Cafe Hayek: Public choice economics (2017-08-06)

MD: When it comes to money, economists seem to want to complicate everything. Let’s see what Money Delusion complications this article brings.

Sacrificing immediate self-interest for long-term environmental interest has been the message of activists, academics and politicians since the first “Earth Day” celebration in 1970.  Enormous amounts of attention and resources are devoted annually to “saving” the environment, reducing pollution, preserving wildlife, creating more environmental amenities, keeping fit, vacationing in the wilderness and purchasing fashionable hiking shoes, backpacks, bicycles, and ski equipment.  

MD: I think “iterative secession” is the biggest threat to the globalists. They have slowly ratcheted a world of myriad separate cultures into a tiny handful of cultures … with the ultimate goal of a single culture … with them as its keeper.

I, for one, don’t want to be in their space. I don’t think you solve conflicts between people of different culture by forcing them into the same culture. If you read the Federalist Papers, that was one of the main arguments for forming a Union. If the states remained separate they would fight with each other. Well, look at Chicago and Baltimore.

With iterative secession, states would secede from the United States. Then counties would secede from the States. Then, if people in the county were still culturally incompatible, townships could secede from the county. The real issue is government. It is unstable. It grows to a point of self destruction. Government solutions are the first choice when problems come up. Yet they are always the worst choice. In fact, if you are left with a government solution, you have “no” solution and need to keep looking.

Well, this kind of attitude won’t work for the globalists. When you serve up the argument: “Ok, have it your way … in your space … and leave me out of it in my space … we’ll use the commonly accepted principle of the “golden rule” to leave each other alone.” … serve up that argument and they balk. Knowing that would work find if we could confine ourselves to “our” space, they bring up the issue that “we cannot confine ourselves to our space”.

For example, if a river runs through our space, we must cooperate with the culture from which the river comes … and the culture to which the river goes. The globalists want everything to become this kind of choice. That’s the reason for ridiculous concepts like “man made global warming” … now “climate change” when they saw things getting colder.

It is the camel’s nose under the tent for the globalists. As opportunities present themselves, I will explore these concepts further … along with alternatives to democracy … since democracy doesn’t work with more than 50 people involved.

Let’s see if this impacts this article.

Morally enraged attacks on industrial polluters and obscene profiteers are fashionable in dinner table conversations.  Humans, we are told, do not live on bread alone; poetry, the mind, and environmental amenities must also be cultivated in civilized societies.  In short, what economists label as externalities, social costs, or neighborhood effects have become a staple of daily conversation.

MD: I have always found it odd that complete hicks who drill for oil, get lucky, and make enormous amounts of money, become patrons of the arts. Does that mean they become civilized? I wonder if that would happen to me. Right now, things like ballet and opera are not the least bit interesting to me. Orchestra performances are. If the arts are so important, why can’t they economically support themselves? Why don’t they sell?

This concern over the amenities of life is made possible, paradoxically, because of the tremendous economic growth engendered by capitalism.  

MD: They always use the term capitalism in this way as if everyone implicitly knows what it is. I would suggest that “no-one” seems to know what it is … just like they don’t seem to know what money is.

I define a capitalist as “two years”. Take a person with $1M and grant them the elite privilege of a government protected bank charter. This gives them 10x leverage (a privilege you and I don’t have … well actually with a proper MOE process we “all” have infinite leverage and their privilege is no privilege at all).

They make a 4% spread borrowing money and lending it back out … starting with their $1M. In less than two years this 40% return (4% x 10x leverage) doubles their money. They can then take their $1M out of the game and leave the $1M return ride forever after … “Look mom … I’m a capitalists … and I’ve got no skin in the game at all”.

Thus “all” capitalists are “crony” capitalists. And capitalism is nothing but an illusion. But what an illusion it is. To the lucky banker it means in a 30 year career, his $1M compounds to over $24 Billion. What’s not to love about capitalism. But where is the “tremendous economic growth”?

As material goods have become more plentiful, their marginal value has, as the law [of diminishing marginal utility] says, diminished; at the same time, the “quality of life” attributes have increased in value, posing further allocative choices.  The problem becomes one of determining what combination of material and quality of life goods we wish to consume.  

MD: Why is that a problem … and whose problem is it? Free and fair trade addresses that problem in a totally natural fashion. What’s the issue?

