chess | More unfocussed economic ramblings

Here are some more underinformed thoughts :) Please tell me where I'm being wrong/stupid, previous corrections have been very useful to me in thinking about this stuff!

The purpose of an economy, as far as I can see, is to produce things that people want, without producing too many things people don't want.

There is also a second-order effect here - economies should also produce 'the ability to produce more things people want in the future' and avoid producing 'a reduction in the ability to produce more things people want in the future'.

(I am using a very wide definition of 'things people want' here. People want iphones, food, world peace, novelty, countryside, etc etc. People don't want zunes (or insert your favourite failed gadget here), hunger, suffering, ugly architecture, hopelessness, etc etc.)

We haven't found a better way of measuring 'want' except in money (i.e. we model 'how much people want stuff' as 'how much money people are willing to pay for stuff'). I haven't been able to come up with a better measure either!

The present economy, up until the current blip at least, seems to be pretty good at producing things people want - at least for people in this country / 'the Western world'.

It seems to be pretty awful at not producing things people don't want ('minimising negative externalities', I believe, if we want to get techincal) and is starting to show signs of failing at 'ensuring people have the ability to produce more things people want in the future'.

So far, governments have been able to shore up the edges of this (regulation on pollution etc tamping down the negative externalities, public service education and healthcare and infrastructure keeping the productivity rising), but this is also breaking down - partially because the 'produce stuff people want - manufacturing the 'want' too if necessary' part of the system has gone into hyperdrive and become bigger than any governmental co-ordination acna handle.

Some key problems seem to be:

1) Money concentrates and gets inherited; there's not a complete relationship between 'what is good' and 'what people will spend money on'. So far, not enough people can agree on a better way to measure 'what is good'. There are ways to make money a 'better' model (for certain people's definition of 'better') like redistributive taxation and basic income guarantees, but they start to pretty obviously become awkward patches on the system only undertaken at the sufferance of those who could get ahead by breaking the system - and when the way to get ahead is to break the system rather than work within it, the system traditionally doesn't do well (see: various attempted implementations of communism).

2) There might not actually be enough stuff to go round, especially with the damage we've been doing to future productive capacity by ignoring that part of the equation. This makes people even more reluctant to try new models than the general human reluctance to change things - it might turn out that a model that maximises e.g. human happiness does it by markedly reducing the happiness of the people who are currently sitting on the levers of power, and also all of the people they are directly related to / care about personally...

3) We've even been messing 'make stuff people want' up lately.

I blame this partially on 'manufacture the 'want' if necessary' - there has been a lot of advancement in the ability of people to make people want stuff that isn't actually 'good' in any objective sense (if there is even an objective sense for it to be good in! this stuff is tricky) and that means there's a lot of wasted potential that doesn't necessarily immediatley look like waste.

And the other major part is lack of transparancy - especially lack of transparancy of negative externalities. When people buy things, they are pointed very firmly at the good ('this iphone makes my life better and makes me feel like I am living in the future') and away from the bad ('this iphone is manufactured in terrible conditions and uses a lot of irreplacable resources that we aren't doing enough to find alternatives for - it contains a lot of Suffering and Making My Future Suck').

The negative externalities build up and build up until they start making it harder to produce 'good' stuff - stuff people want - and that's why we're suddenly noticing them now...

Flat | Top-Level Comments Only

On the negative externalities thing: my understanding of the term externalities is that they are costs and benefits (for negative and positive respectively) externalities are costs not directly borne by the producer or purchaser.

Negative externalities are the effects of pollution on us and the costs of its cleanup, the effects of passive smoking and NHS treatment for smokers and passive smokers, and the loss of productive workers ODing or dropping out of work due to illegal drug addictions.

Positive externalities include the benefits to the whole of society of the majority of that society being relatively healthy and educated to a certain level, the pollination of crops by bees kept by non-farmers purely for their honey, or the way that my pretty front garden may increase the value of my neighbour's house.

The purpose of an economy, as far as I can see, is to produce things that people want, without producing too many things people don't want.

I reject this axiom.

I don't believe that an economy has any purpose at all, it's merely a side-effect of things that do.

Does it make more sense to think of that sentence as 'we bother to worry about / study economics because we want stuff to get produced that people want (including intangibles), and we don't want stuff to get wasted'?

I'm using 'stuff that people want' as a proxy for 'good stuff' here, because I don't think anyone has found a better proxy for value than 'people want this'.

That's a completely different argument, though. I abandoned reading Stiglitz after a barrage of completely unsupported assertions about what the economy "should" do.

In any case, I think the second formulation is wrong, too. I, for one, study economics for the same reason I study physics or CS or engineering: because I think it's useful to know how things work. Whether economics does an adequate job of that is debateable ;)

I'm curious about your concept of "waste". It seems ill-defined, based on preconceptions of sustainability and a closed system, and - in extremis - requires a violation of the second law of thermodynamics.

My concept of 'waste' is an attempt to summarise 'stuff that we don't want people to be producing'.

