Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts

Friday, May 16, 2008

Tax and Redistribute

Janet Stemwedel had a post yesterday on water conservation:

If there's a drought looming, a water district would like water users to cut back their water usage. If they don't, the water district could run out of water, which is bad for everyone.

Ramping up the price of any water usage is one option, but it would fall unfairly on the folks with less money. Water is not something you can opt out of using if the price of using it passes a certain point. We are not a society that openly embraces dessicating the poor.

Since people need to use some water (to drink, to boil ramen noodles, to wash, etc.), a water district wants a policy that acknowledges the necessity of water usage while discouraging water usage that can be avoided.


She goes on to describe how alternative proposals, e.g. charging for relative increases in use, create bad incentives and are unfair on those who had previously "cut their water usage down to the bone." How, then, can a society ration scarce resources effectively without "dessicating the poor"?

Actually, it's easy. Ramp up the (tax) price of all water usage, just as initially suggested, and then redistribute the proceeds among all taxpayers. Those who use more water end up compensating those who use less, so the poor (and other low-consumption users, e.g. conservationists) can actually expect to make a net profit out of this system. (They receive an $(X/n) payout, which is more than enough to pay for their essential water usage, and they can then pocket the rest.)

Really, this should be a no-brainer. And note that the lesson generalizes. Whenever someone complains that an economic disincentive "unfairly burdens the poor", the solution is to redistribute the proceeds. (Example: worried that gas taxes are a burden to the poor? Solution: redistribute the proceeds. The poor will profit, as will the environment.)

Why is this not common knowledge?

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Saturday, April 19, 2008

Revealed Preference?

(1) Quoting an Open Letter to ABC:

The debate was a revolting descent into tabloid journalism and a gross disservice to Americans concerned about the great issues facing the nation and the world.... For 53 minutes, we heard no question about public policy from either moderator. ABC seemed less interested in provoking serious discussion than in trying to generate cheap shot sound-bites for later rebroadcast.

Alex Tabarrok responds with a lame 'revealed preference' argument: "who would want to rebroadcast something the public didn't want?" He really needs to read, um, Alex Tabarrok:
Early on Slee makes a good point about preferences and outcomes:

"The prisoner's dilemma shows how, as soon as one person's choice alters the outcome for another person... choices do not reveal preferences... instead of thinking about choices as revealing preferences, it pays to think of choices as 'replies' to the actions or likely actions of others. The best choice you can make is the best reply to the likely actions of others."

Given that public debate is so degraded and sub-rational, partisans will reach for every weapon in their rhetorical arsenal, including 'gaffe bombardment'. No one dares risk unilateral disarmament. But it obviously doesn't follow that they prefer this situation to some alternative where gaffe bombardment was safely off the table. Political discourse could very easily be a prisoner's dilemma in this way.

(2) Another problem I'd like to consider for sloppy appeals to 'revealed preference' is that of intra-personal conflict. Consider the unwilling addict, who is compulsively moved to seek drugs, even though he would prefer (on reflection) to be able to withstand this compulsion. Robin Hanson denies that there is any normatively relevant structure to our preferences. Instead, in a case like this, we can simply watch the addict's behaviour to see which preference is the more weighty. 'Might is right.'

But this is plainly misguided. Mere behavioural drive has no normative impact; the mere fact that my body is disposed to move in such-and-such a fashion is at most defeasible evidence - and does not strictly entail anything - about my mental states, or what I really desire in any normatively significant sense (viz. reflective endorsement). You can see this by imagining a brain implant that grants a mad scientist remote control over my body. It's not so different in principle if the source of my unfreedom is internal -- an inner demon such as mental illness, addiction, etc., may be every bit as constraining as an external obstacle. My resulting action may be no more an instance of my "getting what I most want" than when the mad scientist was controlling me.

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Wednesday, April 16, 2008

Vaccination: Compulsion vs. Incentives

Thomas Pogge defends mandatory vaccination policies on the grounds that this is "the only way to overcome the collective action problem." It is not:

Let's distinguish two forms of regulation, reflecting the statist vs. Hayekian distinction. One option is to make the undesirable activity illegal. The alternative is to make it costly. More generally, we can regulate activities either by using the blunt instrument of the law, or else by the more subtle manipulation of market forces. I think the latter will often be preferable.

Let's suppose that $1000 is more than enough to counterbalance the public health costs of a non-vaccinated person. In that case, what possible reason could we have for denying people the right to opt out of getting vaccinated if they care so much that they're willing to pay this cost?

