No Such Thing As A Free Lunch

On Twitter I saw this tweet with this pic...




There's no such thing as a free lunch. The massive amount of resources needed to build a giant wall aren't going to magically appear out of thin air. They are going to be taken from other endeavors. However, this is just as true for the National Endowment for the Arts (NEA) as it is for a giant wall. Here's how I illustrated this...




If you genuinely appreciate that every endeavor is going to take resources away from other endeavors... then clearly the goal should be to take resources away from the least valuable endeavors. This is Quiggin's Implied Rule of Economics (QIRE).

Imagine that Batman is at home twiddling his thumbs. In this case, there would be absolutely no problem with having him rescue a cat from a tree. Batman would be put to a more valuable use. But what if Batman isn't at home twiddling his thumbs? What if he is actually trying to save Gotham from imminent destruction? Then it would be a terrible idea for him to stop what he's doing in order to rescue a cat from a tree. The opportunity cost would be way too high.

So the most important question is... how do we determine the actual value of an endeavor?

Market = Everybody decides for themselves, with their own money, which trade-offs are acceptable
Not-market = Everybody does not decide for themselves, with their own money, which trade-offs are acceptable

How many places are missing a market? The public sector is missing a market. Taxpayers can't decide for themselves, with their own taxes, which trade-offs are acceptable.

Netflix is also missing a market. Subscribers can't decide for themselves, with their own fees, which trade-offs are acceptable. The NY Times is also missing a market. So is this forum.

There's a multitude of places that are missing markets. Therefore...

A. Markets aren't the best way to determine the value of endeavors?
B. In some cases it's not necessary to know the value of endeavors?
C. People don't understand the benefit of using markets to determine the value of endeavors?

 

Markets are limited in applicability. They serve to optimize value when a good or service is desired by an individual but has alternatives and/or is not an actual need. Thus this doesn't apply to getting healthcare, and doesn't apply well to schools or defense spending.

For government, it should be data driven to the extent possible, but both sides have areas where they ignore the data. Values will differ, but if the data shows for example that the DEA doesn't mitigate the harms of drugs, then it should be scaled back by anybody's measure except those who work there.

 

When you say 'doesn't apply', are you inferring that it shouldn't apply?

Considering that we have government at the local, State and Federal level, many of our Federal laws could/would probably be much more rationally applied by lower levels of government based on more accurate data, and values acceptable to those living within the area of that level of governments control.

 

Doesn't apply in this context means suboptimal at best, totally inappropriate at worst, as an economic tool. It doesn't really address the level of government, which I would say is a much more difficult balance to strike on some issues, most notably education here. Healthcare basic financing and military clearly need to be federal. For America, corruption is a limiting factor in everything we do especially after Citizens United, but some arguments for federal healthcare financing would include reduced overhead (from a single system, as opposed to 50 and things getting complicated when you go from state to state), and increased bargaining power. A larger purchaser can negotiate for lower prices. It would be really important to get the details right, and thus decisions on coverage levels given X budget would need to be insulated from special interests and made by experts. And then if they deem the budget insufficient they can inform the public about how Congress is failing them.

When it comes to financing healthcare, the local values can simply be wrong. As with most policy issues, most people don't understand healthcare, and that is why experts need to be in charge - not charismatic lawyer congressmen who understand almost nothing outside of "what the law says" and are bought by special interests. The government's goal should be to provide a basic level of coverage for all people because that is what is most efficient, not to mention humane. And people who believe they don't need health coverage are simply playing Russian roulette with their own lives AND other people's money - because we have to treat them in the ER, and then admit them, anyway. So no, they don't have the right to say no because we don't have the right to let them die in the streets due to their idiotic life choices.

 

That might make sense relative to purchasing drugs, medical equipment, etc., required for use by all the hospitals, clinics, and private practice Doctors, Nurses, and various other Health Care workers. But no matter how good the negotiator, the price cannot become less than the cost of production. The Doctor/Patient element is something else, a number far greater than 50, making it totally irrational to even try and negotiate a price by anyone other than the Doctor and the Patient.

The real experts should be the Doctor(s) who are actually involved with the Patient, NOT a distant government agency having made conclusions/decisions in advance based upon statistical data.

The term 'basic level of coverage' can mean different things to different people. Would that include organ transplants, neurosurgery, and other costly services or simply pain pills, setting broken bones, and other less costly services only?

 

Of course not, but the drug companies/pharmacies routinely gouge whenever they can and other countries pay less (people want to get their drugs from Canada). Not saying I blame them - their loyalty is to their shareholders, but when a power exists to counterbalance that, the rest of society benefits.

You're assuming some kind of individual doctor practice, fee for service model, which is neither a good model nor even when most of America uses. This arrangement skews incentives so that doctors will tend to overtreat patients. They might be more resistant to such corruption than the average person (well, maybe, try reading Overtreated by Brownlee), but they are still human and their ethics will also vary. It is also pretty complicated to do it that way - every doctor would require extra staff to process these claims, which are more efficiently handled in a centralized system. That is why doctors usually work in groups that either own a large practice or contract with larger health systems. Most exceptions are in underserved rural areas with insufficient volume.

