amount of food that San Francisco needs to eat in a year very accurately from some armchair stats (a professional government statistician would be even better). Predicting the number of Chicken sandwiches they want, however, is much harder.

For specialized public goods things would probably change, as those are more nebulous, but the principle holds. Averages of more general things are more stable than more specific things.

How do you define the word "mistake?"

How many different ways can you allocate the resources that you now have? Each possible allocation is going to provide you and others with a different amount of value. Because values are subjective, an allocation that might create value for you...might destroy value for others. So we're dealing with an x y graph...your value is on the x axis and other people's values are on the y axis. Can you figure out where mistakes would be on this graph?

I think I know what it is, but I want your definition. Would you agree with the definition "A mistake is acting in a way that fails to maximize your preferences/value?" If not, what is your definition.

In your language, the definition above corresponds to picking the farthest right point (highest x) as the only non-mistake.

Scientific side note - xy plot is a terrible way to represent that data. They should both be plotted against your allocation independently unless you have an excellent reason to do otherwise (looking for some sort of correlation maybe).

You don't get to assume you're right and insist I prove you wrong or agree with you. If I believed everything I couldn't disprove, I'd be Christian, Muslim, Pagan, Buddhist, and basically every other religion with vague enough teachings. That's why we put the burden of proof on the positive claim.

If you weren't making claims then I would agree that I should bear the sole burden of substantiating claims. But you're constantly claiming stuff. Whenever you claim something you should be prepared to substantiate it. If you claim there's some middle ground...then please substantiate it. If you claim that close enough counts for horseshoes, hand grenades...and how resources are used...then please substantiate it.

For the purposes of this argument thread, I have made no such strong claim. I have doubted your claim to have proven that "the opportunity cost concept" ensures optimal allocation for all public goods. I have done this first by showing that, in some cases, an imperfect congress can outperform perfect individuals. You rejected that, so I presented you a paper -proving- that an imperfect congress can outperform perfect individuals*. This amounts to a counter example unless you can prove that those assumptions never apply in the real world.

If congress can outperform the individual, then your "market of public goods" does not optimally provide in all cases. This contradicts your claim (point 1 from many posts back that you seem to use as universally applicable).

*The trivial extension here is that an imperfect congress can also outperform imperfect individuals.

I've claimed that, when it comes to facilitating input, the market process is far superior to the political process. Therefore, it's my responsibility to substantiate my claim...

Democracy, the Market, and the Logic of Social Choice

Facilitating input, probably. That paper brings up a good critique of the information available in the electoral system versus a market.

I'm not so sure this means that optimal provision is the necessary result transitioning to a market, however. Especially when the goods have externalities.

See section 2 of This paper by Amartya Sen. It discusses a brief overview of when the market is shown to work for private goods and what assumptions go into that. It includes citations of the important works if you want to google scholar them. One of the major assumptions is lack of "externalities." Public goods are (partially) defined by the fact that they contain positive externalities. Ergo, the canonical proof that shows markets maximize value (Or, to use your words "the opportunity cost concept") does not apply to public goods.

Except, if you had bothered to even read only the first opportunity cost passages that I shared, then you would know that your conclusion is categorically untrue...

In determining the marginal costs of producing a publicly provided good or service, it is important to emphasize that these are not simply financial or accounting costs, but economic or opportunity costs – that is, the economic value of the benefits that could have been obtained had the resources used to produce the good or service been used for their most highly valued purpose. - David Duff, Benefit Taxes and User Fees in Theory and Practice

The economic approach stresses the fact that any expenditure always has an opportunity cost, i.e. a benefit that is sacrificed because money is used in a particular way. For example, since biodiversity is threatened by many factors, but chiefly by changes in land use, measures of value denominated in monetary terms can be used to demonstrate the importance of biodiversity conservation relative to alternative uses of land. In this way, a better balance between 'developmental' needs and conservation can be illustrated. To date, that balance has tended to favour the conversion of land to industrial, residential and infrastructure use because biodiversity is not seen as having a significant market value. 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

The notion of opportunity cost refers to the fact that the allocation of resources to biodiversity conservation necessarily means those resources cannot be allocated to something else. From an economic perspective, the money value of the resources allocated to conservation approximates the benefit that is sacrificed for conservation. Hence, for the instrumental value rule to be obeyed, it must be the case that the benefits (positive changes in human well-being) from conservation must exceed the costs of conservation (the well-being foregone). In essence, this is the resource allocation rule that would be used in economics. - David Pearce, Dominic Moran, Dan Biller, Handbook of Biodiversity Valuation A Guide for Policy Makers

While the philosophical debate is extensive, complex and largely confined to academic publications, it does have direct relationships to the practical problem of how to make decisions in a world where resources are limited. The relationships are sometimes weak, however, as with discussions that ignore the finitude of resources and hence the central place that has to be occupied by the concept of opportunity cost. Any practical decision-making criterion has to account for the benefits that are sacrificed by biodiversity conservation. This involves either a formal procedure, such as cost-benefit analysis, or some political process. - David Pearce, Dominic Moran, Dan Biller, Handbook of Biodiversity Valuation A Guide for Policy Makers

The economic approach is clearly not restricted to material goods and wants, nor even to the market sector. Prices, be they the money prices of the market sector or the "shadow" imputed prices of the nonmarket sector, measure the opportunity cost of using scarce resources, and the economic approach predicts the same kind of response to shadow prices as to market prices. Consider, for example, a person whose only scarce resource is his limited amount of time. This time is used to produce various commodities that enter his preference function, the aim being to maximize utility. Even without a market sector, either directly or indirectly, each commodity has a relevant marginal "shadow" price, namely, the time required to produce a unit change in that commodity; in equilibrium, the ratio of these prices must equal the ratio of the marginal utilities. Most importantly, an increase in the relative price of any commodity - i.e., an increase in the time required to produce a unit of that commodity - would tend to reduce the consumption of that commodity. - Gary S. Becker, The Economic Approach to Human Behavior

War costs a nation more than its actual expense; it costs, besides all that would have been gained, but for its occurrence. - J.B. Say, A Treatise on Political Economy