For example, poor people place higher values on scarce material things, while richer people seek scarce, more costly amenities.  But, any sacrifices from preserving environmental amenities are expected to be shared by all, rich and poor alike.

MD: Sometimes I’m asked (especially by the mysticists when they learn I’m an atheist) “what is the purpose of life?” To me, the answer is obvious: As long as one engages in life, they have only one purpose … to “be of value”. If they are not of value, they won’t engage in life for long. The state of being rich or poor has much to do with your “cumulative being of value”. It’s just that simple.

Some whole cultures seem to be of greater value than others. And some whole cultures find a way of stealing other’s value rather than being of value themselves. A particular tribe comes to mind. They do it primarily through money changing. They control both capitalism and communism … which are actually on the same team, just like the Harlem Globe Trotters and the Washington Generals work for the same company.

DBx: A basic understanding of economics – including of public choice – goes a long way toward preventing someone from committing the common error of mistaking his or her moral fervor for reasoned analysis.  Here are just a few of the insights conveyed by such an understanding:

MD: I have yet to find an economist that knows what money is. So what in the world can it mean to “understand economics”.? Let’s see if the “golden rule” comes into play. To me, that is the “first principle” and can be used to decide most issues.

DBx:– Because different individuals have different preferences, because those preferences change over time, and because the costs of supplying the goods, services, and amenities that satisfy those preferences differ from place to place and (like the preferences themselves) change over time, there is no one ‘correct’ amount of any good, service, or amenity.

MD: So far, so good.

DBx: – Because individuals’ preferences are subjective – and because, ultimately, the costs of satisfying any and all preferences are also subjective – preferences and costs are not directly observable; they are revealed (and in many cases actually discovered by each chooser) only in the process of actually choosing; therefore, even if preferences were far more uniform than they are in reality and even if they never changed, there is no way for any politician, bureaucrat, professor, priest, or pundit, no matter how brilliant and filled with public spirit, to determine independently of actual choosing processes what is the ‘correct’ or ‘optimal’ mix of goods, services, and amenities.

MD: Every individual makes individual choices. But it’s a large average of people’s choices that determines that array of choices each individual has. Miners will create gold for about $2,000 per ounce. But people won’t pay that for gold if it is of no use to them (for myself, it’s only value is on the electrical contacts of my electronic circuits … and there are substitutes nearly as good for a fraction of the cost of gold). Further, if it is artificial use is great (i.e. by edict it is declared to be money), people will pay much more for it.

The easiest way to analyze it (i.e. what people will pay … i.e. trade) is in units of HULs (Hours of Unskilled Labor). The HUL is the ideal unit for money. It never changes over time and space. It has always traded for the same size hole in the ground … and always will. We were all a HUL at one point in our lives (usually in a high school summer job), so we can all put it in perspective when gauging values measured in HULs.

On average, a person values their hours at about 3.5 HULs. Here’s how: The average person makes about $50,000/year … or about $25 per hour. McDonalds pays about $7 for a HUL (in my high school days it was $1.50 per HUL). Thus, the average person’s value is 3.5 HULs per hour. And that never changes. At my career peak my factor was about 30x … established in actual free trade. A HUL “always” trades for the same size hole in the ground. You need a unit of measure that doesn’t change over time and space. The dollar isn’t such a measure. The ounce is … but the ounce of gold is not.

So an ounce of gold is “now” worth about 300 HULs. Claim that it’s worth more (like claiming it’s money when there’s only 1oz per person on Earth) and demand and the mining activity goes up … fast, dramatically … and wastefully. Find people not willing to trade 300 HULs for it, and the miners quit mining. It’s just that simple.

DBx: – The attention of those who truly wish for outcomes that, as closely as possible, satisfy as many as possible of the preferences of as many as possible of the people is focused not on the attainment of particular outcomes but on a comparison of alternative institutions within which choosing takes place.

MD: It’s not about those “who truly wish for outcomes”. It’s about “those who position themselves to profit from outcomes”. It’s their way of “being of value”. And it’s artificial … but HULs move into their purse just the same. 3/4ths of every HUL a person in the USA makes goes to government. That’s a really big parasite. What does that load need to be for us to call it slavery?