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Monday, March 03, 2008

Review: Here Comes Everybody

Clay Shirky's Here Comes Everybody: The Power of Organizing Without Organizations explores the power of new communications technology and social media to transform society. As a blogger, it's a topic I find very appealing.

Shirky begins with a premise about human nature: we're social animals and like to form groups. Recent changes have radically reduced the costs of doing so, broadening access to "capabilities [e.g. publishing] previously reserved for professionals" (p.17) and thus empowering people to organize themselves, with occasionally spectacular results. Shirky writes (p.22):

The current change, in one sentence, is this: most of the barriers to group action have collapsed, and without those barriers, we are free to explore new ways of gathering together and getting things done.

The fuller explanation involves Coasean economics. (1) Note that transaction costs would skyrocket if everyone worked freelance, constantly negotiating in the marketplace. That's why we have firms ("organizations"): it can be more efficient to have managers simply order their employees about. (2) However, managerial overhead brings its own costs. This implies what Shirky calls a Coasean floor, beneath which lie potentially valuable activities that cannot be profitably realized by either market or institutional means. However (p.47):
Now that it is possible to achieve large-scale co-ordination at low cost, a third category has emerged: serious, complex work, taken on without institutional direction. Loosely coordinated groups can now achieve things that were previously out of reach for any other organizational structure, because they lay under the Coasean floor.

The cost of all kinds of group activity--sharing, cooperation, and collective action--have fallen so far so fast that activities previously hidden beneath the floor are now coming to light. We didn't notice how many things were under that floor because, prior to the current era, the alternative to institutional action was usually no action. Social tools provide a third alternative: action by loosely structured groups, operating without managerial direction and outside the profit motive.

It's a nice enough analysis, but the real value of this book lies in its illustrative examples. Shirky discusses everything from Flickr, blogs, and open source software, to flash mobs, political protesters, Wiccan meetups, and Catholic lay groups self-organizing for the first time ever to reform the Church.

There are also little insights scattered throughout the book. Consider, for example, the common disdain felt towards the "drivel" posted on Livejournal and the like (pp.85-6):
We misread these seemingly inane posts because we're so unused to seeing written material in public that isn't intended for us... if you were listening in on their conversation at the mall, as opposed to reading their post, it would be clear that you were the weird one...

Most user-generated content isn't "content" at all, in the sense of being created for general consumption, any more than a phone call between you and a relative is "family-generated content." Most of what gets created on any given day is just the ordinary stuff of life--gossip, little updates, thinking out loud--but now it's done in the same medium as professionally produced material.

I also liked his point about the impossibility of full-blown interactivity with the famous, no matter what technology we might come up with. To be famous is to receive more incoming attention than one could realistically hope to reciprocate (by any means). So even bloggers, when they hit the big time, are forced to become mere broadcasters rather than responsive participants in an open conversation. (A good reason not to desire fame, I should think!)

The book also contains some interesting thoughts on political and social change, especially the importance of "lower[ing] the hurdles to doing something in the first place, so that people who cared a little could participate a little, while being effective in aggregate." (pp.181-2):
Having a handful of highly motivated people and a mass of barely motivated ones used to be a recipe for frustration. The people who were on fire wondered why the general population didn't care more, and the general population wondered why those obsessed people didn't just shut up. Now the highly motivated people can create a context more easily in which the barely motivated people can be effective without having to become activists themselves.

One thing Shirky emphasizes throughout is the way that so-called "cyberspace" is growing increasingly intertwined with meatspace. He discusses using his mobile phone, and a service called 'dodgeball', to learn that a friend of a friend was currently in the same NYC bar. Conversation ensued: "I'm Clay. If Dennis were here, he'd introduce us." (p.219) Pretty amazing, really, and something we can expect to become increasingly common.

Finally, a couple of cute philosophy quotes:
The groups now adopting social tools form the experimental wing of political philosophy, a place where hard questions of group governance are being worked out. [p.? lost it.]

Wikis take on one of the most basic questions of political philosophy: Who will guard the guardians? Their answer is, everyone. [p.272]

Note that if you're looking for a rigorous academic work on social media and the promise of peer-production, you can't go past Yochai Benkler's Wealth of Networks (available for free, here). But Here Comes Everybody offers an accessible introduction to the broad issues raised by social media, so I would especially recommend it to non-specialists who are curious to learn what all the fuss is about.