Once the option has been made for a public-sector project, still another choice must be confronted, and this also involves a choice-influencing cost, an obstacle to decision. Once currency has been issued, and the decision has been made to expand public-sector spending, the choice among separate public employments of the funds must be faced. The choice-influencing cost of the new post office building is the subjective value that the decision-maker places on the new school building that might be constructed instead. - James M. Buchanan, Cost and Choice: An Inquiry in Economic Theory

Even at the cost of lining up with Friedman, I’d be pleased if the idea that war is a mostly futile waste of lives and money became conventional wisdom. Switching to utopian mode, wouldn’t it be amazing if the urge to “do something” could be channeled into, say, ending hunger in the world or universal literacy (both cheaper than even one Iraq-sized war)? - John Quiggin, War and waste

Even where the explicit goals of the organization are to help non-donors, this rule—that the consumers guiding production decisions are the donors—still applies. Suppose, for example, the organization is a charity giving alms to the poor. In a sense, the purpose is to benefit the poor, but the actual consumers here, the guides to production decisions, are the donors, not the recipients of charity. The charity serves the purposes of the donors, and these purposes are in turn to help the poor. But it is the donors who are consuming, the donors who are demonstrating their preference for sacrificing a lesser benefit (the use of their money elsewhere) for a greater (giving money to the charity to help the poor). It is the donors whose production decisions guide the actions of the charity. - Murray Rothbard, The Myth of Neutral Taxation

Nevertheless, the classic solution to the problem of underprovision of public goods has been government funding - through compulsory taxation - and government production of the good or service in question. Although this may substantially alleviate the problem of numerous free-riders that refuse to pay for the benefits they receive, it should be noted that the policy process does not provide any very plausible method for determining what the optimal or best level of provision of a public good actually is. When it is impossible to observe what individuals are willing to give up in order to get the public good, how can policymakers access how urgently they really want more or less of it, given the other possible uses of their money? There is a whole economic literature dealing with the willingness-to-pay methods and contingent valuation techniques to try and divine such preference in the absence of a market price doing so, but even the most optimistic proponents of such devices tend to concede that public goods will still most likely be underprovided or overprovided under government stewardship. - Patricia Kennett, Governance, globalization and public policy

In determining the application of the revenue sum derived, a second choice must be made between the satisfaction of alternative wants by public economy. If more is spent for armaments, less can be spent for education. - Richard A. Musgrave

But economic costs, as envisaged in the marginal-cost-pricing approach, are not simply accounting costs. The fundamental economic concept of cost is opportunity cost, or the value of the benefits that could have been obtained had the inputs been used for some other purpose. From this perspective, the cost of, say, a park does not consist simply of the tangible construction and operation costs recorded in financial accounts. Instead, the relevant cost is the (highest) value that the land would realize if it were used for some other purpose, such as logging or residential development. - Richard M. Bird and Thomas Tsiopoulos, User Charges for Public Services:
Potentials and Problems

But, no matter whether a particular society has a capitalist price system or a socialist economy or a feudal or other system, the real cost of anything is still its value in alternative uses. The real costs of building a bridge are the other things that could have been built with the same labor and material. This is also true at the level of a given individual, even when no money is involved. The cost of watching a television sitcom or soap opera is the value of the other things that could have been done with that same time. - Thomas Sowell, Basic Economics 4th Ed: A Common Sense Guide to the Economy

You've already sent me off on two wild source goose chase source trawls that have left me little better informed than when I started. You'll forgive me If I am suspicious of the efficacy of the third. If you think one of these demonstrates your point, please point me to it.

I just read 20 pages of a paper you suggested and you can't be bothered to read a dozen passages?

I'm sorry you read the entire paper. I tried to make it clear that I was pointing to the literature review, which contained a nice summary of known basic economic models.

I read your passages, I'll get to their nature below. There is another problem however.

None of your passages contradict my conclusion. It merely shows that public goods have an opportunity cost. I never disagreed with that. It does not show that your "opportunity cost concept" applies. Specifically it does not show that "By maximizing peoples' ability to consider opportunity cost, you are guaranteed optimal social provision." Indeed, from the literature review, it seems that maximizing peoples' ability to consider oppurtunity cost is only shown to result in optimal social provision in a relatively small selection of cases.

Do you know why paragraphs by themselves are all but useless as actual information?

Because you don't read them? Given that the very first paragraph I shared directly counters your argument, it should be abundantly clear that I categorically disagree with your assessment of their use value.

They're useless because you deprive them of context. I don't know what the people in them mean by the words they use without following the link and skimming/reading a large fraction of the paper/book. For example, Buchanan's model "public goods" are very different from the public goods we are discussing, and so comparing passages by different people that use the same words must be done with care.

1) Trivially false. Setting aside the impossibility of perfect model, you only include 2 goods, when nontrivial game theory results require 3+. The real public sector has more than 2 goods as well.

Do you really need me to add a third good for you? Ok, here you go...

Imagine a river right next to a soup kitchen. When you arrive at the soup kitchen to volunteer you notice that there's a group of people picking up trash along the river. You also notice that there's a group removing graffiti from a wall.

Excellent. Sally wants the graffiti removed, but tom wants a clean river. Both however would rather see the soup kitchen staffed than either option. The soup Kitchen only needs 1 staffer. When signing up for volunteer jobs, Sally and Tom are in a prisoner's dilemma/Chicken game against each other. Of course, our actors may be worse than perfect at maximizing their own goods (they may be imperfect and/or lack all of that information), but it would be an exceedingly special case where making people worse at maximizing their own value makes them better at social provision.

You fail note that the real game you're setting up is how these things are funded, which makes it misleading at best.

What are you talking about? Your game theory falls apart when time, rather than money, is donated?

At first, I thought it was less of a problem since people had more equal amounts of time than they pay taxes. Then I realized that was still wrong and it was still susceptible to problems.

Also, none of those goods have direct benefit to the volunteers, again excluding most nontrivial game theory.

A river free of garbage and trash doesn't have numerous direct benefits? If not, then throw in a volunteer opportunity that does have direct benefits in order to demonstrate your game theory in action.

Fair enough - I fixed that by adding preferences.

1) Of course not. Again, you confuse "some" and "all." Some of the lack of variety of public goods comes (probably) from the nature of public goods. Some of the variety of public goods might come from market forces. Those two statements are not contradictory.

