George Ought to Help

Posts tagged economics

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On the non-existence of Human Needs

Everyone I know exposes themselves to an increased risk of death in order to satisfy other preferences they hold: Travelling by car, smoking, drinking alcohol, crossing the street, biking, going swimming, giving birth, eating food that hasn’t been pre-liquified to minimise the chance of choking, the list goes on.

Apparently most people do not place infinite value on extending their own life. If they did, their lives would look very different.

This being the case, it’s clear that for most people, those things that extend life are part of the same value scale as everything else; life-extending things compete with non-life-extending things in a single value scale. People choose what to do according to which option they expect to most closely satisfy their preferences at that moment.

So there’s no justification for treating life-extending goods and services as though they are qualitatively different to non-life-extending goods and services. Which is what Venus Project advocates (and most other people) do when they insist that ‘human needs’ are a different kind of thing to ‘human wants’.

Filed under venus project human needs wants subjective value economics david friedman

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Collective brain: improvements? suggestions?

I’ve been seeing a displeasing amount of Marxism on youtube footage of the US occupy protests. I wanted to put together a one-sheet handout which would function as both an introduction to the foundational problems of Marxist exploitation theory, and a taste of Austrian economics.

Here’s the text of my attempt below. Any suggestions for improvements welcome (I will link a PDF version to this post once it’s finalised).

Update: Printable one-sheet pdf can be downloaded here: http://ge.tt/9zPHW4A


The shaky foundation of exploitation theory

Occupying protesters are rightly outraged by the harm done by corporations, enabled by government. Against this backdrop, Marxist accounts of the injustice of capitalism can sound attractive. This hand-out is intended to highlight a weakness in Marxist exploitation theory.

The apparent theft of ‘surplus value’

Marx believed that a product created by a worker had an objective value, derived from the socially necessary labor time that was spent to create it, and that this value tended to determine its market price. This meant that when capitalists kept profit for themselves from the sale of the goods created by the workers, they were effectively stealing value. Marx believed that the portion of sale price claimed by the capitalist as profit rightfully belonged to the workers. This is known as Exploitation theory.

Marx’s exploitation theory depended on the idea that a product has intrinsic value, that is, value that doesn’t change depending on whoever is considering the thing.

Marx believed in a version of what’s called the labor theory of value. His idea was that the value intrinsic to a thing was determined by the amount of socially necessary labor time that was spent to create it.

Marx appreciated that products that cost a given amount of actual labor time to create weren’t valued equally. If I take twenty minutes to create a mud pie, and twenty minutes to make an apple pie, people will usually value the apple pie more highly.

Marx defined socially necessary labor time as:

the labor required to produce an article under the normal conditions of production and with the average degree and skill and intensity prevalent at the time

Marx believed that the socially necessary labor time needed to create a given product varied according to:

the average amount of skill of the workman, the state of science, and the degree of its practical application, the social organization of production, the extent and capabilities of the means of production and by physical conditions.

Socially necessary labor time is an abstract concept. It won’t be equal to actual labor time for any product. So how do we know how much socially necessary labor a particular product embodies?

The only answer Marx gave was to observe the behavior of the market. If a product sells well, some of the labor it embodies was clearly socially necessary. If no one buys the thing, then it didn’t contain much socially necessary labor after all.

But it’s clear that the prices people are willing to pay for goods depend on their subjective valuation of those goods. Even though people often pay a lot of money for items that cost a lot of labor, there’s no necessary connection with the amount of labor spent on the manufacture of that good and the price people are willing to pay for it. At this point we might start to wonder if the concept of socially necessary labor time is helpful at all.

Subjective theory of value

The subjective Theory of value, formalized by Carl Menger, says that the value of a thing is not inherent. Instead it’s potentially different for each person considering it. A thing’s value to me ultimetely derives from its expected usefulness in helping me achieve goals that are important to me. Menger wrote:

Value is therefore nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs, that is, to our lives and well-being, and in consequence carry over to economic goods as the exclusive causes of the satisfaction of our needs.

Subjectivists believe that since value is subjective, that when two people trade, it’s possible for both of them to benefit. In fact, the expectation of benefit on both sides is the reason trade happens in the first place. Each swaps something he values less, for something he values more.