The best system, whether public or private, will put doctors on salary with bonuses for following best practices and, when necessary, penalties for lapses. These extras are helpful because salaries have the opposite effect of fee for service - tending towards undertreatment, but not to the same extent as capitation. Profit also has no helpful role in healthcare financing or delivery. Profit is, however, a helpful tool in developing new drugs, devices, and other technologies. Though regulation could help direct it more towards development and less towards advertising.

The experts should be predominantly doctors and other health policy experts. Statistical data is really only part of it, but statistical data is the ONLY way we can come close to knowing anything. Anecdotes from a doctor's experience will only tell us what can happen, not what usually happens. Statistics are essential for this, and a doctor's education is required to properly interpret such statistics. The decisions they would make would be based upon available evidence, so that every American would have access to care that is proven to be lifesaving, and given limited resources less access to unproven interventions. That is where being wealthy or having supplemental coverage would come in.

Certainly. But when it's a policy that applies to everybody, everybody has at least some interest in setting it at an appropriate level. So the panel of experts would give feedback to Congress and the public about what they can do with the current budget, and if Congress sets it too low, they would suffer even more politically than when they cut medicare. And this policy wouldn't be a ceiling, but rather a floor. If the coverage is too basic, people should be free to purchase supplemental coverage.

 

The pharmaceutical industries can spend great sums of money in searching for effective new drugs, which more often than not results in a great many failures before achieving what seemingly is success which then must be tested extensively to the satisfaction of the FDA before being allowed to be put on the market. All the costs of both failures and successes must be recovered in order to remain a viable business, which is what they ultimately are, and as medicine is not an exact science as many people seem to think it should be, those working in the health care business have to be prepared for the occasion of costly legal battles.

I'm not sure what you mean by "health policy experts", perhaps politicians running for office gathering voters based on what they promise to provide voters at little or no cost to them?

In my opinion, the Doctors and private insurance companies are best qualified to provide the care and determine the coverage provided relative to the cost of providing it. Basic health care should at most provide the patient with only the most essential care at the lowest cost to the provider. The most we should expect is what we pay for

 

I know they say that, but it's largely propaganda, as they spend much more on advertising than R&D. I am not sure what the data is on investment failure rates, or whatever their term of art is. If you have it, feel free to provide it. In any case, yes it's a process, though more often than not they do more of the development side than the research side (our universities do that), so they already have an idea of if their odds are good. If we took away their direct to consumer advertising, they would have to spend more on development - and furthermore that development would have to be towards drugs that actually work because marketing won't make up for a me-too (copycat of a previous drug with no advantage) drug.

Few if any politicians. Health policy experts include a range of people from public health experts to healthcare administration experts. Generally leaders in healthcare, people with advanced degrees in relevant fields, and those who do research in those fields. It should probably involve some JD representation, but MD, MPH, and Ph. D should be more common.

As to promising to provide it at no cost to them, that is inaccurate. It represents a shift of expenses from businesses onto the government, and that in turn would be funded by taxes of some kind - though overall expenses would go down because our private health insurance system is so inefficient.

Doctors have some idea for sure, though their understanding will vary. Clinical knowledge is a good foundation for understanding healthcare policy, but it doesn't guarantee it. Private health insurance companies are just parasites. Profit is a tool that suits society when it leads to higher quality products. Profit in health insurance does not increase the quality of anything, because they make money by denying care or cherrypicking healthier patients, or even in the best case scenario by taking more money from people than they pay out. Of course the ACA put a wrench in that.

The provider (doctors) should be fairly compensated. It is a high stress, high skill job that usually starts with working live a slave and a lot of debt. For the good of society, and for individual patients, basic health care should provide the most cost-effective and necessary care, and depending upon the budget go down from there. What we should expect is for society to run efficiently and rationally, and allow for individual freedom to the extent that people can live their lives as they want without hurting others. In healthcare, hurting others comes with the territory of not having basic coverage because people are not denied lifesaving care even if they cannot pay, but the rest of us have to make up for that loss. The individual mandate is not a good solution to this problem. Other developed countries have demonstrated and a basic government plan for everybody is a way to achieve high quality healthcare, but at much lower cost than we get in America. America has been hindered by its extreme phobia to anything with the smell of socialism, but different situations require different economic tools, and healthcare is a very different sector from other areas of the economy.

 

The first problem with this exercise is that it appears you assume that we're limited by fiscal resources, but in all fairness, you didn't specify if labor and/ or real resources were being maximized in your hypothetical.

Clearly, if there is only one Batman, then we are severely limited by the fact that he can only be at one place at one time. So in your example, the question of how Batman's time can best be used is a good one. However, there is more than one way to decide that, which we'll get to in a minute.

In your examples, something created was done at the expense of something else. That's only true if labor, automation, immigration and the real resources to create things people desire are producing as much as can be produced. If there are real resources (i.e. raw materials used to make stuff) and people (i.e. people who are unemployed) capable of producing (or learning to produce) things people want, then there are other reasons that things are sacrificed. That is, we're not limited by fiscal resources, rather real resources.

Ahhh....And herein lies the rub. The question of value.

You appear to assume in your questions, and I'm open to being corrected, that you view value purely in fiscal terms.

Back to your Batman example.

Is it better for Batman to save a dog (a mutt) than it is to prevent the destruction of my house? How about save a dog or save my laptop?