Therefore, you agree that allowing taxpayers to shop in the public sector would greatly increase the quality/quantity/variety of public goods?

Quality - it depends on the good, but the more private the good, the more likely it's quality is to go up.
Variety/quantity - again, depends on the good, but I think overall the increase would be much more muted than the private sector

No, because you are attempting to derive the laws of economics from 1 data point and extrapolating. Consider the following two arguments:

Gravity makes things fall. Earth is a planet with gravity. Things on earth fall at 9.81 m/s2. We determine our law of physics is that planets with gravity have things fall towards them at 9.81 m/s^2. Mars is a planet with gravity. Therefore things on Mars fall at 9.81 m/s2.

Markets change the variety of goods. China has private goods. China's transition to a private market increased the variety of private goods. We determine our law of economics is that transitioning to a market increases the variety of goods. The USA has public goods. Therefore transitioning to a public market will increase the variety of public goods.

What is wrong with the first argument that isn't wrong with the second?

Beats me, what the F do I know about gravity? My ignorance when it comes to gravity is VAST. You know why? Because I spend all my free time studying economics. This is why I know that creating a market in the public sector will greatly increase the variety/quality/quantity of public goods. Consumers would incentivize the producers of public goods to do better and more innovative things with the resources they have. In other words, consumers drive abundance.

I was hoping you'd know that things don't fall at 9.81 m/s2 on Mars. That means something is wrong with the argument I made. The problem with the argument is that I tried to derive a law of physics from 1 data point. Similarly, the problem with your argument is that you tried to derive a law of economics from 1 data point.

You said "People wouldn't have to shop for themselves in the public sector if they didn't want to." Giving your money to congress is equivalent to choosing the cooperative option (indeed it is choosing the best knowable cooperative option for an honest congress). Therefore this statement is equivalent to "The prisoners wouldn't defect if they didn't want to, they could just both keep silent." Where "keeping silent" is cooperating with each other.

The idea that any of these candidates represent my interests is absurd. - Daniel Tosh

I don't know why Tosh gets it but you don't. What was your major again? Physics? Have you ever watched C-Span for more than 10 minutes?

Clearly Tosh does not value the security he is provided from the Canadian hordes. Or the police and court system that ensure societal stability and gives him a platform to make such pronouncements. Or, more likely, he fails to note that most of government spending is pretty well agreed upon and does pretty good things and we get up in arms about a small percent of how the government functions. Don't get me wrong, that small percent is important, but in general, congress critters represent interests relatively well (usually).

The contradiction comes when you say that you value something based on what your willing to sacrifice for it. You seem to agree that you value it more MORE, meaning that the value is disconnected from what you are willing to sacrifice. You seem to assume they're directly connected when you ask questions like "If you value the highway so much, why didn't you spend money on it?"

This definition has other problems as it makes your argument circular:

This, as I understand it, is your argument.
1) People's value of something is based on how much they sacrificed.
2) We can let people sacrifice to see how much they value things.
3) We know that they sacrificed for the things they value most because (1).

You're saying that there's a contradiction and a disconnect...but somehow you fail to understand that there's frequently a contradiction and a disconnect between people's words and their actions. You can't fill up your shopping cart and pay with words...you have to pay with actions...your sacrifice. Without knowledge of your sacrifice, we can't determine which uses of society's limited resources are the most valuable. This is true whether you fill your shopping cart up with private goods or public goods (1).

There is often a contradiction and a disconnect between what people say and how they act. This doesn't make it ok for you to have one in your demonstration of the efficacy of your system. Right now you define "optimal provision" as a system where people have the most choice in what to sacrifice (Because you say this is the only way to know utility functions and is always accurate and never contains systematic error). Then you point to a system where people have the most opportunity to sacrifice and claim it's optimally provided. This is a problem.

You must define optimal provision independent of your system (and preferably independent of peoples' willingness to sacrifice - we've just shown you know that utility functions and willingness to sacrifice aren't necessarily directly related). Otherwise your argument is circular.

1) We've just been through a long winded discussion over this. Asserting it again doesn't make it true.

But do all people benefit when the market is allocated "properly"? That is the question. The answer is not obviously yes.

It's not all or none. It's a matter of degrees. Far more people benefit when you put your mind to its more productive use. The market works because others can give you feedback on how productively you're using your mind. Take away this direct feedback mechanism, and you're left with the epitome of absurdity.

Ok, so if, when all people put there mind to it's productive use, the poorest 5% of society starved at the age of 40 from overwork, would you say that's the market only valued these people alive when they were young?

We can only predict the breadth and depth of market failure based on models and empirical studies. Knowing it is hard. This doesn't mean we should go ahead and do it however. We don't have a study that says cigarettes cause lung cancer in humans, so we don't "know" that. We don't have this study because it was determined that it was too likely to be true and would therefore the study would mean giving many people lung cancer.

Totally false. We could easily know the depth of market failure and the height of government success simply by allowing taxpayers to choose where their taxes go.

That's what I said. By implementing it and letting it fail (or succeed), we determine how it would affect us. Until there's better reason to see how it would succeed, however, it's dangerously irresponsible. Just like making a bunch of people smoke cigarettes to see if they'd get cancer is dangerously irresponsible.

It is, of course, not desirable that anything should be done by funds derived from compulsory taxation, which is already sufficiently well done by individual liberality. - J.S. Mill, Principles of Political Economy with some of their Applications to Social Philosophy

If education is sufficiently well done by individual liberty, then taxpayers won't spend any of their taxes on public education. The more money that taxpayers do spend on public education, the greater the depth of market failure and the greater the height of government success in terms of education.

Ahh, I see we disagree on the definition of market failure. I was saying the public market would fail.

[Katganistan]

Our current system is based on the assumption that congresspeople are omniscient. (True/False)

Where the fuck did you get this nonsense?

Pulled it out of a donkey.

[Keronians]

Our current system is based on the assumption that congresspeople are omniscient. (True/False)

If congresspeople can know, better than society itself, exactly how much benefit society derives from public education...then it has to be true that congresspeople can know, better than society itself, exactly how much benefit society derives from milk. So if we're better off allowing congresspeople to determine how much public education should be supplied, then we're also better off allowing congresspeople to determine how much milk should be supplied.

