Are Congresspeople Omniscient?

[Sociobiology]

Therefore, the invisible hand does not depend on prices. It just depends on people having the freedom to weigh the alternative uses of their limited resources. When people have this freedom, then resources will be put to their most valuable uses. In other words, the allocation of resources will be efficient.

<dropped jaw>

Excuse me?

Price signalling is exactly why free markets in private goods work and command economies in private goods don't.

it is also why it cannot work by itself, because people think higher price equals higher quality even when there is no evidence of this. Also sellers have little incentive to pass on the benefits of higher supply due to customer loyalty. And the more difficult quality and supply is to assess instantaneously the more exploitable it is.

[Sociobiology]

I trust a specialist who's job is to know how to spend it more than I would Joe Blow who does not even know what NIST or the NSF is yes.
I trust the head of the CDC to know how best to spend the CDC's money then a guy off the street that thinks memory water can cure disease.

Ah, but you're missing the gist of Xero's theory.

He's not saying that the head of the CDC is in a better position to know what society needs than the guy off the street who thinks that memory water can cure disease; he's saying that the guy who persuades the guy off the street that memory water can cure disease is the best guy to manage society's resources.

IOW, it's not the medical specialist who ought to be making decisions, or the guy in the street who buys snake oil; it's the snake oil salesman, because he's the one who can capture the imagination of the public, and it's more important to do what the public thinks should be done than what is actually best for the public.

you mean like modern politicians do, which is causing lots of the problems voting according to polls instead of leading? It seams to me you are bitching that when given the choice people pick shitty leaders and the solution is to give those people even more power to make more far reaching shitty decisions.
The people are supposed to tell their leaders what they want, and then the leaders are supposed to figure out how best to achieve those things, and if they don't you are not supposed to reelect them.
for your analogy, doctors are supposed to manage your health but you are supposed to be deciding who is the best doctor.

And yet, paradoxically, this system is supposed to prevent the rise of demagogues like Hitler. Go figure.

no it is just supposed to make it harder, and make it harder for them to consolidate power which it does in spades.

It's a complete rejection of the Framers' notion that we as citizens can be inspired to select from among our ranks representatives to make decisions for us who are both generally aware of our desires and competent and trustworthy enough to act in accordance with those desires.

you do realize the framers put things in place to give the citizens LESS say in who their leaders were. See the electoral college. The framers did not trust the average citizen to know what was good for them.

[Solaray]

I'm gonna say no. Unless there's some sort of conspiracy...

[Spartan Philidelphia]

When you "assume" something you take it to be true. It's so stupidly blatantly obvious that Jellyman does not assume perfect information. He's critiquing markets because he's assuming imperfect information.

I asked for the names of economists who assume perfect information and Forsher densely replied with the name of an economist who assumes the opposite.

But at least Forsher tried.

Let me summarize our positions. You want to prevent people from shopping in the public sector because of what they don't know...while I want to allow them to shop in the public sector because of what they do know. What do people know?

Xero:

Jellyman said that markets fail when there is imperfect information.

Put another way:

Markets succeed when there is perfect information.

I strongly suggest that you step away and rethink this because you're arguments are just getting stupider. This one falls flat because it doesn't understand English.

Market failure occurs when the market does not give allocatively efficient or equitable outcomes. When assessing the definition and description of the characteristics of market failure, a selection will be made from:

• externalities
• merit/demerit goods
• public goods
• imperfect information
• inequitable income distribution.

Concept one:

Markets can fail.

Concept two:

Market failure is when the market is not allocatively efficient (or doesn't result in an inequitable outcome).

Concept three:

Market failure occurs when a few characteristics are in place.

Concept four:

Those concepts include "imperfect information".

Conclusion:

Therefore, markets are not allocatively efficient when imperfect information is present.

The Reverse of that:

Markets are allocatively efficient when perfect information is present.

Want to try again? Preferably without assuming at the start that you are right.

I invite Infactum, ASB or anyone else to check the logic of that.

I suppose market theory is similar to scientific theory. (EDIT: Not surprising, since economics is a science, though not one of the "hard sciences.")

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 its 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 efficiently in ideal conditions, yet conditions in the real world are often not ideal. Therefore, engines are not efficient as they theoretically could be.)