In purely fiscal terms the house is clearly more valuable, however, in social terms we can define value relative to experience. Personally, I don't value the life of a random dog more than a value the personal, and sentimental value and fiscal hardship that losing my house would create, more than I value the life of a dog, but I would probably sacrifice my laptop to save a dog, especially if it were my own. Given that I could easily go to the local pound and get another dog for less than $100, is it rational to value the life of a dog over my $1000 laptop?

Now in human terms, if a market is working as efficiently as it can, but people are starving or suffering from treatable illness, is the market really working as efficiently as it can?

It all depends on how you determine value. These are social questions, not purely fiscal questions.

You might define economics as "the efficient allocation of resources", and indeed many people who think of the market purely as a system, as a process, judge its success or failure in the fiscal results it produces rather than the market as human social endevor that considers social goals, even of acquiring those goals limits unfettered fiscal efficiency.

Efficient markets, in a fiscal sense, do not always result in better outcomes when considering human experience.

Now the next question probably going to ask is, who determines value? In a pluralistic society, we all do. We can make the choice to sacrifice purely efficient fiscal market to achieve better outcomes relative to human experience.

 

On the other hand America has been experiencing the consequences of progressivism, socialism, collectivism, resulting from Wilson in 1913 with the 16th and 17th amendments and the Federal Reserve Act which transformed our system of government into one ruled from a centralized source making it easier for the rich and powerful to exercise control over ALL the States, local governments and their citizens.
Like the OP stated, there is no such thing as a free lunch. exemplified by the fact that our current Federal debt is $19,846,255,248,406.68 and was $2,916,204,913.66 which would have been about $71,767,802,925.17 in todays dollars, or an increase of about $19,774,487,445,481.51 in todays dollars since 1913, which amounts to an average
annual debt increase of about $188,328,451,861.72 per year since 1913.

Healthcare is a service provided at a cost, and you should get no less than what you pay for, or what others are willing by their own free choice to pay for another.

 

When I go to the grocery store and buy artichokes, then I'm specifically and substantially helping to determine the order (relative importance) of products. Everybody who spends money at the grocery stores helps to specifically and substantially determine the order (relative importance) of products. In other words, the order (relative importance) of the products is determined by the Invisible Hand (IH).

What about on this forum? This forum has at least a gazillion products (threads). However, they really aren't ordered by the IH. Instead they are ordered by the Chronological Hand (CH). Of course it's pretty useful to see the threads with the most recent replies. But can you imagine how incredibly awesome it would be if we could also see the most valuable threads?

Recently I started a conversation with a guy who works at the Roosevelt Institute (RI). The RI is in a market... just like the Cato Institute (CI). This means that you can decide whether you donate money to the RI or the CI. You can specifically and substantially help determine the order (relative importance) of non-profit organizations. The order (relative importance) of non-profits is determined by the IH.

However, even though the RI is in a market... it is not a market. On the RI's homepage you'll see links to a lot of different products that are created by the RI. Are you going to value their products equally? Of course not. Just like you're not going to equally value all the products at the grocery store. Yet, because the RI is not a market, you can't use your donation to signal the value of their specific products. This means that the order (relative importance) of the RI's products is not determined by the IH. Their order is determined by the Visible Hand (VH).

What difference does it make that the RI's products are not ordered by the IH? What difference does it make that each and every donor to the RI can't use their donations to provide specific and substantial feedback on the RI's products? What would happen to the supply of RI's products if all the donors could use their donations to provide specific and substantial feedback on the RI's products?

What would happen to the supply of groceries if shoppers could not use their money to provide specific and substantial feedback on the products?

Perhaps one way to accessibly understand what's going on is the expression... "as happy as a kid in a candy store". When I visit this forum... am I as happy as a kid in a candy store? Do I find a ton of threads which closely match my preferences? Nope. Well duh. This forum isn't a market. We don't use our money to signal the value of threads... and thread creators really aren't mind-readers. So it really shouldn't be a surprise that we aren't as happy as a kid in a candy store.

Because this forum isn't a market... and because the RI isn't a market... and because the CI isn't a market... and because even the Adam Smith Institute (ASI) isn't a market... it should be painfully obvious that people really don't understand the point and purpose of markets. People really don't understand the point and purpose of the IH. So in far too many places and spaces we really aren't as happy as a kid in a candy store. We could and should be... but we aren't.

Join me and I will make you a fisher of men. Heh. Hmmmm... I will make you a huge helper of humanity?

I'm not so great with words.

Seriously though, you're a thoughtful and intelligent guy with a decent grasp of basic economics. Let's collaborate on safely testing and figuring out the best way to order things.

 

Thank you for the compliment?...LoL (Emphisis mine)

Absolutely

Sure, understood, but again, there is a difference between humans and artichokes and sometimes the way we spend money has real consequences on real people. As far as the market, generically speaking, I would, for the most part, agree with you, but again, in a purely market-driven system there is the temptation to believe that people are perfectly rational and will spend their money with their own best interests in mind and that in the aggregate this will result in the best outcomes for everyone.

We know that's just not the case.

The market demands things like child porn and methamphetamine. While this is the market at work, sometimes a purely market-driven system can have poor outcomes relative to human experience.