The fact of the matter is...as a group, millions and millions of taxpayers have infinitely more insight/foresight than 300 congresspeople do. That's why we'd be infinitely better off by allowing taxpayers to decide for themselves exactly how much positive feedback (tax dollars) they give to government organizations.

Diseconomies of scale. Millions of taxpayers may be more knowledgeable than a few hundred congressmen, but they're not going to be better coordinated.

[Kosovio]

I didn't know that congress knew everything, but to answer you question no they are not.

[Lemanrussland]

I've never heard anyone say this. I think everyone realizes that you've set up this strawman so you an argue for anarchism/"a market in states"

The very concept of a market in states existing in a anarchic environment is not sound for several reasons.

1. Nation-states base their power upon geographic spaces, states will fight one another for control of land, resources, and natural barriers. States will not co-exist in a mutual geographic space.
2. The "international system" (the word is used loosely here) is anarchic, there is no actor above states capable of regulating their interactions. States themselves must arrive at relations with other states on their own. There is no concept of private property, rule of law, or market freedom that exists between states universally. States respecting the private property or individual autonomy of those who choose to "leave the state/choose to do business with another state" is therefore not a given.

[Lemanrussland]

I've never heard anyone say this. I think everyone realizes that you've set up this strawman so you an argue for anarchism/"a market in states"

The very concept of a market in states existing in a anarchic environment is not sound for several reasons.

1. Nation-states base their power upon geographic spaces, states will fight one another for control of land, resources, and natural barriers. States will not co-exist in a mutual geographic space.
2. The "international system" (the word is used loosely here) is anarchic, there is no actor above states capable of regulating their interactions. States themselves must arrive at relations with other states on their own. There is no concept of private property, rule of law, or market freedom that exists between states universally. States respecting the private property or individual autonomy of those who choose to "leave the state/choose to do business with another state" is therefore not a given.

And if you mean people should "directly allocate the taxes they pay to whatever government organization they wish" within a statist environment (similar to that one NS decision), they do this already through their elected representatives. They also do things like setting the rules of society, establishing things like tax rates, and actually managing the government agencies authorized by the law through their representatives.

Positive/negative feedback already exists in the form of votes for or against a representative and his/her policies.

[Lemanrussland]

We need to abolish congress and give back representation to the representatives.

What.

[Lemanrussland]

om·nis·cient: knowing everything
Knowing where taxes go /=/ Knowing everything
Therefore Congressblokes aren't omniscient.
Besides despite what misinterpreted quotes you may have on you i'm sure that congresspeople have other people to do that for them so that they only know that broadly.

He's basically using a variation on the arguments that Hayek and Mises (and even earlier, Max Weber) articulated in the 1920s and 1930s. In a nutshell, they said it is impossible for a central bureaucracy or group of representatives to efficiently provision goods and services on the behalf of others through central planning, because that would require knowing an unfathomable number of things about people's desires, needs, what they're willing to give for items, and so on. On the other hand, they say that the free price system is capable of doing this because of price signals. Information about all of these disparate circumstances are transmitted in a decentralized way through many market transactions, setting prices, rationing supplies, distributing income, and allocating resources automatically.

But instead of saying that goods provided or economic resources managed by government should be passed to markets, he says tax payers should instead choose to allocate their tax money where they wish (tax choice).

What I don't understand about his argument is how this system deals with the free rider problem. What if I want to use schools or roads, but not pay any taxes for it? If the OP could flesh out his argument and explain what the system in practice would look like, that would be nice.

Do you just get a tax return and fill out what you want? Are you obligated to provide a set amount of taxes to the state, but choose how it is allocated? Are your choices limited to certain things authorized by law?

[Lemanrussland]

Our current system is based on the assumption that congresspeople are omniscient. (True/False)

If congresspeople can know, better than society itself, exactly how much benefit society derives from public education...then it has to be true that congresspeople can know, better than society itself, exactly how much benefit society derives from milk. So if we're better off allowing congresspeople to determine how much public education should be supplied, then we're also better off allowing congresspeople to determine how much milk should be supplied.

The fact of the matter is...as a group, millions and millions of taxpayers have infinitely more insight/foresight than 300 congresspeople do. That's why we'd be infinitely better off by allowing taxpayers to decide for themselves exactly how much positive feedback (tax dollars) they give to government organizations.

Fail strawman is fail. What's more, the free rider problem only applies to public goods, where it will automatically kill any effort, such as the one you describe, to "voluntarily" donate to public works.

Milk? Milk is a private good - how much or little you have doesn't affect me in any significant way. Healthcare....now, that's a different matter. If you're diseased as all fuckery, then I have a higher chance of catching diseases despite the fact that I look after my health.

Public good has a quite specific meaning. "A good that is both non-excludable and non-rivalrous in that individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others. [1] Examples of public goods include fresh air, knowledge, lighthouses, national defense, flood control systems and street lighting." (https://en.wikipedia.org/wiki/Public_good). Healthcare does not really fit under this definition. It is excludible (firms can restrict the use of health services only to paying customers) and rivalrous (someone using the services of a doctor or hospital excludes others from doing so simultaneously). National health insurance is just another component of most national social insurance systems (alongside things like public pensions, public schools, unemployment benefits and so on).

Now, there are some market failures which surround healthcare. The two biggest I can think of are information asymmetry (medical institutions typically have much more information about medical care than their patients, and therefore most often act as surrogates for their patients) and principal-agent problems (medical institutions may act to maximize their profits at the expense of the patients’ interests). These problems are not unique to the healthcare industry (lawyers have similar advantages), but the nature of healthcare makes the effect of these problems particularly acute.

Consumers of healthcare are often under duress, especially if they are seriously injured and need care urgently, there is no opportunity for them to identify and consume alternative services because of this. A doctor administering care to these consumers does not really know their financial situation, their ability or willingness to pay for the care -- s/he is simply trying to keep the patient alive, often with no regard to cost. This is why 1% of the total population consumes 25% of medical care (by cost), 5% of the population consumes 49% and 50% of the population consumes only 3% of medical care by cost. There are also, as you mention, externalities associated with some forms of healthcare, particularly in the case of communicable disease control.