(EDIT: Grammatical errors, statement after first sentence)

[Spartan Philidelphia]

You keep talking about Samuelson's Pure Theory of Public Expenditure. I'm not an economist, so could someone explain in more simple terms what it actually means?

[Spartan Philidelphia]

You keep talking about Samuelson's Pure Theory of Public Expenditure. I'm not an economist, so could someone explain in more simple terms what it actually means?

EPA: How much do you value environmental protection?
You: It's worth around $500/yr to me.
EPA: Please pay us $500/yr
You: Ohhhh, in that case, it's only worth $100/yr

Samuelson was critiquing voluntary taxation. If taxes were voluntary, then clearly people would have an incentive to understate exactly how much benefit they derive from public goods. Doing so would reduce their tax obligation. Therefore, compulsory taxation is necessary. This is now commonly referred to as the free-rider problem.

I don't think it's unreasonable to conclude that compulsory taxation is necessary...my concern is that Samuelson assumes that congresspeople are omniscient in order to justify having them allocate everybody's taxes. Clearly congresspeople are not omniscient, which is why taxpayers should be able to choose where their taxes go.

Check this thread out for supporting evidence... Government Success vs Market Success...and the pragmatarianism FAQ.

So Samuelson just assumed that congresspeople are omniscient in the real world? That sounds really stupid, and I don't think anyone is that stupid. Why did he assume this?

[Surfistan]

I don't know enough about Transdimensional Lizarmen physiology to argue about this.

[Surfistan]

It would be cool though, to some extent, because then they could abolish all those secret services.
Maybe they could even... Dare I dream... Solve real problems...

[Tekania]

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.

Frankly I do not think foresight grows with population.... if anything I think people get dumber and dumber the larger the groups they are in.

[Tekania]

Despite the the ridiculous burning strawman at the beginning of the thread that I originally mistook for the Yosemite fire, I think I actually might agree with you. I'm not sure though.

Yosemite fire? you thought it was that small a fire? I've seen stellar plumes smaller than the burning strawman in the OP.

[Tekania]

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

Where the fuck did you get this nonsense?

I could post the source, but posting pornographic images tends to be frowned upon in this establishment.

[Terrordome]

Hows your freshman economics degree going Xero?

[Terrordome]

Hows your freshman economics degree going Xero?

Degree? I have large degree of difficulty believing that the OP has had any formal education in the subject given that he's disagreed with very basic definitions/concepts such as (but not limited to) opportunity cost and the market itself. However, I've never seen him claim to have had either. As far as I can tell from his post "economics" is his hobby.

dunno about that his posts seem to me like an exited 18 year old who has just started uni a week ago, has skimmed his reading list and now thinks he knows the workings of the universe.

I may be completely wrong in my speculation however.

[The Batorys]

If Michelle Bwcawkmann and Louie Gohmert are omniscient, the human race is too stupid to deserve living.

You forgot Nancy Pelosi, if nothing else.

Tammy Duckworth, as well.

It may surprise you, but Nancy Pelosi is considered rather centrist in these parts.

[The Emerald Legion]

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.

They are also infinitely more shortsighted and stupid. The idea is that you pick a few of the people of quality, and set them at the head of the people who quite simply aren't as good.

Of course with the public vilification of the elite, and the exultation of the Joe Everyman... well, that system is facing some turbulence.

[The Joseon Dynasty]

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.

[The Joseon Dynasty]

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'.

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.

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.

You're absolutely right. My model assumes simultaneous allocation without foreknowledge of the other person's allocation decision (mostly because, as you'll see, the derivations for the more complex model are unpleasant), so it naturally defers to their own optimal allocation. In a more accurate model, you'd have to make their optimal strategy a function of both their own constraints and preferences, and the other person's optimal strategy. Which, out of pride and immense boredom, I will try to do.

Suppose the person with the higher endowment knows the other person's optimal allocation of x₁ = δ₂/(α+1) and x₂ = αδ₂/(α+1).

The higher endowment person's (who I'll just call person 1) best response function is therefore to maximise her utility subject to what she anticipates she will be able to consume. Since these are public goods, I'm assuming that they're non-rivalrous and non-excludable, so a unit of some x_i can be consumed equally by both people.

Therefore, the optimisation expression for person 1 is max U¹(x₁, x₂) = αln(x₁+δ₂/(α+1)) +ln(x₂ + αδ₂/(α+1)) + λ[δ₁ - x₁ - x₂].