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Saturday, March 01, 2008

In Praise of Price Gouging

Matt Zwolinski has an interesting new paper on the ethics of price gouging. I'm certainly suspicious of blanket bans on allegedly 'exploitative' (but mutually beneficial) exchange. As Zwolinski argues (p.34):

Existing laws against price gouging either fail to provide clear guidance to sellers or fail to take account of all the morally significant reasons which could underlie a price increase, and it is difficult to see how laws could be reformed to avoid this dilemma. Furthermore, any legal prohibition of price gouging will create disincentives for individuals to engage in economic activity which helps those made vulnerable by emergencies. Because laws which prohibit price gouging thus harm vulnerable buyers and are unfair or unclear to sellers, they are immoral and should be repealed.

He further argues that price gouging is not impermissible per se, nor evidence of bad character, though particular instances of it might be. Whether it is permissible depends on whether there are legitimate reasons (i.e. besides greed) for raised prices -- whether this will increase market efficiency in allocating scarce goods, incentivize increased supply, etc. And whether the behaviour indicates bad character will presumably depend on whether the actor appreciates these impartial reasons, or is solely acting from greed.

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Friday, October 26, 2007

Is Spending Ever a Waste?

Since I can't be bothered learning economics properly, perhaps a knowledgeable reader can help me out. I tend not to spend much, because I tend not to want much and spending money on things I don't especially want seems wasteful. Further, as a youngster I inherited a vague sense of outrage at the excesses of the wealthy. But I wonder whether this is justified.

Some disjointed thoughts:

1. Where's the waste? Spending money merely shifts it, so it is still there for the recipient to spend on more worthy things. It's not as though you're burning it.

2. Even if one's spent money were destroyed, this would not matter since money is not wealth. If you print or burn money, this does not change the wealth of society, right? Perhaps money is better understood as a claim to a portion of society's total wealth. (Something like: if I own 1% of the circulating cash, I can purchase 1% of the wealth.) In this zero-sum game, counterfeiters make me poorer, and people who bury or burn their bills make me richer.

3. Trade need not be zero-sum, mind. Both parties may obtain greater value from what they receive than what they gave. Or, I suppose, the reverse. So: better take care that our trades are for the better, not the worse!

4. That's easy enough when bartering goods. But what is the value of money? First attempt: Time is money. While working crappy student jobs for $10 an hr, I could ask whether each $10 of spending was worth an hour of work. It rarely was. But maybe that just indicates that I should have quit sooner. Then we are back to the question of how to value my savings.

5. Second attempt: what is the value of money? Whatever else I could buy with it, I guess.

6. Then it seems to follow that at least spending cannot always be a waste. Even if I don't want to buy anything all that much, I should get whatever I want most. (It may be in the future though, in which case I should presently save.)

7. Purchasing creates incentives. If I buy frilly lace, this is a vote for a world where more labour is put into preparing frilly lace. If I don't want this, I should put my dollars in a different ballot box. (This is also why you should never give money to beggars.)

I guess that's the notion of wastefulness I'm after. Spending is not simply a transfer of money from one person to another (pace #1), it also exerts influence over labour. There's no point encouraging people to spend their time and effort doing things nobody cares about. So it would be a waste to pay them to do this. The transfer of money is neutral, but the time and effort they expended is a deadweight loss.

Does that all sound roughly right? (I'm beginning to wish I'd done some intro econ in undergrad...)

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Saturday, September 29, 2007

Apoorcalypse

$5000 for every U.S. baby? Maybe Clinton is not so bad after all. This is the very best kind of left-liberal policy, (a) being universal rather than means-tested, and (b) offering cash rather than specifically delimited goods, and thus ceding control over the spending decision to the recipients. It's really wonderful to see this idea floated in mainstream politics. (See here for why it is such a good idea.)

It's strange to read the objections from right-wingers in the comments here. There are some real head-scratchers. (Some appear to confuse the end of poverty with the end of the world.) 'Justin', for example, mockingly asks:

If she's serious, why not pay for all basic food products? You shouldn't have to pay for things like flour!

But one of the major arguments in favour of general (cash) redistribution is that it doesn't distort incentives and price signals the way specific interventions (flour) would. We're talking about redistribution whilst maintaining a market economy. That's a pretty important difference.

'The Ghost' adds: "there's nothing you can do that would aggravate American poverty more than promise every poor kid $18,000 when they turn 18."