In other words trade is mutually exploitative—both traders use the other to their advantage. Wage labor is a particular kind of trade: the worker exploits his employer while the employer exploits the worker.

Why prefer the Marxian labor theory of value over the more simple and elegant subjective theory of value? Some people may prefer to hold onto Marx’s labour theory of value in order to ground exploitation theory, which then allows them to insist that the owners of capital are necessarily villains.

Further reading

http://mises.org/daily/1349 http://mises.org/daily/2610 http://www.econlib.org/library/Enc/bios/Menger.html

Filed under marx menger ows economics exploitation theory

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Why would Bitcoin enthusiasts spend Bitcoin instead of hoard it?

In response to stuff quoted from this article.

Bitcoin’s limited money supply is one of the things that people like about it: the currency cannot be debased, as money can when central bankers print more of it. But the flip side is that if the demand for bitcoins rises, for whatever reason, then the value of bitcoins will necessarily rise as well. So if you think that bitcoins are going to become more and more popular, then—again—it’s foolish to spend your bitcoins today.

No. Not necessarily. This ignores time preference and subjective value.

It may well be the case that you expect Bitcoin price to rise, AND the expected utility gain of spending your BTC on something specific right now is worth more to you than the expected utility that appreciated Bitcoins will buy you at some point in the future.

The rational thing to do is hoard them and eventually sell them to new users. But that means there will be fewer bitcoins in circulation (and more in people’s virtual wallets), making them less useful as an actual medium of exchange and making it less likely that businesses and consumers will ever see Bitcoin as legitimate.

The infinite divisibility of Bitcoin means that ‘fewer bitcoins in circulation’, in itself, is not a problem.

Filed under Bitcoin MITTechReview Economics

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Sam Harris taxation facepalm

Awful article by Sam Harris. I’m just going to respond to a couple of passages.

I agree that everyone should be entitled to the fruits of his or her labors and that taxation, in the State of Nature, is a form of theft.

The qualifier ‘in the State of Nature’ allows Harris to deny that taxation currently is theft, but escapes having to explain why. I’d be interested to hear his attempt at that.

But it appears to be a form of theft that we require, given how selfish and shortsighted most of us are.

So since most people are selfish and shortsighted, what we should do is have these brutes democratically elect an elite, and then grant that elite the right to extort funds from everyone else. What could go wrong?

Given the current condition of the human mind, we seem to need a State to set and enforce certain priorities.

Last time I checked, the state also consisted of people with human minds. So if there’s trouble with the human mind, then granting a ruling elite (especially a democratically elected one) the right to initiate force doesn’t solve the problem. I believe it makes it much worse.

Rothbard:

why should anyone assume that those men who form the government and obtain all the guns and the power to coerce others, should be magically exempt from the badness of all the other persons outside the government?

Back to Harris:

I share everyone’s concern that our political process is broken, that it can select for precisely the sorts of people one wouldn’t want in charge, and that fantastic sums of money get squandered.”

Then whence the faith in the state that permeates the article? This is mysterious. Has Harris been assuming an idealised state all along? one that has not existed in history? If that’s the case then it’s odd that he rebukes Randians for cleaving to what must seem to him like an idealised version of market forces, while all along he’s doing the same thing.

And I say this as someone who considers himself, in large part, a “libertarian”

Don’t get it twisted! Here’s Rothbard again:

Libertarianism is not and does not pretend to be a complete moral, or aesthetic theory; it is only a political theory, that is, the important subset of moral theory that deals with the proper role of violence in social life… Libertarianism holds that the only proper role of violence is to defend person and property against violence, that any use of violence that goes beyond such just defense is itself aggressive, unjust, and criminal.

Filed under rich, libertarian sam harris economics tax warren buffet

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Those Boring Politics: On Economies of Scale and Monopolies

thoseboringpolitics:

[…] I’m making a post explaining that economies of scale would still exist in a free-market. They would just exist to a smaller degree.

Businesses will obviously still finance and evaluate their assets, output, and expenses frequently in a free-market. In fact, they’ll have to scrutinize more into it since they’ll be completely on their own and without regulation. Economies of scale occur when Average Total Cost declines as more output is occurring. This effect is mandated by supply and demand. That’s simply business.