[Llamalandia]

Our current system is based on the assumption that congresspeople are omniscient. (True/False)

If congresspeople can know, better than society itself, exactly how much benefit society derives from public education...then it has to be true that congresspeople can know, better than society itself, exactly how much benefit society derives from milk. So if we're better off allowing congresspeople to determine how much public education should be supplied, then we're also better off allowing congresspeople to determine how much milk should be supplied.

The fact of the matter is...as a group, millions and millions of taxpayers have infinitely more insight/foresight than 300 congresspeople do. That's why we'd be infinitely better off by allowing taxpayers to decide for themselves exactly how much positive feedback (tax dollars) they give to government organizations.

I'm pretty antitax but even i realize if you implement such a system most people are going to say meh, i don't really want to fund any part of government with my money i choose the tax break option.

That said, allowing people to indicate an initial preference for "their" tax dollars would be fine, as long as at the end money is redristributed among govt agencies as necessary to equalize funding (assuming certain govt programs are greaatly favored over others.)

Also though education is largely a local concern, yes the feds have been increasingly encroaching on it but they really aren't supposed to be.

[Luziyca]

Hell to the fucking no. That said, they are way more omniscient than a teenager who claims to be more American than those living in the USA despite living in Finland.

Anyways, as for us proposing where our money goes, how about we could get one person from every state/province, and two from every territory (for the USA, it'd be 82 people (32 from the territories and 50 from the states) and in Canada, it'd be 16 people (10 from the provinces and 6 from the territories), chosen to the average person in that region (or people) and describe what they want to see funded, in a commission.

[Maqo]

If congresspeople can know, better than society itself, exactly how much benefit society derives from public education...then it has to be true that congresspeople can know, better than society itself, exactly how much benefit society derives from milk. So if we're better off allowing congresspeople to determine how much public education should be supplied, then we're also better off allowing congresspeople to determine how much milk should be supplied.

1) Massive strawman

2) You are denying the division of labour and division of knowledge. It is possible for me to be the world's leading expert on widgets and have perfect knowledge about their supply and value, but know absolutely nothing about sprockets and their supply and value.

3) Congresspeople could probably very easily get the supply of milk pretty much right; and they would certainly get the supply right after a very short number of cycles. Milk is essentially a commodity, with demand not going to change much from year to year, and after two years congress would be just as good at producing the right quantity of milk as the free market is. Really, milk would be orders of magnitude easier to provide than public education, where the value derived is more transcendent.

4) They don't need to get the amount *exactly* right. They need to get it 'good enough', and create more value by taking advantage of collective buying power and methods of wealth creation that would be unavailable/unattractive to the free market.

5) ENORMOUS strawman.

[Maqo]

Our system is not based on the assumption that congresspeople are omniscient, yet taxpayers are not allowed to choose where their taxes go. It just doesn't follow.

They don't need to be omniscient. They just need to be good. They don't even need to be better than the average taxpayer, because with all the powers available to them as a government they are able to operate (in some circumstances) more efficiently with the same resources.

The division of labor is not a critique of consumer sovereignty. That you think it is reveals how little you know about how or why markets work.

Your premise is that, if congresspeople know the correct allocation of X then they should also know the correct allocation of Y & Z. Division of labour means that it is their job to know about X, but not to know about Y and Z.

If they can get the supply "better" than consumers can, then obviously we should want them to determine exactly how much milk, forums and Brittney Spears is supplied.

I never said they could supply it 'better'. They could get the quantity supplied correct. We leave it to the market because in this case they can probably produce more efficiently (in terms of uses of $/resources per output of milk).
Your continued conflation of cost & price & value & quantity, vague definitions of 'correctness' or 'efficiency', makes your arguments very unsound.

In the absence of consumer decisions, how in the world can you know how close congress gets? What in the world are you comparing their decisions to? An alternate reality where taxpayers can shop for themselves?

You do realise that taxpayers can talk to their representative, right? Citizens can express their opinions about the correct amounts of stuff?

But again, the government doesn't need to be perfect in all respects if it can be better in some even when it is worse in others.
Eg: 100 taxpayers go to individually to buy a school books. It costs them $10 each, for total spend of $1000. Efficiency is 100 books for $1000.
Government collects $750 in taxes to spend on school books. Because of bureaucracy, only 80% of the money ends up being spent. But because of their increased purchasing power, they get a 50% discount on the books. Efficiency is 120 books for $750.
The moral of the story is that with contrived examples you can prove anything the government didn't know the 'correct' quantity to supply, but still ended up being far more efficient than consumers would have been on their own.

[Maqo]

Your premise is that, if congresspeople know the correct allocation of X then they should also know the correct allocation of Y & Z. Division of labour means that it is their job to know about X, but not to know about Y and Z.

The division of labor concept means that people can only buy things that they know how to produce? Are you kidding me?

No, that is not what I said.

I said:

Your premise is that, if congresspeople know the correct allocation of X then they should also know the correct allocation of Y & Z. Division of labour means that it is their job to know about X, but not to know about Y and Z.

It means that your argument about omniscience is nonsense.

Suppose we turn it the other way around: I bet there is someone out there in charge of the Milkers Association of America, who could look up in some spreadsheet the amount of milk probably required by society on any given day. This person knows the correct amount of milk to supply. Why? Because it is his job to know. But because it is not his job to know the correct amount of defense to supply, he does not know that.
Because a person KNOWS about X does not imply or lead to them knowing about Y and Z. It really is that simple.

Therefore, the optimal supply of public goods can only follow from the demand for public goods. If we give taxpayers the option to shop for themselves in the public sector...and many people decide to do so, then this would indicate that the allocation as determined by congress was extremely inefficient. It really did not reflect the actual demand for public goods. Good thing we allowed taxpayers to shop for themselves.

Your 'solution', as I understand it, is to let every government agency itemize their services as much as they feel like, and put the entire itemized list from all government services onto some kind of ballot or fundraising bar. Everyone still pays the same amount of tax they they previously were. They then spread the money around the departments and services they like. Do I have that about right?

Seeing as you like shopping analogies so much, isn't that like forcing people into McDonalds and telling them they MUST spend $100? The don't have a choice as to what is on the menu. It doesn't matter if $100 gets them more than they want.