If you don't mind (and you might, so I apologize in advance) I'm going to go out on a limb here....

I know and have studied the kind of thinking I believe you're engaging in (I'm always open to correction). My observation of your writing leads me to believe that you value liberty above other moral ideals. You are the kind of person that tends to "systematize" very well, though are less empathetic and are general more rational, analytical and less emotional than your Liberal or Conservative counterparts.

I think if their world were made only people like you, the ideas you advance might be the best way of allocating resources and making economic decisions. Relying on the rational and less emotional decisions as you move through the world. However, we know the world is filled with a combination of people, some of which react very poorly to the world as you see it. This is because there are some, very intelligent people, who are extremely emotional and much less rational, especially when put under stress.

In contrast, Liberals tend to value experience, a category I certainly belong in, though I'd ask you to be careful labeling me as a political "liberal" as there is a lot of the new-Liberalism I disagree with. I recognize the value of liberty, however, I believe that social decisions should not be made independent of the context of human experience. There are many economic decisions that lead to unnecessary suffering, even though those decisions may have been purely rational in a fiscal sense.

I really don't subscribe to the concept of the IH as some legitimate guiding force or principle that leads to greater efficiency and social harmony. Furthermore, I think it's an abuse of Adam Smith's use of the term as he only spoke of it 3 times in all of his writing and not the context you are using it. "Free markets" are, in my mind, an idea promoted by people who simply want fewer restrictions and have been made a euphemism for the support of lawless markets (though I'm not claiming that everyone believes this).

Again you use the term value. The value in what sense?

I'm sure you know what SIDS is (Sudden Infant Death Syndrom). A fancy way of saying that children that sleep on their tummies are more prone to suffocate than children that sleep on their backs.

Do you know that the study into what was causing SIDS was done with money provided by the Federal government? In the world you speak of, a world concerned only with the value measured in dollars, it's unlikely that a study like that is ever performed. Why? Because the answer isn't marketable. There is nothing to sell. "Lay your child on their back when you put them to sleep", that's it. The evidence to my claim is in the fact that the Government discovered the information before the private sector. There's no reason to believe that the concept of the IH (as you describe it) would have ever taken the time to conduct this research as research isn't something that people purchase like a Kick Starter Campaign. Most parents don't realize they need to fund a study like this until it's too late.

Circling back to the question of value, I'd argue that improving the human experience isn't always profitable and to the contrary, making people miserable can be extremely profitable. Private prisons come to mind.

LOL....

I've reached a point in my life where I realize that people who think like you definitely have something to add to the conversation. I don't see markets the way you do, but I'm open to the fact that, maybe, I could incorporate some of your thinking and improve my own ideas about how the best society might operate.

 

Unfortunately, Smith didn't always use the term "Invisible Hand" (IH) when he described the concept...

This is the best passage about the IH in his book, but obviously he didn't use the term "IH" in this passage. So how do I know this passage is about the IH? Well... I read his book!

Donors to the Libertarian Party (LP) were recently able to use their money to signal the value of the potential convention themes. Here are the top results…

$6,222 — I’m That Libertarian!
$5,200 — Building Bridges, Not Walls
$1,620 — Pro-Choice on Everything
$1,377 — Empowering the Individual
$395 — The Power of Principle

"Taxation Is Theft" was not in the top results. It only received around $15 dollars.

This order (relative importance) of the themes was determined by the Invisible Hand (IH). The theme "I'm That Libertarian!" is a public good in the sense that you can benefit from it even if you didn't spend a penny on it.

So obviously and clearly the IH can determine the order of public goods. Is the relative importance of the themes correct? Sure. But what about the absolute importance of the themes?

Imagine a list of all the goods ordered by the amount of money that's been spent on them. Would "I'm That Libertarian!" be too high or too low or perfectly placed on the list? Since the theme is a public good... I'm guessing that it would be too low on the list.

Combating child porn is a public good. You can benefit from it even if you don't spend a penny on it. In the absence of compulsory taxation, we can reasonably guess that its absolute importance would be incorrect. It would be too low on the master list of all goods.

So we force people to pay taxes. But then voters choose representatives to determine the order of public goods in the public sector. Does the Visible Hand (VH) significantly improve where combating child porn is placed on the master list?

We haven't quite reached the point that robots are making significant social decisions. Humans make social decisions so it's pretty impossible to separate them from the context of human experience. My issue with the VH is that it can't come even vaguely or remotely close to effectively representing of embodying the full range of human experience. The VH, by definition, prohibits 99.99% of the people from participating in the process of ordering things. So how can the VH correctly order things?

The value of the theme "I’m That Libertarian!" is $6,222 . This value is relatively correct (compared to the other themes) but, since it's a public good, it's probably not absolutely correct (compared to all the other goods).

People voluntarily donate money to all sorts of causes. But again, if we reasonably assume that the free-rider problem is a real problem, then the absolute order of public goods in the private sector will be too low. So we force people to pay taxes. But then for some reason we assume that elected representatives are going to somehow correctly embody the full range of human experiences (suffering caused by SIDS, cancer, unemployment, drug addiction, war, etc) and correctly order public goods.