To make my point that the sizes of businesses would decrease, let me explain something:

We live in a Representative Republic, meaning it’s easier for businesses to get their say in bills and amendments. Lobbyists are paid big money to ensure handouts for their companies. A prime example are liability caps on oil companies. It removes the ability for many to pursue companies in court, allowing businesses to not be held accountable for their actions.

When businesses make decisions in a free market to increase their assets, with increasing revenue as their final goal, they take a risk. Businesses take many risks in markets and if they screw up, they can be held accountable.

Everytime a firm expands, whether it be hiring a few new workers or building a whole new workplace, it’s taking a large risk. As firms grow and grow, a larger amount of liability is spread over a large amount of workers, consumers, and land. However, the liability is voided when the state is brought in.

This is not to say firms can’t and won’t grow to international sizes in free markets; they will. But they won’t have nearly as much of a market-share nor will the have as little competition. Firms will be held liable for many disputes: from small claims to employee-benefits. The expenses of liability will force many businesses that would otherwise potentially hold a large market-share to drawback.

Anti-trust laws, while they seem to be regulating firms, actually help keep monopolies around. Barriers to entry also prevent new competition. In other words, competition is kept out by government.

Competition would be frequent as firms compete for size without becoming too large in liabilities. The only way a firm could become progressively large is if the way they treat employees is so positive and its output is so productive that claims against the firm won’t be filed. That type of innovation would be imitated and firms would prosper and compete to be better.

Monopolies are preserved by government. AT&T was upheld by government and after deregulation, more competition entered the market and dominated. A more recent example involves statewide monopolies on electricity. Many states were recently deregulated, allowing companies to provide electricity for more people rather than go through an organization such as PECO (Philadelphia Electric and Gas Company).

These monopolies directly correspond with large economies and diseconomies of scale; monopolies wouldn’t be around without a corporatist state. Economies of scale simply would be much smaller without the state. And that’s all because of the second most favorite word of libertarians (liberty is the first): liability.

Filed under Politics Economics Free-Market Monoplies Minarchy Corporatism Industry Regulation Libertarian

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to be, to become, and to end are all beautiful: So, I might lose followers for this, but I don’t really care. I want...

Great post! I’ll focus on one small thing amongst all the goodness:

I am ANTI BUSINESS REGULATION unless the business involves food, in which case IT SHOULD be regulated as a public safety issue.

There’s no limit to the number of tests and screenings food could be made to pass. Generally, the more safe a food is made, the more it will end up costing. So how much safety is ‘safe enough’? and at what point does the additional cost of making food safer no longer weigh up against the associated safety gain?

I don’t think these are questions that can be satisfactorily answered in a one-size-fits-all way, as they are when government regulation is used.

Instead I believe a preferable approach would be to remove government from food regulation, and instead legalise private certification. That way it would be up to each consumer to decide how to solve the risk/cost tradeoff. Those who wanted especially stringent tests could chose to pay more for the food that met the certification requirements of SeriouslySafeCertification, while those who, for whatever reason, placed a much lower value on food safety could opt for the cheaper food that had passed the (much less strict) tests of HappyGoLucky Certification.

Over time the market would reveal the optimum areas on the safety/cost continuum that most closely corresponded with people’s values, and as a consequence, people would end up with the balance that best suited them. Those certification agencies who hit upon the most popular balance between safety and cost, in their tests, would be rewarded by the greatest profits. By contrast government regulation is almost entirely unresponsive to customer demand, shielded from market forces—the rulings of government regulatory bodies will be arbitrary, and will bear little relation to the risk/cost that people are actually willing to bear.

This isolation from the market brings other problems too. For instance, government regulators will tend towards being overly cautious with the permits they award. This is because while they suffer little or no penalty at all if they refuse to grant a permit, if they do grant one, and it turns out that the food wasn’t ‘safe’, they loose face. By contrast, private certification firms have pressure in both directions: they want to maintain their reputation, and so want to avoid approving ‘unsafe’ food, but they also want food producers to continue being their customers, so they also have a pressure to grant as many permits as they can for that reason. As far as consumers of the food are concerned, this is a much more healthy balance.

(Source: bromeomontague)

Filed under food, libertarian deregulation safety economics

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Voting and opportunity cost

Taken from a facebook conversation. Lightly edited.

i don’t get people who don’t vote. it takes 10 minutes, and how does doing nothing make an impact on anything?