So person 1's optimal allocation of x₂ = δ₁/(α+1) + δ₂(-α² + 1)/(α+1)² and x₁ = αδ₁/(α+1) + δ₂/(α+1)[α² -1 - α³/(1+α)² + α/(1+α)²].

In this case, person 1 will allocate more to x₁ and less to x₂ than in the case where there is no foreknowledge of person 2's allocation (this can be seen by comparing this allocation with the original one above). If we assume that person 2 has foreknowledge of person 1's decision subject to his original choice - expanding this model over time, perhaps -, then he will allocate more to x₂ and less to x₁. It could probably be modelled as an infinite sequential game, and there should be a stable equilibrium where person 1 is unambiguously better off than person 2 because of her initial wealth endowment - since, even though there's the diffusion of knowledge that gives both players a strategic edge, person 1 ultimately has more leverage over her preferred allocation by virtue of her higher endowment.

Anyway, since the socially optimal allocation of goods remains unchanged, perfect knowledge of the other player's strategic decision-making only seems to polarise the allocations even more, and exacerbate the wealth gap further.

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.

I love economics for just that reason. Any bullshit idea can be disproven with mathematics if you have the patience.

[The Joseon Dynasty]

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.

Wealth inequality reflects the fact that some people are better than others at using society's limited resources. It therefore makes sense that some people should have more influence than others over how society's limited resources are used. This results in a greater abundance of the things that consumers want more of.

What? Even if we accept the astoundingly flawed premise that sufficiently many people are wealthy because - and only because - of their effectiveness at managing their resources to base a social system around, that in no way implies that they are capable of or interested in allocating resources in a way that benefits society. It's completely counter-intuitive. If, according to you, wealthy people are wealthy because they've managed their resources such that they've accumulated over time, why wouldn't they continue that process when managing public goods? Why would their incentives somehow change?

But it doesn't make any sense to argue that some people are better at using societies resources... but only in the private sector. If somebody is good at using resources to produce things that people want, then this has to be true no matter what the input is or where it comes from. Therefore, we can greatly increase abundance by allowing taxpayers to spend their money on public inputs just like they can spend their money on private inputs.

I don't understand your logic. In personal life, people are trying to maximise their own utility subject to their own constraints. In public life, we want to maximise society's utility subject to everyone's collective constraints. Reaching optimal utility in both those instances is a completely different process, as I demonstrated with the mathematical model. Fragmenting the public spending decision process into many individual units, rather than one collective unit (or at least many units that can effectively communicate and collaborate), misunderstands what the ultimate goal is.

[The Joseon Dynasty]

IOW, it's not the medical specialist who ought to be making decisions, or the guy in the street who buys snake oil; it's the snake oil salesman, because he's the one who can capture the imagination of the public, and it's more important to do what the public thinks should be done than what is actually best for the public.

He doesn't seem to understand that those daft assumptions we make in economics that people actually have well-defined, well-formed internal utility functions - generally unrestrained by a lack of knowledge, foresight or consequence - don't really exist in any meaningful way. And even if you do assume that his assumptions exist and plug his system into basic consumer choice models, it still doesn't bring about the optimal allocation.

[The Joseon Dynasty]

You keep talking about Samuelson's Pure Theory of Public Expenditure. I'm not an economist, so could someone explain in more simple terms what it actually means?

EPA: How much do you value environmental protection?
You: It's worth around $500/yr to me.
EPA: Please pay us $500/yr
You: Ohhhh, in that case, it's only worth $100/yr

Samuelson was critiquing voluntary taxation. If taxes were voluntary, then clearly people would have an incentive to understate exactly how much benefit they derive from public goods. Doing so would reduce their tax obligation. Therefore, compulsory taxation is necessary. This is now commonly referred to as the free-rider problem.

I don't think it's unreasonable to conclude that compulsory taxation is necessary...my concern is that Samuelson assumes that congresspeople are omniscient in order to justify having them allocate everybody's taxes. Clearly congresspeople are not omniscient, which is why taxpayers should be able to choose where their taxes go.

He understood that this abstract concept of "preferences" merely represents the individual's perceived valuation of various goods and services, subject to imperfect information, present-bias, undervalued externalities, etc. When it comes to the simple transaction of how much milk to buy, the choice is so insular and simple that those problems aren't noticeable. When deciding the value-added of a seaport halfway across the country, those problems can cause considerable skew.