None of your quotes say that we the optimum provision of goods would come from people choosing where to spend their taxes. They say that government allocation is probably non-optimal (which I agree with), and that if we allowed people to express their preferences better the allocation would be more optimal (which I agree with). But allocation of money is NOT a direct or even particularly good indicator of people's preferences. Value derived and price of goods does not have a 1 to 1 relationship: price of goods is primarily driven by cost of production, but value derived is intrinsic to the buyer.

[Maqo]

@Infactnum

I like your example with the 70% funding to DOD, but we can make it even simpler:

TO make it even less abstract, a real world example.
My favourite Indian cuisine is butter chicken followed by lamb rogan josh. My girlfriend's favourite is also butter chicken. So when we go to an Indian restaurant, we pick out two dishes and agree that we'll share them equally, and we must pick two different dishes. My first choice on the menu is rogan josh. She predictably picks butter chicken. My benefit is maximised by pretending I like rogan josh more.
Crazy, huh? *

To make it more taxpayerish:

1) There are two taxpayers, you and one other person.
2) You both pay $100 of tax; each of you contributes half the entire tax pool.
3) There are 3 departments on offer to give your tax dollars to: A, B and C. Each of these departments has a 'maximum funding goal' of $100. Benefit gained is linear per dollar up to $100, and per dollar afterwards.
4) Department A is by far the most beneficial. Its like, DOD or Education or Law enforcement. Both you and the other taxpayer know that any dollars given to A up to their funding goal will benefit everyone equally; you both gain $1000 worth of value for every dollar you spend in A up to their funding goal.
5) You personally gain $10 worth of value for every $1 you spend in B, but only $1 worth of value for every $1 in C.
6) You don't know the order the other person values B vs C, you just know they value A more than either.

The rational choice here is to dump all of your money as soon as possible in to funding B, even though you prefer A.
'Lying' about your preference leads to the maximum benefit for you.
Why?
You fund B asap, because then when the slower person sees the tally, they know that the maximum benefit possible to them is to spend their money in A. You rely on this knowledge to maximise your personal benefit.

If we say that the other person had exactly reversed preferences to me on B & C:
The total benefit I gain in this situation is $101,000 and the other person gets $100,050 - for a total benefit of 201,050.
However, the optimal benefit between the two of us is to spend $100 on A, $50 on B and $50 on C; each of us benefits a total of $100,550 - for a total benefit to society of $201,100.
Yet the optimal benefit to society will never actually arise, because we are both acting in our own interests.

[Maqo]

@Infactnum

I like your example with the 70% funding to DOD, but we can make it even simpler:

TO make it even less abstract, a real world example.
My favourite Indian cuisine is butter chicken followed by lamb rogan josh. My girlfriend's favourite is also butter chicken. So when we go to an Indian restaurant, we pick out two dishes and agree that we'll share them equally, and we must pick two different dishes. My first choice on the menu is rogan josh. She predictably picks butter chicken. My benefit is maximised by pretending I like rogan josh more.
Crazy, huh? *

You tricked your girlfriend because she doesn't know your favorite Indian dish? Therefore, you can maximize the amount of benefit you derive from her by hiding all of your favorite things from her? hehehe. I don't think so.

No. I'm giving a very specific, very easy to understand example of when lying about your true preferences for a public good can maximise your benefit. Your central tenet is that people expressing their preferences will maximise benefit: this is a disproof by example.
In particular, your 'counter example' completely missed the point that this is a public good (between two people).
Obviously this would not work if she or I was choosing some goods that only she or I were to benefit from.
There has been significant interest in the past by economists about different types of goods and why the markets for some behave differently than the markets for others. Veblen Goods, Inferior & Giffen Goods, Network Goods... Common & Club goods... all behave differently than an Ordinary good. Is it so hard to accept that Public goods may have a different behaviour which is not the same as that for bread or take-away chicken or other private goods?

[Maqo]

No. I'm giving a very specific, very easy to understand example of when lying about your true preferences for a public good can maximise your benefit. Your central tenet is that people expressing their preferences will maximise benefit: this is a disproof by example.

You didn't lie enough to disprove my example. Obviously Indian food matches your preferences. Maybe the dishes don't perfectly match your preferences but at least they are in the ballpark. Obviously having a gf matches your preferences. Maybe she doesn't perfectly match your preferences but at least she is in the ballpark.

You have repeatedly said that people's allocation of resources reflects their preferences and priorities. That whatever people buy first or allocate the most money to, that is the thing that they value most. I don't need to lie MUCH to show you that this is false.
Plus, there are some Indian foods that I hate; palak paneer is one of them (and that is actually my gf's second favourite, but completely irrelevant to the game). But if they are on the menu my benefit is maximised by avoiding them completely, by forcing other players to divert their funds towards things I want, by deceptively showing my preferences.
The game doesn't need to be at a restaurant. We can play it with 3 dissimilar government services; Education, Defense, Environment. As long as I can be reasonably sure of people's preferences, to know that eg they will value education more than anything else, I can allocate deceptively towards defense and force their spending on education rather than environment.

What I'm critiquing is a system where people are forced to fund things that really don't match their preferences. For example, pacifists are forced to fund war. It's the complete opposite of what they would choose to fund. War isn't even in the ballpark because pacifists believe that it's a a vicious cycle. War begets war. Conservatives are forced to fund welfare programs. It's the complete opposite of what they would choose to fund. Welfare programs aren't even in the ballpark because conservatives believe that they are a vicious cycle. Dependency begets dependency.

One difference between a public good and private good is that, if you say no to a private good, you won't get any at all and you will be happy. If you say no to a public good but someone else says yes, then it will still be supplied. Its allocation still doesn't match your preferences: in fact it probably doesn't match anyone's preferences anymore. If a pacifist doesn't fund the war, someone else probably will.

But public goods aren't dissimilar in the sense that your preferences for them can be assumed/disregarded/ignored. This is why public finance economists largely accept that the preference revelation problem is a real problem. Is it hard for you to accept that the preference revelation problem is a real problem?

[/quote]
Preference Revelation is a problem... but only a ballpark problem, to use your words.

People aren't all that different. Maybe if you plucked one person from Kenya and one person from New York, they would have very different views; but all the people in New York together think relatively similarly, within the same ballpark. All of them are going to know roughly what the top few things everyone else values are - education, infrastructure, defense, law enforcement, those kind of things.
And so the savvy voter in New York will realise that everyone else is benefited most by voting for the above, and so get in first by putting their entire tax contribution towards rent subsidies, the most private good they can think of.