Yeah, there's nothing like an unconditional cash injection to keep people poor. I guess we ought to ban trust funds for rich kids too. We shouldn't want them to be disadvantaged by all that money waiting for them when they grow up, just because they were unfortunate enough to have wealthy parents. They should enjoy the same freedom from resources as everyone else.

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Sunday, September 02, 2007

Efficiency and Value

I hate shopping. So I was delighted by my first ever visit to Wal-Mart yesterday. Very efficient, very cheap, I hopefully won't need to go again anytime soon.

Basically, I think the aim of such shops should be to minimize the amount of time we have to waste in them (or working to pay for such material things). I'm skeptical that commerce can have any deep value, so efficiency is all that's left for it. Give me Wal-Mart, then get me away from the blighted cityscape.

The alternative view, I suppose, would be to try to rescue commerce from the dull glint of the bottom dollar. Close down the factories, imbue production with a human touch, buy custom-made goods direct from the craftsman, and all that. The local market is certainly far more attractive than the mall, so all else being equal I'd jump at the replacement. But what are the opportunity costs? Their inefficiency means more time and effort must be invested to produce these material goods -- time and effort that might be better spent on non-commercial pursuits.

So my question is this: should we "invest" in improving the commercial sphere of society, or simply try to minimize it?

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Sunday, July 01, 2007

Fair Pay and Price Signals

Social justice is a fine goal, but we should be careful how we pursue it. Too often, it leads people to manipulate economic exchanges in a way that disrupts the efficient functioning of the market. For example, they might oppose a Pigouvian tax on gasoline -- or, even worse, support gas subsidies (!?) -- "for the sake of the poor." Or they might advocate "pay equity" across diverse jobs, in hopes of ensuring that people are paid "what they deserve." But the idea that income should track desert is deeply misguided, as Elizabeth Anderson (drawing on Hayek) explains:

First, if you fix prices on a backward-looking standard [e.g. desert], they will no longer be able to perform their informational function. Producers will produce for what was demanded last quarter, even if it isn't demanded today. This creates enormous waste and generates huge opportunity costs. We'd be much poorer in an economy that worked like this...

[Second,] there is no coherent way to determine how much of what people get is due to luck, and how much is truly their responsibility...

[Third,] any attempt to regulate people's rewards according to judgments of how much they morally deserve would destroy liberty. It would involve the state in making detailed, intrusive judgments of how well people used their liberty, and penalize them for not exercising their liberty in the way the state thinks best.

Forget desert. Our economic institutions should be forward-looking, and use prices to incentivize socially beneficial behaviour. That means paying people for providing desired goods and services -- and paying more for what society needs more of. This won't necessarily track desert: just because engineers are in higher demand than librarians, doesn't mean there's anything especially virtuous about the former. Still, we need more of them, and offering greater rewards is the way society can induce its members to meet this need.

The price system serves to signal scarcity (relative to demand), and - thanks to the profit motive - provides incentives for individuals to respond accordingly. Hayek illustrated the economic principles with a simple example:
Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all his without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

Conclusion: If you want to help the poor, then just give them more cash. Far better to increase their purchasing power than to artificially deflate the market price for a particular good. Offering "cheap gas" is bad for society, as it disrupts the signaling function of market prices. Moreover, offering an unconditional basic income (or the like) is better for the poor. Redistribution is thus superior to price regulation in every important respect.

In other words: leftists should be left-libertarians.

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Wednesday, May 30, 2007

WoN: Information Economics

[Part One in a series: Reading Benkler's Wealth of Networks.]

How does information production differ from the production of material goods? Two key differences that I want to explore in this post concern (1) access to the means of production, and (2) the "non-rival" nature and marginal cost of information.

1) The means of production are more widely distributed and accessible than ever before. Anyone with a computer and internet connection is capable of contributing valuable information to society, through such “peer production” efforts as Wikipedia. Add the right software into the mix and they may also contribute to our cultural stock, through creative or satirical “mash-ups” and other media production. As Benkler explains:

The high capital costs that were a prerequisite to gathering, working, and communicating information, knowledge, and culture, have now been widely distributed in the society. The entry barrier they posed no longer offers a condensation point for the large organizations that once dominated the information environment. Instead, emerging models of information and cultural production, radically decentralized and based on emergent patterns of cooperation and sharing, but also of simple coordinate coexistence, are beginning to take on an ever-larger role in how we produce meaning—information, knowledge, and culture—in the networked information economy. (pp. 32-33)