The benefit of a centralised organ through which public spending can be funneled is that those services which have indirect benefits, slow-to-mature benefits or broadly dispersed benefits can be more effectively identified, since that organ is basically acting as a collective "consumer". Rather than localising the decision-making process to individuals whose preferences with respect to those services are malformed, that process has been aggregated to a body that can consider the broader economy as an "individual" and is maximising their utility as a collective.

Phrasing it that way is annoying, but I wonder if you'll understand it.

[The Joseon Dynasty]

He understood that the factors often ignored by individual preferences, such as externalities, longer-term strategies, valuation of indirect benefits, etc. - can be better captured by something more over-arching.

Better captured by omniscience? That's true...unless congresspeople aren't really omniscient. If you assume the world's biggest net, then sure, nothing's going to capture more. But if you drop that assumption then it should be clear that it should be absurdly easy for consumers to share what they know.

What do people know? They know external things (surroundings, circumstances, situations, environments) and internal things (values). They know how many potholes they run over (external) and how much cancer research they'd sacrifice to fix them (internal). They know how many times they've been mugged (external) and how much education they'd sacrifice for more police (internal). They know how many nights they've lost sleep because of the threat of terror (external) and how much space exploration they'd sacrifice for more peace of mind (internal).

The only way to capture all that decentralized/dispersed information is to create a market in the public sector. That would create the biggest net realistically possible.

Buchanan insisted on the same conclusion in an article published a few months after the conference in October 1959 in the Journal of Law and Economics. “Positive Economics, Welfare Economics, and Political Economy” opposed the positive political economy approach of welfare economics -- in which the role of the economist consists in discovering “what people want” (1959, p. 137) and “what is the structure of individual values” (1959, p. 130) -- to the normative new welfare economics -- in which the economist, seeing himself as an external and omniscient observer, is capable of “reading” the individual preferences of the individuals and accordingly of determining the best possible outcome for the collectivity - Alain Marciano, Why markets do not fail

At this point, a question naturally arises: how can we justify the fact that the central government is less capable (because of less information) of satisfying citizens' preferences (Oates 2005)? - Brian Dollery, Lorenzo Robotti, The Theory and Practice of Local Government Reform

Jay Lund's chapter explores the informational problems implied in finding the best way to allocate water resources. In this respect, the main advantage of water trading is that its effectiveness does not require having in advance detailed information on the value of water on any place and for any alternative use. Engaging in trade is a voluntary decision, thus the market is itself a preference revelation mechanism. No particular prior information on people's preferences is then required in advance for trading to find mutually beneficial deals. By definition, when a transaction takes place, the maximum willingess to pay of those buying water is higher than the minimum compensation required by the sellers of water property rights and the deal improves the welfare of those engaged in it. Allowing for water trading thus reduces the information burden of water authorities as they do not need detailed information beyond that required to reach a decision on the overall constraints on the water use in the entire economy. - Carlos Mario Gomez, Incentives and prices in water trading

Our discontent with the original Samuelson rule stems from its failure to account for tax payers’ response to public expenditure and taxation. The rule was derived for an omnipotent, omniscient and benevolent government, a government which, by definition, need not consider people’s responses to its actions. Drop that assumption, restrict government to the choice of tax rates and public expenditures, and the response to its actions must be taken into account. - Dan Usher, Should the Samuelson Rule Be Modified to Account for the Marginal Cost of Public Funds?

The instruments of intervention became the tools with which to apply government knowledge. Resources were directed and allocated by the state, by political and bureaucratic decision making, rather than by the elemental forces of supply and demand - forces shaped by the knowledge of those in the marketplace. - Daniel Yergin, Joseph Stanislaw, The Commanding Heights

One of the strongest arguments in favor of letting people interact freely in a market under property rights institutions is that it is the best known way to utilize the decentralized knowledge of the society— including the knowledge that each individual has about his own values. - David Friedman, The Machinery of Freedom

Individuals express preferences about changes in the state of the world virtually every moment of the day. The medium through which they do this is the market place. A vote for something is revealed by the decision to purchase a good or service. A vote against, or an expression of indifference, is revealed by the absence of a decision to purchase. Thus the market place provides a very powerful indicator of preferences. - David Pearce, Dominic Moran, Dan Biller, Handbook of Biodiversity Valuation A Guide for Policy Makers