It seems fairly obvious to me that we don't want people to spend time and effort (disregarding materials for a moment) producing things that nobody wants (poorly designed goods, parts for machines that never get built, digging a hole and filling it in again etc), or things that people actively don't want (ugly holes in the ground, choking smog, a rise in birth defects).

So a well-functioning economic system (as far as I can tell at the moment) would incentivise people away from activities that caused their time and effort to be converted into useless or actively anti-useful stuff...

But... those things already have a cost, both in materials and labour, so the incentive is already there.

You seem to be asking for those costs to be given disproportionate weight?

Currently I believe they are not given proportionate weight, because of imperfect information.

I believe if people _knew_ the damage their consumer choices were doing to the things they value, if they were communicated in the same kind of visceral way that the benefits are in advertising and marketing campaigns, that they would choose very differently (and more rationally, and with a better long-term outcome for themselves, individually, never mind the rest of the world).

Also, people often buy something and are disappointed by it - and are encouraged to be disappointed in it so they buy something else. Planned obsolescence seems to be a major source of waste too - there always has to be something wrong with the Current Thing so that you can get people to upgrade to the Next Thing, which is a waste of time and effort on the part of all the people who had to put together the Current Thing...

So you believe that the market pricing of the costs is wrong, because of ideology?

Not that, if there really were an impending resource shortage and prices are too low, some people would be buying like crazy in order to profit from the eventual rise? Or that people are choosing rationally because the "damage" - to them and to others - is negligible?

Whether it's "imperfect information" or "false consciousness", it's still a profoundly insulting idea that the proletariat are making the wrong decisions.

I would tend to say that I believe the market pricing of the costs to be wrong, because of evidence (the build-up of resource shortages and underskilled unemployed labour) and you believe the market pricing of the costs to be right, because of ideology (The Markets Are Always Right).

But I'm interested in your point of view still, even if it is different from mine and you seem to need to present it as the only reasonable point of view ;).

Some people _are_ buying like crazy in order to profit from the eventual rise. Others are putting into place other preparations on account of believing the markets in derivatives of the actual goods are unlikely to remain trustworthy, and therefore won't show up on the readily available market pricing.

I am quite happy to insult people that are making the wrong decisions and I am glad when someone does me the courtesy of doing likewise...

Yup. Ideology and the Efficient Markets Hypothesis ;)

Will reply properly tomorrow - party starting now.

Actually, I guess there's nothing to reply - without some shared premise about what "pricing" (or "value") actually means, there's nowhere for the discussion to go.

I think that it's largely a phrasing of "What I want from an economy is that it produces things that people want, without producing too many things people don't want.".

Not really - what _I_ want from an economy is something that produces things that are _good_ without producing things that are _bad_ ;). However, I understand that there are a lot of other people in the world who would not agree with my definitions of 'good' and 'bad', and I think they are more likely to agree that 'things people want' are good and 'things people don't want' are bad...

Well that's what "good" and "bad" mean, isn't it?

You say that, but people often have a funny definition of 'people'...

Some would say that 'good' things don't include some things that people want (people want drugs, people want random anonymous sex) because God doesn't want people to have those things, so they aren't good even though they are desired.

Some would say that 'good' things don't include some things that people want (people want cars, people want meat) because they're bad for the environment.

And some people find it hard to say things are 'good' (fashion items I hate, daft electronic tat that looks tacky to me) when they don't like it, but other people do demonstrably want it.

So defining your proxy for value ('people want this' being assumed to be 'this is good') seems to be actually quite important (and a fundamental problem, as then we have to measure 'want', which we currently do with money, which is probably an imperfect system depending on what you're trying to maximise for).

Well, people say things like that, but I translate in my head as "I don't want there to be these things." whenever they say them. Or, in extreme cases, white noise.

Money works quite well - but has the issue that "What rich people want." is then catered for rather better for than "What poor people want.", and so the two sets of wants are rather differently values from the new "objective" standpoint.

If your life is, generally, worth everything you have, then poor people's lives are a lot cheaper, for instance.

I think that money is a reasonable first-order approximation for fungible products, but if people use it as the only point of value then you start having problems.

OTOH, assuming you have a situation where people have to work at all (which I think we still do, alas), there has to be some way of incentivising people.

Barring straightforward authoritarian means (if you don't work I'll beat you; I use brainwashing to make you want to work for me; I take all the production and apportion it based on how much work you do) the best way we've found to do it is 'you get more of the stuff you can exchange for anything you want'.

'Economics' seems to be based on 'if you have this flowing means of exchange, then it finds its own level like water - people give it to each other because they want stuff, and the people providing the most value for the most people get more of it to spend on what they want'.

Whether it's doing this well, or should be doing this at all, depends on your viewpoint - what do you value?

If your values are 'every human being is essentially as worthy as the next one of having their desires fulfilled', then the current system isn't doing very well, as you say, because poor people's desires are undervalued.