Individual human capacities, rather than the capacity to aggregate financial capital, become the economic core of our information and cultural production. Some of that human capacity is currently, and will continue to be, traded through markets in creative labor. However, its liberation from the constraints of physical capital leaves creative human beings much freer to engage in a wide range of information and cultural production practices than those they could afford to participate in when, in addition to creativity, experience, cultural awareness and time, one needed a few million dollars to engage in information production. From our friendships to our communities we live life and exchange ideas, insights, and expressions in many more diverse relations than those mediated by the market. In the physical economy, these relationships were largely relegated to spaces outside of our economic production system. The promise of the networked information economy is to bring this rich diversity of social life smack into the middle of our economy and our productive lives. (pp. 52-53)

Peer production involves breaking a task up into discrete “chunks” that may be easily completed by volunteers. The cumulative effect of these non-market contributions – spurred on by diverse human motivations, from reputation gain to the artistic thrill of creation – is the production of a hugely valuable information resource. Wikipedia is but one example; SETI@home is another, whereby ordinary citizens contributed their spare computing capacity towards creating the world's most powerful super-computer. (The SETI@home screensaver performs computations when the user’s computer is otherwise idle, and then send the results over the internet back to SETI.) “Peer to peer” networks, or p2p, have shown themselves to be among the most efficient information distribution mechanisms society has yet discovered – much to the chagrin of incumbent industries.

It's worth noting that peer produced ("open source") software is often judged to be of higher quality – more dependable and secure – than its closed, proprietary, counterparts. As Eric S. Raymond put it, "given enough eyeballs, all bugs are shallow." (Proof: compare LINUX to Windows.) Hence, the U.S. Presidential Technology Advisory Commission “advised the president in 2000 to increase use of free software in mission-critical applications” (p.321).

2) The economics of information production differs importantly from material production. Information is non-rival: when one passes along information, it does not make the provider any poorer (unlike if I passed along their jewellery!). Distribution of pure information has a zero marginal cost – additional listeners do not raise the production costs at all. Since economically efficient pricing is, by definition, the marginal cost of the product, it follows that any (non-zero) pricing for pure information is necessarily inefficient.

This inefficiency may be tolerated for the sake of incentivizing initial production. (Hollywood won’t make blockbusters for free; by artificially restricting access to the digital information film-makers produce, we encourage them to produce it in the first place.) But we shouldn’t blindly assume that granting ever stronger exclusive access rights (“Intellectual Property”) over information will necessarily improve outcomes, the way we might expect of markets in material property. In addition to the local inefficiency of excluding those unwilling to pay the artificially inflated price – who could otherwise have gained a benefit at no real cost to anyone else – there is also the “big-picture” concern for stunting down-stream production.

Present info-cultural productions build on our info-cultural heritage, or what past production has contributed to the public domain. This is known, with reference to Isaac Newton, as the “on the shoulders of giants” effect. But if today’s info-cultural productions are locked away behind excessively strict and long-lived IP protections, this raises the costs for tomorrow’s producers. Balance is thus needed to ensure that present incentives don’t become future disincentives.

In summary: The combined effect of these two general observations is to highlight the economic desirability of open access to information, in at least some contexts. The information economy increases the viability of widely distributed, large-scale production efforts that take place outside of both state and market action. Such production is valuable and efficient enough to be worth nourishing, but is highly dependent on open access to “the shoulders of giants”. Although some artificial restrictions on information access may be beneficial, we should be aware that IP extremism diminishes the public domain, and may thus prove an obstacle to future creativity. Further, much information production is not motivated by IP revenue in the first place -- the growing role of peer-production should not be neglected -- so for this class of activities, strengthened IP law imposes costs without any corresponding benefit at all.

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Monday, June 19, 2006

Sen on Economic Rationality

A person is given one preference ordering, and as and when the need arises this is supposed to reflect his interests, represent his welfare, summarize his idea of what should be done, and describe his actual choices and behaviour. Can one preference ordering do all these things? A person thus described may be "rational" in the limited sense of revealing no inconsistencies in his choice behaviour, but if he has no use for these distinctions between quite different concepts, he must be a bit of a fool.

-- Amartya Sen (1977), 'Rational Fools', p.336.