Individuals’ actions necessarily rest on imperfect knowledge, and people often appear to act without sufficient information. However, intractable problems of knowledge and incentives impede government officials’ attempts to improve on market-generated knowledge. Knowledge, consisting of information plus judgment, is highly subjective. Therefore, the optimal amount of information varies from person to person, depending on the expected costs and benefits. It should not be surprising that government attempts to improve consumer knowledge frequently are disappointing. Hayek labels as the fatal conceit the idea that human beings can determine what is best for society and use the political process to shape the world according to their wishes. - E.C. Pasour, Consumer Information and the Calculation Debate

Hayek stressed that the knowledge needed to achieve a rational economic order consists of dispersed bits of knowledge held by individuals. This knowledge is highly specialized: only individuals involved in deciding resource use know the relative importance of the various ends or purposes for which resources might be used. Thus, the crucial problem confronting society is how to use the specialized knowledge of different people in the production of goods and services to satisfy consumers. - E.C. Pasour, Consumer Information and the Calculation Debate

Economic planning in a socialist system must necessarily founder on the rocks of ignorance. First, the data necessary to find out the pattern of production that best fits consumer preferences are never given, as often assumed by planning proponents. Second, and even more important, the central planner cannot obtain the necessary data. Much of the data on available resources, production alternatives, and consumer demand constantly changes as economic conditions change. Thus, decentralization is the only means of coordinating economic activity through which the specialized knowledge of individuals can be taken into account and used promptly. - E.C. Pasour, Consumer Information and the Calculation Debate

Governments, like private firms, do not necessarily have ‘the necessary information’ about people’s demand functions to provide public goods at efficient levels. Without non-exclusion there does not seem to be a compelling role for government provision, that is, there is no 'public' in 'public goods'. The general consensus seems to be that it is better to restrict public goods, and hence the a priori case for government intervention, to goods that are both non-rival and non-excludable. - Frances Woolley, Why public goods are a pedagogical bad

It is a world of change in which we live, and a world of uncertainty. We live only by knowing something about the future; while the problems of life, or of conduct at least, arise from the fact that we know so little. This is as true of business as of other spheres of activity. The essence of the situation is action according to opinion, of greater or less foundation and value, neither entire ignorance nor complete and perfect information, but partial knowledge. - Frank H Knight, Risk, Uncertainty, and Profit

To the naïve mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions, and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account. This is the main reason for rejecting the requirements of constructivist rationalism. - Friedrich A. Hayek, The Fatal Conceit

It may be admitted that, so far as scientific knowledge is concerned, a body of suitably chosen experts may be in the best position to command all the best knowledge available...[Yet] scientific knowledge is not the sum of all knowledge...[A] little reflection will show that there is . . . the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others in that he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation. - Friedrich A. Hayek

The problem is thus in no way solved if we can show that all the facts, if they were known to a single mind (as we hypothetically assume them to be given to the observing economist), would uniquely determine the solution; instead we must show how a solution is produced by the interactions of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world. - Friedrich A. Hayek, The Use of Knowledge in Society

It is the extensive cooperation among highly specialized workers that enables advanced economies to utilize a vast amount of knowledge. This is why Hayek's emphasis on the role of prices and markets in combining efficiently the specialized knowledge of different workers is so important in appreciating the performance of rich and complex economies. - Gary S. Becker

A free society is one in which individuals are free to discover for themselves the available range of alternatives. In his masterly critiques of the theory of central planning, Hayek directed attention to the circumstance that the information available in an economy is always scattered among countless individuals, never concentrated in the mind of a single central planner. Hayek pointed to the need for a social institutional structure capable of organizing the scattered scraps of available information so they can be used for the efficient allocation of society’s resources. The competitive market, Hayek showed us, is a discovery process, one in which society discovers what options are feasible and how important they are. - Israel Kirzner, Perception, Opportunity, and Profit

An individual is fully sensible of the value of the article he is consuming; it has probably cost him a world of labour, perseverance, and economy; he can easily balance the satisfaction he derives from its consumption against the loss it will involve. But a government is not so immediately interested in regularity and economy, nor does it so soon feel the ill consequences of the opposite qualities. Besides, private persons have a further motive than even self-interest; their feelings are concerned; their economy may be a benefit to the objects of their affection; whereas, the economy of a ruler accrues to the benefit of those he knows very little of; and perhaps he is but husbanding for an extravagant and rival successor. - J.B. Say, A Treatise on Political Economy