I get the feeling that I haven't informed you that I'm a pragmatarian. I believe that people should be free to choose where their taxes go. Then the IH would determine the order of goods in the public sector.

I'm pretty sure that my theory is correct but I'd love to test it on a smaller scale. The Libertarian Party themes being ordered by the IH is an example of my theory being tested on a smaller scale. Unfortunately, I can't take any credit for the test! I only learned about it after the fact. So far I've had zero success persuading a single organization to test my theory.

Consider this example from Deirdre McCloskey’s book “The Applied Theory Of Price”…

If the New Yorker (NY) allowed subscribers to use their fees to signal the value of specific articles… then the NY would know the actual value of its articles. With this knowledge it could do a far better job of supplying more valuable articles. Once the NY successfully supplied more valuable articles then it would earn more money and compete more talented writers away from other organizations. It would be a virtuous cycle.

I'm essentially arguing that the NY should become a market. Have you ever heard anybody argue that the NY should be a market? I sure haven't. I take this to mean...

A. I don't understand what markets are good for.

Or...

B. I'm the only one that understands what markets are good for.

The proof is in the pudding! If you have any friends or family in a relevant organization then it would be awesome if you could float this idea past them. I've sure struck out on my end. But I keep trying. And trying!

There can't possibly be a more important mission in the world than figuring out whether the DH, VH or IH is the best way to order things. Let's put our heads together and figure out how to successfully complete this mission!

 

Please delete

 

That's just it, Smith never described the concept you speak of. You have extracted the concepts from your understanding of what he wrote. Having said that, that's ok, you can do that, I just don't think it appropriate to use Smith's name as a way to give your ideas credibility.

If that is the best passage you can find to sustain the argument of the IH, may I respectfully suggest you look elsewhere to bolster your argument.

The way I read that passage is; if you employ too many people relative to the profit being made, profit declines and adjustments to employment (layoffs) will have to occur to restore profitability. It's pretty straightforward. I took a moment and read the surrounding context of the passage you quoted and I see nothing that would lead me to believe that the theme as you describe is being discussed in any meaningful sense. The next passage states that producers "absurdly" believe supply, not demand to be the most important aspect of commerce and industry. A fantastic argument I must remember to refer back to in the future btw...

The passages before are just talk of employment and Smith's belief that producers prefer localized employment and commerce (because of their familiarity with markets and customs) as he couldn't even begin to imagine the kinds of globalization we live in today.

So then the real question you're asking is, how do we determine where to put these ideas an concept on a list of ideas?

How has the VH hand done with something like smoking? I hope we can agree that smoking cigarettes are objectively bad for the human body.

A recent Gallup poll found that the % of people who have never smoked by the level of education level decreases as education rises we find that 65% of College graduates have never smoked, compared to 55% of people that have attended at least some college compared to 47% of people without any college.

So the way people use their money to make the kinds of decisions you speak of varies by their level of education. I'd argue that people who have higher levels of education are more likely to make decisions based on empirical evidence than those without an education.

In parts of Africa people believe in evil spirits, if they were to live in an economy like ours, how might they use their money to signal value? How might people who believe in religious nonsense use their money to signal value?

You might be making the argument that it makes no difference as long as the people are using their resources to mold society the way they see fit and from your point-of-view, that is what's important.

If that's the case, I respectfully disagree. I think evidence matters and ideally the representative system of government, though imperfect and wracked with flaws, is still the best option we have.

LOL, quite right. When I wrote that I thought it would be obvious that I meant there was a range of experience, some of which all (healthy, sane) people would want to avoid and a range of experience that people could agree that would enjoy. So when I speak of human experience, I make the assumption that people would rather avoid pain, suffering, and sickness and as a result, people's decisions reflect this preference.

As I said before, people vary in their knowledge and belief and can sometimes support ideas, intuitive notions they believe will help them achieve the goals I listed in the last sentence, but in fact, in the objective world, do not.

So the question is, how do create a society that values the search for knowledge as the best way to protect everyone from unnecessary pain, suffering, and sickness? Your idea of the IH is entirely indifferent to this concept because people aren't strictly rational or knowledgeable.

I make no such assumption, but since you like lists, I would put the representative form of government on a list higher than strictly market is driven forces because as I already stated, individuals aren't strictly rational.

For example, the founders were a group of men that combined their collective intellect. They debated and disagreed, but the important thing is that they learned from heir collective pasts, experience, and knowledge, and created a document and idea for people to believe in. I don't believe that it's possible for individuals to achieve something as powerful simply by using their influence expressed through the use of their dollars. Especially in a nation where people can accrue absurd amounts of dollars in order to manipulate the market of decisions.

If you did I missed it. However, I stand by my assessment of you and how you make decisions.

I think your theory would work phenomenally in a world of highly educated (assuming the education system wasn't corrupt) and rational people. It's funny, thinking back you mention robots. I think that robots programmed to achieve a general definition of a good scoiety could use a system like yours and do phenomenally well. The problem I see with your ideas is, as I've already said, people aren't rational and many believe things that simply aren't true and even fewer know how to relate their ideas to the range of human experience. Figure out how to incorporate those ideas, that is, how you might promote the value of education, rationality, and values as they relate to a positive human experience into your system and I think I could get on board!!