[Maqo]

I suppose market theory is similar to scientific theory.

For instance, we know that in theory a brick should fall at the same rate as a feather and that the brick and the feather should hit the ground simultaneously when dropped at the same time. An object's mass does not affect their acceleration towards the ground.

In reality, we know that this is not the case. Scientists assume that the feather and the brick are being dropped in a frictionless vacuum.

-
In the same way that scientific theory assumes a perfect environment (in this case, a frictionless vacuum), market theory assumes perfect information, and other factors.

Market theory does not necessarily describe how the real world operates. It instead describes how an ideal world operates. (Note: When using the word "ideal", we do not mean "good" or "utopian.") Factors that would interfere in the operation of markets in the real world are ignored.

And so, when conditions are ideal, markets work efficiently. However, conditions in the real world are usually not ideal, so therefore, there is failure.

(Another analogy is the market as an engine. An engine would obviously work in ideal conditions, yet conditions in the real world are often not ideal. Therefore, engines are not efficient as they theoretically could be.)

The closer the situation is to a frictionless vacuum, the objects will fall at nearer to the same speed. When know what the factors are which make the situation deviate from our original theory and so we can say when the results will significantly deviate. It's not like we are surprised that the feather falls slower...

We know most people don't have perfect information; as ASB said, there is significant amounts of research in to the reality of imperfect information and the negative effects this has on the market. The healthcare market for example - many countries in the world have government provided healthcare because they realize the information asymmetry leads to market failure.


@Xerographica.
Your argument rests on the assumption that markets are optimally efficient.
However, we know that markets are not optimally efficient in many situations - including the situation of imperfect information.
Therefore to prove that pragmatarianism is optimally efficient you MUST prove or assume perfect information.
If you don't prove or assume that fact, you must concede that pragmatarianism will not necessarily be optimally efficient.

[Maqo]

Therefore, your influence over how society's limited resources are used can never exceed the amount of value you create for society.

Sure it can. I know you've heard of negative externalities.
Or, you just trick someone in to how much 'value' you are creating for them, by having a monopoly (or information asymmetry, or any of the other causes of market failure). See the 'department of life' idea below.
The real crux is that value and price are seldom linked so closely as you would say, and indeed value provided should have very little relation to price except 'greater than' in an efficient market.

Regarding monopolies...

In buying the resources needed to produce any one good, an entrepreneur has succeeded in competing away these resources from other possible uses. When a producer, not enjoying protection against competitive entry, finds himself as sole producer he still has to worry about the activities of competing entrepreneurs. They are channeling their energies and their alertness into producing other products, which are competing for consumers' attention also. Inter-product competition will not guarantee horizontal demand curves facing each producer. But it offers assurance that errors made in the identification of the most urgently needed consumer products (and/or of the most easily accessible resources) will tend rapidly to be noticed and exploited by alert, competing entrepreneurs. - Israel M. Kirzner, How Markets Work

So you are essentially trying to say that monopolies can never exist? Because that is... yeah. Wrong. Empirically.


The efficiency of a market comes from attempting to maximize profits by minimizing costs. EVEN IF you assume that each department is competing with each other (they're not) and so are not a monopoly (they are), they still won't become efficient because they have no incentive to minimize costs.
Why? Because you're asking people to 'vote' how much they value an item. This is in actuality the maximum they would be willing to pay. An efficient market will drop costs then prices down to the marginal cost of a good, which is necessarily less than what people value it for.




Imagine there is a department of life. They make a drug which everyone needs to take once a day to stay alive, or else they die at midnight.
As far as I can tell, under your system, the department of life can say 'We need $500 billion in funding to make this drug for you' - and the logical first choice for everyone would be to pour all of their tax dollars into this department until the funding goal is reached. Right?
But the drug costs them a penny per person per year to make. So in actuality, their real funding goal is only 300 million.
In a competitive market, the 'funding cost' for these businesses will come down due to competition until people are only pay 2c for their drug. This is what we would call economically efficient.
Under your system, you consider it efficient that the department is making $499 billion in profit every each, and every person is paying hundreds of thousands of times more than they need to. Because they are providing so much 'value' to society they deserve to be rewarded by 'positive feedback'. Right?

Can you see how ridiculous that is?

[Maqo]

Meanwhile, regarding government reactivity: depending on how administered tax choice would either make the government so unresponsive it would basically be impotent, or so reactive it would be useless as no response could be measured.

How would this be administered?

It might help to read the pragmatarianism FAQ.

The FAQ doesn't deal with the questions Galloism asked. He wants to know how you prevent agencies from being too reactionary or too unresponsive.

For example:
The country is enjoying 50 continuous years of peace and prosperity thanks to pragmatarianism (lol). Funding for education, infrastructure, environment is way up and funding for military has been reduced to a trickle.
Suddenly, the country is invaded by Elbonia. Oh no! Everyone now wants an army to fight the invaders, so they pour money into the military.
...
And the military does... nothing. Because right now all they have is money, but what they need is tanks. But despite getting funding, it takes a couple of years to ramp up production to build sufficient tanks to fight off an invasion.
Its like finding a person who is drowning, and giving them $50k to buy a boat. (and then claiming because they didn't buy a boat with their money, they obviously valued drowning more than a boat and the market is working fine)


Alternatively:
Education is a public good, and your children are attending school. You notice that none of the teachers anywhere are very good, so you decide to give some money to the department of education. A month later, nothing has happened. You donate again. A month later, nothing has happened... and so on, until two years later you're tired of not seeing any improvement, so you stop giving money.

Alternatively:
Someone runs a very effective advertising campaign to promote the EPA, and everyone pours money into the EPA. The EPA uses this money to buy out and shut down a lot of coal power plants. Everyone is like 'oh no, we want our electricity back', and so pour money into some agency responsible for that. The economy spends months in limbo as organizations are shut down only to be restarted again... and the only people who benefit are the ones running the power plants, not the taxpayers. All their taxpaying dollars are essentially just transferred out of the government system without creating any real value.