It must be remembered, besides, that even if a government were superior in intelligence and knowledge to any single individual in the nation, it must be inferior to all the individuals of the nation taken together. It can neither possess in itself, nor enlist in its service, more than a portion of the acquirements and capacities which the country contains, applicable to any given purpose. - J.S. Mill, Principles of Political Economy with some of their Applications to Social Philosophy

The fact that such a tax institution always exists conceptually does not, of course, imply that it can be determined independently of the revealed choices of individuals themselves. If an omniscient observer should be present, and if he were asked to "read" all individual preference maps, he could then describe the "optimal" structure of tax prices. Failing this, there is no means of ascertaining with any degree of accuracy the "efficient" tax structure or institution. - James M. Buchanan, Public Finance in Democratic Process

Individuals are not, of course, omniscient, even those who think themselves to be. The securing of information about the predicted effects of alternatives is a costly process, even in a world with reasonable certainty. Recognizing this, individual utility-maximizing behavior remains “rational” when choices are made on the basis of less-than-perfect information. There is some “optimal” investment in fact-finding and analysis for the deciding individual at each stage of his deliberation. - James M. Buchanan

Markets, for instance, are usually prima facie diverse because they are made up of people with different attitudes toward risk, different time horizons, different investing styles, and different information. On teams or in organizations, by contrast, cognitive diversity needs to be actively selected, and it's important to do so because in small groups it's easy for a few biased individuals to exert undue influence and skew the group's collective decision. - James Surowiecki

Pareto-optimal provision clearly also requires full knowledge of individual preference functions by the central planning agency. The preference-revelation problems involved in practice are a familiar theme in the modern public goods literature. - John G. Head, Public Goods and Multi-Level Government

If the knowledge problem identified by Mises and Hayek make rational central planning impossible for something as simple as a quart of milk, what chance do central planners have to make rational, effective plans for something as complex and difficult as educating the children of a diverse nation of more than 300 million? - Kevin D. Williamson, The Politically Incorrect Guide to Socialism

As we've seen, socialism cannot serve citizens' interests because central planners have no way of knowing what those interests are. In the absence of the information conveyed through marketplace activity - particularly through prices - economic planners are left with highly defective sources of information: opinion polling, surveys, stated preferences (which normally differ dramatically from real or revealed preferences), and the like. - Kevin D. Williamson, The Politically Incorrect Guide to Socialism

This process of redistribution of wealth is not prompted by a concatenation of hazards. Those who participate in it are not playing a game of chance, but a game of skill. This process, like all real dynamic processes, reflects the transmission of knowledge from mind to mind. It is possible only because some people have knowledge that others have not yet acquired, because knowledge of change and its implications spread gradually and unevenly throughout society. - Ludwig M. Lachmann, The Market Economy and the Distribution of Wealth

If well-meaning policymakers possess all the relevant information about individuals' true preferences, their cognitive biases, and the choice contexts in which they manifest themselves, then policymakers could potentially implement paternalist policies that improve the welfare of individuals by their own standards. But lacking such information, we cannot conclude that actual paternalism will make their decisions better; under a wide range of circumstances, it will even make them worse. New paternalists have not taken the knowledge problems that are evident from the underlying behavioral and economic research seriously enough. - Mario J. Rizzo, Douglas Glen Whitman, The Knowledge Problem of New Paternalism

Deprived of this guidance, and without the incentive of personal interest, accounts and statistics, however complete, would be of very little use, and unless they were the mundane representatives of an omniscient providence, the directors of production would be quite unable to avoid occasional excess or deficiency of supply, which would cause terrible disorder and confusion, with effects infinitely more serious than mistakes made by private enterprise, which, as a whole, is never actuated by precisely similar motives; thus its errors correct each other, and being uninfluenced by prejudice, or amour proper, it shows a marvellous quickness of adoption; mistakes committed by the state would be not only far more serious, but far more difficult to remedy. - Paul Leroy Beaulieu, Collectivism