 

Back in the day oranges were a luxury. They were very expensive because the demand was far greater than the supply. This made it extremely profitable to produce oranges. And because it was so profitable to produce oranges, more people started to produce oranges. This logically increased the supply... which logically decreased the price/profit.

The traffic light for producers went from being green... to yellow. Did it ever go to red?

In a nutshell...

Not enough oranges = green light = high prices/profits
Enough oranges = yellow light = middle prices/profits
Too many oranges = red light = low prices/profits

Each and every consumer decides for themselves whether there are too many, just enough or not enough oranges and they use their money to signal their valuation.

Thanks to value signals, faulty distributions will be automatically identified and corrected. In the absence of value signals... how can we know whether or not a distribution is faulty?

The government put a man on the moon. Did this correct a faulty distribution? The Egyptians built the pyramids. Did this correct a faulty distribution? Trump wants to build a giant wall. Would this correct a faulty distribution?

I think there's a bit of confusion here. The Invisible Hand (IH) already determines the order (relative importance) of food, oranges, gummy bears, computers, homes, clothes, cars, Greenpeace, Cato Institute, The Red Cross, IBM, McDonald's, your local boutique and a gazillion other frivolous and serious things.

In other words, if the proper functioning of the IH depended on everybody being highly educated and rational... then we'd be really screwed. Instead, here we are... bellies full, wearing clothes, sitting on a chair or couch, a roof over our head, and using computers and this website to discuss the IH.

Despite the obvious functioning of the IH... the New Yorker (NY) does not allow it to determine the order of its articles. Netflix does not allow it to determine the order of its shows and movies. The Cato Institute does not allow it to determine the order of its papers. Neither does the Adam Smith Institute. All these organizations, and a gazillion more... are not markets. They don't allow donors/subscribers to use their money to signal specific faulty distributions.

Do you think the supply of threads on this forum is perfect? Of course not. Yet, you don't have the freedom to use your money to signal specific faulty distributions. This forum is not a market. The IH does not determine the order (relative importance) of threads.

The IH works, but clearly most people don't understand how and why it works. What is needed are practical, small-scale, experiments where we directly compare the order produced by the Invisible Hand, the Visible Hand (VH) and the Democratic Hand (DH).

Your theory is that the VH produces a superior order because people aren't highly educated or rational. Well... I suppose you mean that people aren't equally educated/rational. I wholeheartedly agree that people aren't equally educated/rational. But I wholeheartedly disagree that the VH will produce an order that is any way superior. But I could be wrong.

We could use this forum to test your theory. Each month each member would donate $1 dollar to this forum. Then we'd elect the most rational/knowledgeable member to use everyone's money to signal the value of specific threads. The VH would determine the order (relative importance) of threads.

A public Google sheet could be used for the list of threads and their valuations.

How will we be able to tell if your theory is correct? Well, people will bookmark the list of threads and frequently refer to it. If, on the other hand, they have no interest in the list... then clearly it's useless for the VH to determine the order of threads.

For sure this wouldn't perfectly test your theory. But do you think that it would adequately test your theory?

 

Ok, the classic response to deamnd exceeding supply.

Here's a good opportunity to redress a claim you made in the OP.

"The massive amount of resources needed to build a giant wall aren't going to magically appear out of thin air. They are going to be taken from other endeavors."

Do you believe that all of the machines needed to create a wall are currently being used?

Do you believe that all the people that have the skills to design, plan, and build a wall are currently working on other projects?

Don't you think it matters how quickly the wall is to be built? I mean a team of relatively few people can build a wall one section at a time over many years.

If there is a desire to build the wall faster, do you not believe that the companies that make the equipment to build walls cannot make more equipment without "diverting resources"?

Your enter premise rests on the idea that there aren't any unused real resources (like machinery) that companies would like to put to use. Or that new equipment cannot be made without diverting resources away from other things.

If you believe that putting money into the hands of people and letting them spend is the best way to determine what is "green", "yellow", and "red" (using your analogy), isn't the best way to do that to make sure that people have the opportunity to make the money necessary to deploy fiscal assets into the world of the real economy.

Some people live without choices. I mean, is there really a choice when deciding between eating and paying for cable?

What about people with an abundance of fiscal resources? People, who have enough money to retard the system as you see it? What if I had 99.999% of all the money in the world? The market would bend almost exclusively to my desires, but you can't believe that would represent the best way to operate a market in that instance, can you?

Of course, it's silly to think that one person could control so many resources, but what if it was 2 people? What if it was 62 people controlling 1/2 the world's wealth? Do you think those 62 people (actually this one is true) adequately represent the free market as you envision it? People who aren't shaping the market simply through their purchases, but rather through influence gained by manipulating others. Sometimes that manipulation is to give and sometimes it is to take away.

Russia is the largest nation on earth, it has the 9th largest population, yet it has an economy the size of Italy. Why? Because to much money is being controlled by the interests of too few people, something that the system, as you see it, will always devolve to.

People will always act in their own best interests, and those interests are often achieved by manipulating others. "On paper" the IH looks like a great idea, but in reality, it would be corrupted very quickly.