It takes a lot more than 10 minutes to become an informed voter. For most people this would mean (at an absolute minimum) the study and at least basic understanding of a discipline they know very little about: economics. Meanwhile, the odds of your vote ‘making a difference’ are very slim; around 1 in 10M if you live in a swing state and you’re voting in the US presidential election—in the same order of magnitude as the chance that you’ll be killed in traffic on the way to the poll booth. In Canada the odds will be better, but still pretty dismal. On top of all this, pols are not obliged to keep their campaign promises (see Obama).

In my opinion these are all good reasons not to vote.

that’s your perogative, but i really still don’t get how not exercising your options is at all effective.

Excercising your ‘right to vote’, at least as a well informed voter, has a high opportunity cost, that’s the thing.

The chance that your vote will ‘make a difference’: almost zero.
The opportunity cost of becoming an informed voter, and going to the poll booth and voting: significant.

It’s simply not worth your time. Unless voting just makes you feel good, as if you’ve ‘done your duty’ or some other warm-fuzziness along those lines. Which is fine.

If voting doesn’t make you feel particularly good—for instance if you’re not comfortable with the idea of attempting to have your preferences imposed on other people by law—then it might be in your best interest to not vote, not to research the candidates, and take an economics course, and instead to use your time and energy differently.

The same kind of reasoning is usually behind choosing not to participate in lotteries: the chance of success is too low for it to be a worthwhile use of your time and energy.

‎using your time and energy to post on how noble one is to not to vote seems effective.

I’m not claiming that it’s noble not to vote. I’m explaining why some non-voters (including myself) don’t vote.

I do believe that posting stuff online if a far more effective way for me to affect the change I’d like to see than buying lottery tickets or voting.

Thanks for not imposing your politics/ideas on us. Oh wait, that’s what you just did.

I believe there’s an important ethical difference between trying to persuade people with words on an open forum (which people are free to ignore), and trying to alter peaceful people’s behaviour through the threat of physical force (which people are not free to ignore). Don’t you?

Law deals with the latter. Voting is usually an attempt to have one’s preferences imposed on peaceful people via law, which is equal to the threat of force. I find that idea a bit repulsive, this is one of the reasons I don’t vote.

You don’t need a fucking degree to know that Gay people should have rights.

Maybe not, but you still do need to do an awful lot of research (starting with understanding economics) to cast a well informed vote. Paying attention to the front-page campaign issues shouldn’t make you feel as though you’re ready to vote unless the real reason you’re voting is for an psychic/emotional payoff: to feel like you did your duty, strengthened the bonds with the in-group, primal stuff like that. In this case voting makes perfect sense from the perspective of personal satisfaction.

If you are truly voting because you don’t want to have your preferences imposed, then that’s fine. but if it’s just because you’re lazy, or someone has told you it won’t count, then that’s not fine. in my opinion.”

What if a person has looked into the matter and decided for themselves that the odds of their vote making a difference don’t weight up against the costs of becoming an informed voter. Isn’t this also a legitimate reason not to vote?

An individual’s vote does count with regard to determining who ends up in power. But it counts to a similar degree as buying a national lottery ticket does, with regard to determining whether the individual becomes a millionaire or not.

Yes, as an individual your vote might not count for much but the point is that all the votes get added up.

Yes they get added up. But that doesn’t change the fact that the chance that your vote will be a decisive one (ie. that it will ‘make a difference’) is vanishingly small, just like the chance of buying the winning lottery ticket. It’s overwhelmingly likely that your vote won’t make any difference to who ends up in power, just as it’s overwhelmingly likely that buying a lottery ticket won’t make you a millionaire. That’s why it’s appropriate to compare the two.

Every single person that can and does vote can make an impact because of the sum of those votes.

Sure any individual voter can make an impact, in exactly the same way as buying a lottery ticket can result in the buyer becoming a millionaire. The fact that votes are counted isn’t relevant from the perspective of any single individual considering whether or not to cast a vote though, the equation is of the same kind as the decision of whether or not to buy a lottery ticket.

Filed under voting, libertarian opportunity cost rational ignorance rational irrationality economics