@Galloism.
Xerographica is the person who writes the pragmatarianism blog. He's also probably the author of any wikipedia page he links you to on 'tax choice'. It should be pretty apparent that there is only one person in the world who is advocating this idea...

[Maqo]

Our current system is based on the assumption that congresspeople are omniscient. (True/False)

If congresspeople can know, better than society itself, exactly how much benefit society derives from public education...then it has to be true that congresspeople can know, better than society itself, exactly how much benefit society derives from milk. So if we're better off allowing congresspeople to determine how much public education should be supplied, then we're also better off allowing congresspeople to determine how much milk should be supplied.

I've come up with something (mostly for fun) to discuss the allocation of goods under "tax choice".

Let's say there are N people in our world. Let's suppose that N/2 people are allocated δ₁ each in income to distribute to spending on public goods, and that another N/2 people have δ₂ each in income to distribute to spending on public goods, so that δ₁ > δ₂ and δ₁N/2 + δ₂N/2 = Y, or total national income.

Suppose that there are two public goods to choose form, x₁ and x₂ (assume a normalised cost of 1). Let's define a utility function U¹(x₁, x₂) = αlnx₁ +lnx₂ for people with δ₁ endowment and U²(x₁, x₂) = lnx₁ +αlnx₂ for the people with δ₂ endowment, where α > 1.

The people with δ₁ have a budget constraint of δ₁ = x₁ + x₂ and the people with δ₂ have a budget constraint of δ₂ = x₁ + x₂ since prices have been normalised.

The optimal combination of goods for the people with δ₁ is:
x₁ = αδ₁/(α+1) and x₂ = δ₁/(α+1)

The optimal combination of goods for the people with δ₂ is:
x₁ = δ₂/(α+1) and x₂ = αδ₂/(α+1)

If each person were able to allocate their endowment to maximise their own utility function, then the allocation of public goods in our imaginary country would be:
x₁ = N/2(αδ₁/(α+1) + δ₂/(α+1))
x₂ = N/2(δ₁/(α+1) + αδ₂/(α+1)), where x₁ > x₂, which is much closer to the people with the higher endowment's optimal allocation of goods.

But socially optimal allocation of public goods in this model, defined as the allocation of goods where the marginal utility of both consumers is maximised subject to total national income Y, not their personal endowments, is:
x₁ = Y/2
x₂ = Y/2, where clearly x₁ = x₂, which is equidistant from both type of people's optimal allocation of goods, which is a bit of an equalisation of relative wealth (in reality, it would be closer to the person with the lower endowment, since their marginal utility is higher from each unit of a good, as they're consuming less).

The system where people are allowed to allocate public goods as they see fit does not bring about the socially optimal allocation of goods under the conditions of wealth inequality.

Now the premise of this model is that people with higher endowments of income will prioritise public goods from which they derive the most utility, and their prioritisation of public goods is partially determined by their income (that is, a rich person will not benefit from social insurance or poverty intervention programmes, and a poor person will not benefit from a repaved road in a gated community).

When wealth levels are unequal, this model demonstrates that "tax choice" will polarise - rather than redistribute - wealth.

While I mostly agree with the outcome, I think it might be a bit more difficult than that. Xerographica's idea seems to be that anyone can allocate money at any time, which means optimum strategies rely on your knowledge of where money is already allocated or is likely to be allocated. (Although your utility functions may have taken that in to account, its too early for me to do logarithms). But yes, it is obvious that the richer people will benefit more from this.


Xerographica acknowledges and is OK with this idea. His belief is something along the lines of: if people are rich that is because we value their contributions to society more, therefore it is imminently sensible that we let them allocate more of societies goods. The act of giving money people is an indication that you value their opinions more than your own.

(Neglecting the idea that, just because I like to buy my cars off you does not mean I agree with you on any subject other than cars)

Which is why multiple people in Xerographica's threads have rightfully called 'pragmatarianism' a form of 'direct plutocracy'.
This is why it is also a sure fire way to a revolution... if you can pick any arbitrary number and mathematically prove that everyone earning below that number is going to be less satisfied with the government than the people above... That is a lot of unhappy people.

[Maqo]

Oh, I thought we were still within the realm of sanity.

Although I thought his idea was that tax choice maximises society's utility, or something along those lines.

I may have it a little wrong, but go back through the thread and do a search for the words 'influence' or 'feedback', and you'll see what I mean:

What happened though when you purchased the bread? You gave the baker (assuming he's the owner of the bakery)...your money. You gave him positive feedback on how well he is using society's limited resources. You vouched for the baker as a producer. You gave him your stamp of approval. You supplied him with a mandate to serve/represent/protect your interest in consuming bread. So he takes your money and spends a portion of it on all the inputs he needs to continue to provide you with the bread that you value.

Each person who gives the baker their money in exchange for bread, marginally increases the baker's influence over how society's limited resources are used. The more money he receives, the more flour he'll be able to purchase...and the less flour there will be available for other uses. Because it really wouldn't make any sense to allow bakers who've received less positive feedback (money) to have more influence than bakers who've received more positive feedback (money).

Therefore, your influence over how society's limited resources are used can never exceed the amount of value you create for society. This prevents massive amounts of resources from being wasted on things that society truly does not value.

I never make arguments in terms of rationality. Instead, I argue that people make mistakes and there are negative consequences. If you make a mistake and bet on the wrong horse, then you'll diminish your influence over how society's limited resources are used.

People need incentives. Markets are simply a system where we can choose who we want to incentivize to continue to use society's limited resources for our benefit.

etc. Basically he's equating
a) how much we want a product
b) how much we pay for the product
c) how much we value the producer's opinions
when really none of the have very much to do with each other at all.

[Maqo]

So we give him a mandate to use society's limited resources to produce something we value...cars. It's the epitome of stupid to believe that this mandate cannot or should not be extended to the public sector

What? Why?
If you think I'm good at producing cars... why the hell would you want me to produce your education system? Or your bread? or anything else that I haven't proven myself able to do?
You actually have no idea about how I've used societies resources to produce the car - only that I'm selling you a car and that I'm currently still in business.

To use your own analogy... would you go down to the car dealer and ask him to be your 'personal shopper' for bread and milk because you value how he makes cars? Of course not. So why are you trying to give him that influence with pragmatarianism?