DBx: – Collective choice – both when it is considered to be necessary (as for deciding on the provision of pure public goods, such as national defense) and when it is used even though it isn’t necessary (as when government assumes the power to set ‘minimum’ conditions in labor contracts) – inevitably forces some individuals to consume a particular bundle of goods, services, and amenities that, given the cost that each of these individuals must bear to help supply this bundle, these individuals would prefer not to consume.

MD: First, take the “national defense” case. You have at least two choices. You can make yourself so powerful that no one will attack you. Or you can make an attacker gain nothing by attacking you. The first choice is enormously expensive … and results in becoming an empire … i.e. plays into the globalists hands.

But if you choose to have each individual arm and train themselves in the  effective use of those arms, then if attacked, occupation is impossible. There is nothing to be gained for the attacker. And each person is also capable of defending themselves from attacks within … so little police protection is needed. It works against the globalists and the elitists. It is “my” choice.

Regarding individuals choices … well, they’re their choices. The best we can do is help each other learn what propaganda is so we don’t make false choices. This thing “they” call democracy is just an enormously expensive “ugly” contest where the elites choose among themselves by spending advertising dollars to make the people think they are making the choice.

Any time you introduce the word “public” into an issue, you are getting into trouble. There is no such thing as a “public”. There is just an average, and a median, and a distribution … and at the limit, the individual.

DBx:  A well-to-do resident of San Jose or of Brussels might value an extra increment of carbon-emissions-reduction enough to pay his or her share of the cost of supplying this increment of reduction.  But the not-so-well-to-do resident of Stockton or of Rio de Janeiro might prefer to forego that increment of carbon-emissions reduction and instead get the extra gallon of orange juice or the extra increment of automobile safety that is made impossible because that increment of carbon-emissions reduction is supplied.

MD: And regarding that “carbon-emission”, the propaganda can be changed so that it is a good thing, not a bad thing. And bammo … everything changes overnight. It is just their latest scam and is no real issue at all.

I can guarantee you there is no-one on the planet with a smaller carbon footprint than mine (certainly not Al Gore). And if they all had the same small footprint nothing would change. Things like smog are just as predictable as what you experience when soiling your own nest. If your nest is big enough, you can soil different parts of it in rotation and nature will naturally take care of it. If your nest is small, you need to take special measures to accommodate your waste … and dumping it on your neighbor violates the first principle … the golden rule.

DBx: – Well-to-do people are often very clever at using democratic processes as mechanisms for transferring wealth to themselves from people who are poorer than they are.

MD: There’s nothing democratic about those processes. There are always more than 50 people involved so they are propaganda processes. Big difference. Democracy cannot work with more than 50 people involved. It ceases to be democracy at that point. For democracy to work, “all” voters must have the same information and knowledge.

DBx:  And part of this cleverness lies in creating the false appearance that the democratic processes are being used to promote the public good.  Because so many intellectuals never bother to look beyond or beneath superficial appearances, intellectuals leap to the conclusion that those who oppose policies that superficially appear to genuinely promote the public interest necessarily are enemies of the public interest.  Too many intellectuals are too lazy or too stubborn to do the hard work of looking past appearances.

MD: The root word of “intellectual” is “intellect”. And intellect means “the faculty of reasoning and understanding objectively, especially with regard to abstract or academic matters.” We all have intellect … and I don’t agree with the “abstract or academic matters” qualification. These so-called intellectuals would be of zero value in a simple hunter/gatherer society … i.e. after the giant reset. They would quickly die off because their “real” value is zero. They can’t even change a tire on their car.

DBx. Too many intellectuals become, therefore, unwitting dupes for private interests who abuse collective-choice mechanisms for ends that these intellectuals would be horrified to learn that they – these intellectuals – in fact help to further by their taking so much government activity at face value.

MD: They’re not “unwitting dupes”. Their co-conspirators. If there were any real intellectuals out there, “everyone” would know about WTC7 falling down. But less than 6% know about it.

Netting it out: Government is never the answer. And all the issues this article deals with come about because government solutions are adopted … i.e. the worst possible solutions are adopted. But look how many people among us are proven to be of zero value when we eliminate government and adopt more appropriate (efficient) solutions to issues. With 3/4ths of the people in government or dependent on government you have lots and lots of people of zero value. And very few people creating the value they have to steal.

Embrace the right principles (beginning with the golden rule) and you don’t need 40,000 new laws every year. You see “non-government” solutions to issues … and you see few issues.