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Sunday, May 28, 2006

Costs and Regulation

Let's distinguish two forms of regulation, reflecting the statist vs. Hayekian distinction. One option is to make the undesirable activity illegal. The alternative is to make it costly. More generally, we can regulate activities either by using the blunt instrument of the law, or else by the more subtle manipulation of market forces. I think the latter will often be preferable.

A major advantage of the market is the sheer efficiency brought about by the informational sensitivity of price signals. Greenies want to help the environment, but often don't know how best to achieve this. Some proposals seem to have mainly symbolic value, as their slight good consequences may be outweighed by the time and effort put into them, especially when opportunity costs are taken into account. PC claims that recycling is such an example:

[W]hen used items have real value -- Ferraris for example -- they don't need to be 'recycled,' they get sold. 'Recycled' is what happens to stuff with no value, or with so little value only a government regulation can make enough people care.

This is deceptive, however, because our current pseudo-market externalizes environmental costs. Price and cost thus come apart in a way that's far from ideal. However, if only we were to stop subsidizing polluters, then perhaps prices really would signal value.

(N.B. In response to these externalities, we must take care to tax the right thing. The Greens want to "link car registration charges with fuel efficiency", so as to "reward people who bought “environmentally sensible” cars." But this seems to fetishize a 'means' over the 'end'. What really matters here is the fuel use itself, not the efficiency with which it's used. So, as Kiwi Pundit points out, we would do better to increase fuel taxes instead. This direct approach will indirectly incentivize such derivative goods as fuel-efficiency anyway. But it avoids various inefficiencies that would arise from confusing the means and ends in this case.)

Brad Templeton explains how buying energy efficient cars or home solar panels could actually be "bad for the environment, compared to the choice of buying carbon credits, which is to say bribing existing polluters to cut back their output":
The answer, right now, is that it’s far easier and cheaper to reduce pollution by cutting output at the big polluting factories and power plants. A dollar spent there does an order of magnitude more to cut pollution than a dollar spent on personal PV panels or a personal hybrid car.

Markets are thus important because prices signal information about ease and efficiency, and so can help us to identify how we can do the most good. Or, as Brad puts it:
A working credit system (and I’m not ready to make the final claim that we have one) creates a market that focuses the money on the places where you can get the most bang for your buck in pollution reduction. A working credit system means you don’t work on your own house because you can spend the money getting somebody else’s far less efficient house in order first. Sometimes people justify their own solar panels or Prius by saying that they want to do something, and they can’t do anything about the big power plant. But with a credit system that’s exactly what they can, and should do — until the markets change and it makes sense to spend money on your own car.

Internalizing costs through the market is also superior to heavy-handed regulation in terms of human freedom. Consider my old post on urban sprawl: outward development imposes significant public costs, and statists in local government respond to this with zoning regulations to prevent or restrict the harmful activity of expanding development. A better solution might be to internalize the costs, say by requiring developers to pay for the requisite public infrastructure (presumably passing this along in the form of higher housing prices), and charging higher rates to peripheral real estate in order to meet the ongoing costs of sprawl.

This would give more people the freedom to live in suburbs if they so wish, without subsidizing their choice as our current pseudo-market does. If people want the suburban lifestyle enough to be willing to pay for the indirect costs, then why stand in their way? A market system, with true costs appropriately internalized, strikes me as an institution with great potential for enabling humanity.

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Sunday, January 29, 2006

Teacher Co-ops

A fascinating suggestion from Stumbling and Mumbling (a highly recommended blog, BTW):

In many businesses where professional standards and skilled employees are the key to success, employee ownership is the norm; law firms, accountants, hedge funds, vet and medical practices are routinely partnerships of professionals.

Why shouldn’t this model be extended to teachers? Why shouldn’t schools be co-operatives/partnerships of teachers who compete against each other?

This would have several merits:

1. The combination of co-operative ownership and competition would raise standards.

2. It would give teachers more genuine professional autonomy.

3. Groups of like-minded teachers (say, according to their views on different educational theories) would bind together. The resulting difference in teaching methods would let us see what works and what doesn’t.

4. It accords with the economic theory of property rights – that employees should own organizations where human capital is the key asset.

Now, I want to be vague about the precise blueprint here; there are loads of possibilities. All I’m saying is that teacher-controlled schools should appeal to both “left” – because it puts workers/teachers in charge – and “right”, because it introduces competition. It’s also consistent with economic theory. So why not at least think about it?

If there are any other New Zealand bloggers reading this: do you think there's any chance of such reforms being considered here? (And do you think they should be?)

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