If your values are 'every human being should be as productive as possible, should be rewarded in proportion to how productive they are' then it does a little better, but the concentration-of-wealth problem means that some people's children get a better start than others because of their circumstances, which means equality of opportunity doesn't happen in practice and some people's productivity is stunted, and you might be looking for ways to improve that.

If your values are 'I want as much as possible for me and mine and screw the next guy', then whether the system works for you depends where you started :). So the rich want less regulation on their activities and a greater ability to screw the next guy, the middle classes want restrictions on how badly _they_ can be screwed but for their stuff to only be redistributed to the extent that it keeps unsightly starving beggars off their doorstep, provides collective services / insurance for things they're not rich enough to fund individually, and prevents spread of diseases in their neighbourhoods, and the poor want a share of the stuff the other people have got...

It turns out to be very hard to talk about 'correct' economic policies until you answer the question 'correct for who?'.

Exactly! And that's why you need a counterbalance from a system that's _not_ weighted by money. And politics should be that system (one person, one vote), except for in countries where there's blatant political manipulation by large wodges of cash (like the US, for instance).

In a way, you're always going to have political manipulation by large wodges of cash.

For one thing, votes are a kind of currency; they're not explicitly transferable but there is an exchange rate. Prosaically, the more leaflets you can print, the more shiny badges you can hand out, the nicer office space you can rent, the more self-confident your supporters are, the better you'll do.

We have a lot of campaigning budget restrictions in the UK for this reason, but you can't stop someone really determined from renting the office cheaper to their mates, or providing a delicious home-cooked meal to their friends which they just happen to be doing after a hard night of canvassing, or having a nice house in a convenient position to be a base for leafleting, or wearing a nicer suit...

Representative democracy also doesn't necessarily balance out educational differences very well; if your underclass are too downtrodden to use their votes effectively (which includes seeing through quite advanced advertising and marketing tricks), it doesn't really matter if they have a vote at all, especially as they're not going to be well-spoken / well-dressed / possessing of enough free time and useful contacts to be a candidate themselves.

Again, it's a matter of 'what are you maximising for'. One person, one vote is a system which has a heavy load of 'people are equal' bias in it - but if you look at it closely it has all kins of other biases in it, like 'people can't vote from prison' and 'people can't vote until they're 18' and 'people can't vote if they weren't born in this country or achieved citizenship in some other way we approve of'... so actually it's another manifestation of 'people like us are equal', and what you pick as the defining characteristics of 'people like us' is interesting and important.

(some people, after all, would want to put at least some animals in 'people like us'; I might try quite hard not to be racist, but I am quite cheerfully species-ist, so this limits my ability to complain about other people's 'narrow' definitions of 'people like us'...)

How to construct your democracy is always an interesting topic :->

I think you're being bit too black and white about the corruption of money. Sure, people can always do little things to get around it, but that's very different to the US where the backing of billionaires is necessary to be elected.

And no, democracy by itself is not the answer. You also need a decent rule of law, a free press, education, healthcare, etc. And each of those produces its own tensions. They're interacting systems, and there's no such thing as a perfect system, you just had to fudge it to try and find one that produces the least unhappiness.

(and it's the fact that people have many different priorities that make me want to break it down and work from principles of self-interest; most people at least partially want _themselves_ to be happier, healthier, longer-lived, and I _think_ that usually actually equates with 'make the world a better place' (because that reduces your risk of riots and criminal behaviour and seeing unsightly things and having places you can't go and your empathy acting up and making you upset), but I'm not _sure_ yet.)

That would require people to take a long term view on what they want. I think it's pretty clear most people take a very short term view.

Given a low enough price, there is always someone willing to complete a transaction that ends up with them receiving a unit of the goods in question, even if they just use them as landfill. (In the case of goods like radioactive waste the "low enough price" might be a negative one.)

What most industrialists would like to avoid is building goods which they can't sell for more than it cost to make them.

I don't know about "purpose" but useful properties for an economic system to have would be if it was good at helping the people who produce things to make profitable use of their time, risk and invested resources; and if it was good at helping the people who purchase things to obtain goods at the loweest price available (eg not have barrels of oil being shipped from China being shipped to America and have identical barrels of oil being shipped back along the same route at the same time.)

Making prices reflect the true cost to society, and shaping customer demand to reflect 'long termism' are, perhaps, not strictly part of the system itself, but rather they are inputs to the system from the surrounding social and legal environment within which the system operates.

"The purpose of an economy, as far as I can see, is to produce things that people want, without producing too many things people don't want."

This could be changed to "The purpose of X, as far as I can see, is to produce things that people want, without producing too many things people don't want.", for many other things X. This is especially true with your wide definition of "things people want/don't want".

"We haven't found a better way of measuring 'want' except in money" - What you seem to be talking about here is society as a whole, as a system the purpose of which is to serve the needs of the population. Free trade is not the whole of this system (if it were, we'd have a system advocated by the market anarchists). There is also the state, with public services, voting, law enforcement, and the military.

"I blame this partially on 'manufacture the 'want' if necessary" - I agree. There's a lot of money/resources wasted on stuff people don't need.