Each individual is unique, not fully duplicated anywhere else. Therefore, each individual possesses considerable knowledge that is not and cannot be fully known by anyone else - by government or by any group of people. Each individual has preferences - needs and wants - of which only he can be cognizant at any point in time; he also has a unique capacity to envision new wants when old ones have been partially or fully satisfied. The individual knows, within limits, what gives him gain and causes him pain; and he knows this before any of his actions are revealed to others. He can understand the subjective basis for his actions before he acts; others can only observe his actions after the fact and guess at his motivation by reflecting on their own, different preferences. - Richard B. McKenzie, Bound to Be Free

True, consumers do demand a given product, say, a certain model automobile. But how, outside the market process, can the government know what consumers want? Can the government simply ask consumers what they want? - Richard B. McKenzie, Bound to Be Free

The very division of knowledge increases the necessary ignorance of the individual of this knowledge. The division of knowledge increases the need for a decentralized decision-making system - the market. - Richard B. McKenzie, Bound to Be Free

Expositions of welfare economics typically assume that the analyst possesses knowledge that is in no one’s capacity to possess. A well-intentioned administrator of a corrective state would face a vexing problem because the knowledge he would need to act responsibly and effectively does not exist in any one place, but rather is divided and dispersed among market participants. Such an administrator would seek to achieve patterns of resource utilization that would reflect trades that people would have made had they been able to do so, but by assumption were prevented from making because transaction costs were too high in various ways. A corrective state that would be guided by the principles and formulations of welfare economics would be a state whose duties would exceed its cognitive capacities. - Richard E. Wagner

We can never possess tomorrow’s knowledge today. We can never know what innovations, creative ideas, and useful improvements will be generated in the minds of free men in the years to come. That is why we must leave men and their minds free. The man of system, the social engineer, who sees only the apparent problems from these global changes, wants to plan America’s place in the new, emerging global economy. But to do so, he must confine and straitjacket all of us to what his mind sees as the possible, profitable, and desirable from his own narrow perspective with the knowledge he possesses in the present. - Richard M. Ebeling, Free Markets, the Rule of Law, and Classical Liberalism

There is no need to prove that each individual is the only competent judge of this most advantageous use of his lands and of his labor. He alone has the particular knowledge without which the most enlightened man could only argue blindly. He alone has an experience which is all the more reliable since it is limited to a single object. He learns by repeated trials, by his successes, by his losses, and he acquires a feeling for it which is much more ingenious than the theoretical knowledge of the indifferent observer because it is stimulated by want. - Turgot

We know that the essence of markets is that individual cost and value information is private and dispersed, and that command and control economies inevitable must fail to deliver the goods because the appropriate information is not, and cannot be, given to any one mind. - Vernon L. Smith, Commonwealth North Forum

Nevertheless, even without perfect knowledge, the government must decide whether or not to provide the public good. It also must decide how much of the public good it should provide. Finally, the government must decide, all without guaranteed information, on a tax schema. Under such circumstances, it is not possible for the government to reach an optimal solution and a Pareto distribution of taxes for the public good. - Wilfried Eecke, Ethical Dimensions of the Economy

Development happens thanks to problem-solving systems. To vastly oversimplify for illustrative purposes, the market is a decentralized (private) problem solving system with rich feedback and accountability. Democracy, civil liberties, free speech, protection of rights of dissidents and activists is a decentralized (public) problem solving system with (imperfect) feedback and accountability. Individual liberty in general fosters systems that allow many different individuals to use their particular local knowledge and expertise to attempt many different independent trials at solutions. When you have a large number of independent trials, the probability of solutions goes way up. - William Easterly, The Answer Is 42!

See my edit. I phrased it more clearly.

The point isn't that congresspeople are omniscient. It's that individual people aren't. They know how they perceive the world, but for the types of services that the government provides, they don't have a thorough or well-formed understanding of how it will benefit them over time. Aggregating that lack of understanding through market mechanisms will just lead to an even bigger lack of understanding.

[The Joseon Dynasty]

EPA: How much do you value environmental protection?
You: It's worth around $500/yr to me.
EPA: Please pay us $500/yr
You: Ohhhh, in that case, it's only worth $100/yr

Samuelson was critiquing voluntary taxation. If taxes were voluntary, then clearly people would have an incentive to understate exactly how much benefit they derive from public goods. Doing so would reduce their tax obligation. Therefore, compulsory taxation is necessary. This is now commonly referred to as the free-rider problem.