In my 30's in the 1990's I dabbled in game design. The kinds of games I worked on, were persistent open world games with real economies, and as it so happens my interest was in developing a good game economy. Now there are some similarities and probably, even more, differences to a real economy, but there are some immutable similarities. One of them is that players do best when they unbalance the system, the job of the designer/ developer was to balance the system, but not perfectly. The best system is neither perfectly balanced nor prone to large imbalances.

In the real world, there is no such thing as a self-governing system that can maintain a "near balanced" state without intervention.

The same is true of an economy. No one wants perfect fairness. We want people to succeed based on what they are capable physically and intellectually, but we don't want a system where a few people impede the ability of large numbers of people having the opportunity to meet their potential.

LOL...Now you're just committing the fallacy of begging the question. I say this because there is no universally accepted definition of the IH or the fact that it's widely accepted as the method you describe. What you call the IH is just the market. How "free" it depends on how it's implemented. In fairness, I think my biggest objection is the hidden appeal to authority (intentional or not). the IH is culturally identified with Smith. Just call it what it is. A capitalist market system with varying levels of active manipulation.

Again, you describing this concept of IH as if it is some new insight that if we just all understood or embraced things would improve.

Which would seem to expose the weakness of your concept? Not all things are easily commoditized.

I think what you call the IH works spectacularly in certain instances, but I think you lack the insight to see areas in which it would work poorly. I think you are a systematizer who believes there is a certain divinity in a system where individual decisions of self-interest will drive a system that is best for everyone in the aggregate. You seem to believe that a system free of manipulation (what you are calling the VH) is best. Again, you seem to be placing more value in the system than the outcomes of the people that are subject to it.

To see why that's wrong, one need only imagine an emergency room where the order in which you are chosen to be seen is based on how much you were willing to pay. Is that the best way to determine who get's seen next? Clearly not, because the IH does not and cannot integrate the human experience into its calculus when deciding how best to order things.

I think we should let the market function as you describe it where the concept works best and intervene where it does not.

No, because in the real world people make decisions with their money that significantly affect their experience of suffering and happiness, pain, and well-being. This forum does not offer enough in the way of human experience, either positive or negative to draw any meaningful conclusions from such an experiment.

 

This thread is primarily about the IH. Does this forum have a shortage or surplus of threads about the IH? You don't know because people don't understand the point and purpose of the IH.

No... there are plenty of unused resources. How could I possibly argue otherwise? I have no problem with using unused resources. My issue is, if we're going to use any resource, then we should put it to its most valuable use.

Let me pick a horrible example. Let's say that there's some unemployed liberal. Could we use him for a speed bump? Ethics and morality aside, sure, we could. But I'm confident that we'd both strongly agree that there are far more valuable ways that he could and should be used. This is called Quiggin's Implied Rule of Economics (QIRE): society's limited resources should be put to more, rather than less, valuable uses. Then the question... how to determine the value of the different uses? This is the point of the IH.

You're blaming a shortage of valuable opportunities on the IH. But I blame it on the VH. One of us is wrong. Hence the point and necessity of testing our theories.

When we voluntarily pay a more beneficial producer, we empower him to compete limited resources away from less beneficial producers. I don't see a logical or beneficial alternative.

Russia has different spaces. In some spaces there's the IH. In other spaces there's the VH. You think it's struggling because of the IH. I think it's struggling because of the VH. Again, this is why we need to test our theories on smaller scales.

The IH either is, or isn't, better than the VH at determining the order (relative importance) of things. Clearly we disagree hence the importance of testing our respective theories.

Netflix is not a market. The IH does not determine the order (relative importance) of its specific content. The value of its specific content is not known. Because Netflix doesn't have this knowledge, it can't replace less valuable content with more valuable content.

Vons is a market. The IH does determine the order (relative importance) of its specific content. The value of its specific content is known. This knowledge allows Vons to replace less valuable content with more valuable content.

Is it necessary for the IH to determine the order (relative importance) of specific content? My answer is yes. Your answer is no. We disagree. The best way to resolve our disagreement is through scientific testing.

But there has to be some order. If you think that the VH is going to determine the most valuable order... then let's test your theory.

In the real world, people pay taxes and elect the most rational and/or knowledgeable and/or experienced individuals to use everybody's taxes to determine the order (relative importance) of public goods.

Your theory is that this is the best way to determine the order (relative importance) of public goods. Is your theory correct? It's easy enough to test it.

Members of this forum could pay fees and elect the most rational and/or knowledgeable and/or experienced individuals to use all our fees to determine the order (relative importance) of threads.

If you're confident that this system truly works for things as important and serious as national defense and welfare... then you should also be confident that it will also work for things far less important/serious such as forum threads.

Imagine that your theory is wrong. Then we'd all suffer a small harm of this forum's threads not being correctly ordered. But this would open our eyes to the massive amount of harm of this country's public goods not being correctly ordered.

Can you imagine that your theory is wrong? If not, well, then you really shouldn't have a problem with testing it on this forum.

 

Yes there is according to the Tax Code for business lunches.
For everybody else, that is called welfare.

 

Mr Truth, let's talk about Netflix...

1. Few people can lowly value a show
2. Many people can lowly value a show
3. Few people can highly value a show
4. Many people can highly value a show

True or false?

Netflix shouldn't cancel more valuable shows.

True or false?