I don't think it's unreasonable to conclude that compulsory taxation is necessary...my concern is that Samuelson assumes that congresspeople are omniscient in order to justify having them allocate everybody's taxes. Clearly congresspeople are not omniscient, which is why taxpayers should be able to choose where their taxes go.

Check this thread out for supporting evidence... Government Success vs Market Success...and the pragmatarianism FAQ.

So Samuelson just assumed that congresspeople are omniscient in the real world? That sounds really stupid, and I don't think anyone is that stupid. Why did he assume this?

He didn't. Xero has got this weird idea in his head that congresspeople have to be omniscient to be as effective as individuals operating in some public goods quasi-market, so he's projecting it onto pretty much everything economics-related.

Economics does use the example of the all-knowing "social planner" who, according to most common models, would come up with the same optimal allocation of goods as if we just allowed the "magic of the market" to allocate them. That doesn't extend to the goods that the government is usually tasked with providing, though. Xero doesn't understand that distinction. Thus this stupid thread.

[The Joseon Dynasty]

Economics does use the example of the all-knowing "social planner" who, according to most common models, would come up with the same optimal allocation of goods as if we just allowed the "magic of the market" to allocate them. That doesn't extend to the goods that the government is usually tasked with providing, though. Xero doesn't understand that distinction. Thus this stupid thread.

If you're going to claim something, then please substantiate it. Or, feel free to admit that what you're sharing has simply been pulled from your ass.

Have you ever taken an economics course? Or picked up a book on the subject? What I'm describing are the fundamental theorems of welfare economics. This is absolutely fundamental stuff (ho ho ho).

Under the assumptions of complete markets, price-taking behaviour and the local nonsatiation of consumer preferences (for every x ∈ X - the consumer's consumption set - and every ε > 0 there is y ∈ X such that || y – x || ≤ ε and y > x), the First Fundamental Theorem of Welfare Economics states that the market equilibria generated are Pareto optimal (no one can be made better off without making someone else worse off).

That's then extended to a welfare-maximising setting with the Second Fundamental Theorem of Welfare Economics, which states that the government can shift endowments in order to generate any equitable (in moral terms) price equilibrium without losing the condition of Pareto optimality. Basically, as I said, the assertion is that "magic of the market" can come up with the same optimal allocation as would any "benevolent social planner" - source from an introductory economics textbook.

[The Joseon Dynasty]

Have you ever taken an economics course? Or picked up a book on the subject? What I'm describing are the fundamental theorems of welfare economics. This is absolutely fundamental stuff (ho ho ho).

I don't want it in your own words. Find a credible paper on the topic and share the relevant passage. If you were actually knowledgeable about the subject, then you shouldn't even have to search for a relevant paper. You should already have plenty on hand to choose from.

I put it in my own words because I'm knowledgeable about it, but there you go. And here are some extensions of the simple theorems in situations where some of the assumptions do not hold if you're interested.

I learned about this in intermediate microeconomics. It's in every textbook. I don't need to have tonnes of papers on hand to substantiate because it's indisputably fundamental to the subject.

[The Joseon Dynasty]

I put it in my own words because I'm knowledgeable about it, but there you go. And here are some extensions of the simple theorems in situations where some of the assumptions do not hold if you're interested.

I learned about this in intermediate microeconomics. It's in every textbook. I don't need to have tonnes of papers on hand to substantiate because it's indisputably fundamental to the subject.

Why should I read your sources when you don't even bother to read them yourself?

Suppose our social planner tried to choose an efficient allocation of resources on his own, instead of relying on market forces. To do so, he would need to know the value of a particular good to every potential consumer in the market and the cost of every potential producer. And he would need this information not only for this market but for every one of the many thousands of markets in the economy. The task is practically impossible, which explains why centrally planned economies never work very well. - Gregory Mankiw, Principles of Macroeconomics

Yeah, that's exactly what I've been saying. The Fundamental Theorems of Welfare Economics state that the market is just as efficient as an all-knowing, benevolent social planner at managing the provision of simple private goods. What I've said, again, is that the model in that form does not extend into those goods which do not have those attributes, such as public goods, or goods with externalities, free-rider problems or cross-period benefits, because of present-biased preferences. That's what Samuelson was talking about.

You haven't understood that distinction. That's the whole point.

In case you missed it, our public sector is a centrally planned economy.

And what? No. In that example, the government was centrally planning all allocations of private goods. It said nothing about public sectors in general. There were only private goods in that simple economy.