If Netflix subscribers could spend their fees on their favorite shows, then Netflix would know the value of its shows.

True or false?

 

No such thing as a free lunch.

"There is no such thing as a free lunch" is absolutely true.

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A business lunch, paid for by the employer, is a give and take. While the cost to the employer may be tax deductible, like other tax deductions it is an expenditure of the business for a business related purpose such as a reward/recognition of their work accomplishment, or to communicate providing/asking answers/questions.

While the business lunch may appear to be free, those receiving it have either done something previously or will be expected to do something more/different afterwards to offset the cost of the lunch.

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Welfare provided lunch, or for any other provision at all, is paid for by net income taxpayers.

So, from the point of view of the welfare recipient a free lunch is being provided, while in reality at a cost to the provider. Ideally, welfare should be for the purpose of assisting persons to become self supporting, partially if not totally.

 

I think, in a nutshell, the point the OP is making is the opportunity cost. The US government can create dollars as easily as the banker in Monopoly can hand out money, from that perspective the cost is measured only in what it takes to create and distribute currency, which is, relative to the value of the currency, minuscule. The opportunity cost is measured in the difference between say the purchase of a bridge that connects two highly populated areas together and building a bridge into the center of a lake that leads nowhere. Both bridges created employment, but the first bridge created certain residual benefits that are harder to measure and even harder for the average person to abstract in their mind relative to other costs/ savings.

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Both the employer and the employee exist within the same monetary system, thus I'd concede without looking too closely you are probably correct.

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First, even if that were true (it's not), the net effect is still equal.

Take money from one person and give it to another who spends it all.

Someone in the private sector lost money and someone in the private sector gained money as a result. That's at worst a wash.

Now we can sit here and theorize about the reciprocal effects of taking money away from someone and giving it to someone else and argue about the amount of economic activity that creates or prevents, but frankly, it's all academic because that's not how the government spends.

Of course, you probably already know what I'm going to say. The US Government does not borrow money in order to have money. If that were the case, then logically it would be impossible for the money system to ever begin because it is the government that creates money. The Fed cannot create credit without first obtaining government assets (bonds). Bonds are the genesis of US currency, thus it is the government that creates money, banks magnify currency through the process of double entry accounting. For every dollar created there is an asset that must be held.

Something like this.....



Private banks use a person's credit worthiness as an asset and their real possessions, usually the thing being purchased as collateral.

The purpose of wealfare is a political decision, its affects on the real economy are not.

 

Although I cannot speak for what Xerographica was thinking in the OP, to me it appeared to be the fact that all government spending costs those of us who actually earn money, higher taxes or higher cost of living. The Federal budget can spend money on new projects by increasing it revenue collection or reducing spending elsewhere redirecting the money to the new project.

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Your response above, was to my post of "Welfare provided lunch, or for any other provision at all, is paid for by net income taxpayers."
In the end, ALL government spending, is paid for by those who are net taxpayers, meaning that they are the ones who are actually earning some of the money created by the government which is being returned to the government to spend on the programs created by government.

I agree that welfare is a political decision, would politicians fare better in their elections by taking than giving? The affect of welfare has quite an effect on our economy, politically included.

 

Then I have one question for you....

Let's imagine the following thought experiment, A government just like ours has just been formed (it operates under the same rules and laws). If the government, according to you, can only have money if it takes it from the people if the people don't create the US dollar (because we know they don't), then how does the US dollar ever enter circulation?

How would the process continue long term?

I wasn't trying to suggest there wasn't an effect, however, in order for me to explain why I think you're wrong about the effect, you have to answer the question above first.

Now, it may seem like I'm derailing the conversation asked in the OP, but in fact, how the government obtains money is completely and entirely relevant to the question being asked. Does government take money from hard working people and give it to others in order to curry favor with voters? Is the lunch given to the elderly in the Meals-On-Wheels program free or not? If it's not, who is paying for it?

Now I agree it's not free, I just disagree about the cost and who pays for it.

 

While that's a reasonable question, I can only answer by making assumptions on missing details.
1. I will assume that we are referring to an area having dimensions in which the to be governed and the newly created government are to exist, sovereign from any outside control.
2. I will also assume that the to be governed trade with one another based on what they have determined to be the relative value of goods and services exchanged in carrying out any trade, or perhaps even as the U.S. began by using silver or gold (which governments can't create) but exists in nature and is acquired through the labour of people.
3. You end by asking "how does the US dollar ever enter circulation?", and all my assumptions are made based on the events which resulted in the creation of the U.S. as a sovereign nation.

Initially, silver and gold which have intrinsic value were used as money.
Getting fiat currency into circulation is quite simple, as it begins with gold and silver being deposited into banks, and the banks issuing paper bills relative in value to the gold/silver backing them.
A 'NEW' government being formed, creating a new currency to be used by the governed only needs to create the fiat currency and make it mandatory to be used as payment for goods and services. The newly created currency is made available to the public in banks which they can borrow from without need of the government to spend anything at all or the government could also make some purchases using some of the currency creating debt to be repaid by taxing the governed who must carry out their business with one another using the newly created currency.
Money is always backed by something, if not gold/silver it is backed by the property and/or labours of the governed which can be taxed or confiscated and converted into the currency.

I'm anxious to learn how you disagree.