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Votes vs. $

Carlos Cruz writes:

The other day on Twitter my friend shared this paper by Ellen Evers and Michael O’Donnell…

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2959609

Here’s the abstract…

“A fundamental contribution of consumer behavior research is to help marketing scholars develop an understanding of how people think about and express their preferences. In this report we find that two commonly used preference elicitation procedures, willingness-to-pay and choices, are consistently associated with different expressed preferences. Specifically, choices are associated with a relatively greater preference for hedonic goods while WTP is associated with a relatively greater preference for utilitarian goods. We find that this is caused, in part, by the greater reliance on deliberation in determining WTP values, while preferences in choices are determined by an affect heuristic. Unlike other choices and WTP preference reversals, we find that this effect is not caused by mechanical determinants such as scale compatibility, as the effect persists with continuous scale measures that rely on affect and with choice-based scale measures that rely on determining valuation.”

It’s a little confusing that they used the word “choice” to refer to decisions made without WTP. But basically WTP makes us think harder, so we consider more information, which results in us prioritizing things differently. Here’s a pretty good paragraph…

“Thus far, we have found that participants who indicate preferences in a choice context are more likely to choose a hedonically pleasing, affectively arousing good than when indicating preferences in a WTP context. We expect this pattern occurs because choosing between two goods can be a relatively low effort, fairly intuitive process. Each day consumers have to make an innumerable amount of choices such as, what to wear, what to have for breakfast, or which brand of cereal to buy, having one’s feelings inform the decision is a sensible and cognitively cheap heuristic which most of the time will lead to a satisfactory outcome. For WTP, however, merely relying on one’s feelings is insufficient and may even feel inappropriate. Features such as quality, amount, and cost should be taken into account. If choices are inherently less thoughtful than WTP, inducing participants to deliberate by asking them to consider the value of acquiring each good should influence subsequent choices more than it influences willingness to pay. After all, indicating willingness-to-pay is already expected to cause participants to think about the value of the options under consideration, whereas choices are expected to mostly reflect gut feelings.”

The authors didn’t bring up the fact that voting doesn’t involve WTP. I plan on e-mailing them.

After I e-mailed you about spending versus voting I visited your blog to see if you had posted the entry. I also read some of your older entries, one of which led me to believe that your posting system is somewhat different. This was confirmed when I saw this post

I scrolled and scrolled and eventually found “$ vs. votes” in November. [It appeared here. — AG.] My first thought was whether suspense had ever truly killed anybody. Then I wanted to email you to see if you’ve ever blogged a justification for your system. Lastly I decided not to question the hand that is offering to feed my brain. When I learned of the paper I decided that it is relevant enough to share with you. And I figured that, since I was emailing you anyways, I might as well combine the intellectual ingredients and make a nutritious pot pie.

It seems like you’re simply ordering the future entries chronologically. First come first served. It certainly wouldn’t be “fair” for my topic to cut in line. But would it be “efficient”? Naturally I think that my topic is far more important than all the other topics combined. So from my perspective, it would be very efficient for my topic to be moved to the front of the line. The issue is that my perspective is extremely limited. Everybody’s perspective is extremely limited. But, everybody’s perspective is also different, which means that all our perspectives aren’t equally limited. This is exactly why two heads are better than one. When people put their heads together they create a combined perspective that is less limited than their individual perspectives. The more heads that are put together, the less limited the collective perspective.

Voting and spending both make it easy for lots of people to put their heads together. It’s theoretically possible for all your readers to vote and/or donate for the most important future entries. Unlike voting, donating is a matter of WTP, so it would prioritize your future entries very differently. Would they be better prioritized? I think the paper supports this conclusion. I think that this conclusion is supported by a LOT of things.

Earlier in the month I found this relevant paragraph in The Atlantic…

“What is God? It is only a subject that has inspired some of the finest writing in the history of Western civilization — and yet the first two pages of Google results for the question are comprised almost entirely of Sweet’N Low evangelical proselytizing to the unconverted. (The first link the Google algorithm served me was from the Texas ministry, Life, Hope & Truth.) The Google search for God gets nowhere near Augustine, Maimonides, Spinoza, Luther, Russell, or Dawkins. Billy Graham is the closest that Google can manage to an important theologian or philosopher. For all its power and influence, it seems that Google can’t really be bothered to care about the quality of knowledge it dispenses. It is our primary portal to the world, but has no opinion about what it offers, even when that knowledge it offers is aggressively, offensively vapid.” — Franklin Foer, The Death of the Public Square https://www.theatlantic.com/technology/archive/2018/07/the-death-of-the-public-square/564506/

Foer, like everyone, ranks some thinkers higher than others. What he doesn’t understand though is that Google is a democracy. Each link to a page counts as a vote for it. The more votes a page receives, the higher its ranking. The rankings would be very different if voting was replaced with donating. So Foer’s real issue is with democracy.

Imagine if you went on Reddit and created a subreddit for your blog. Whenever anybody emailed you a potential topic for you to blog about, you could recommend that they share the potential topic in your subreddit. Everybody could vote the potential topics up or down and we’d all see and know the popularity of the potential topics. According to the paper, because WTP wouldn’t be a factor in the rankings, the more “hedonistic” topics would tend to outrank the more “utilitarian” topics. In my email to you I didn’t use these two words. I’m not exactly sure about them. What do you think about them? In the paper the authors used the example of chocolate bars versus granola bars. In this case it’s unhealthy versus healthy. It’s delicious versus nutritious.

Is superficial (“sexy”) versus substantial a better framing? Anyways, if you also gave all your readers the opportunity to donate for the topics that match their preferences then, thanks to WTP, the more substantial topics would rise to the top. In theory.

Some time after emailing you I found some additional examples of donations being used to rank things. Here are some cats/photos ranked by donations…

https://my.360photocontest.com/catwelfare2019calendarcontest/photos?order=Rank

The top ranked kitty isn’t very pretty. I’m not sure how many people donated for this cat/photo… but I’m pretty sure that it wouldn’t be so highly ranked if voting had been used instead of spending. Out of curiosity I clicked on the photo and found this…

“Don’t let his looks fool you, he is a WHOLE lot of cat, just missing a few parts. Once a stray, now an indoorsman. Not only my best friend, but my family’s as well. Cat Welfare helped bring him into our lives as a forever home. He’s been through a lot, as you can see. Looks aren’t everything! His character is tough, loving, and sporadic. We can’t thank CW enough for the support. Mr. Minx is a force to be reckoned with… as well as a great cuddler!”

It’s true that looks aren’t everything. At dog shows the dogs are ranked by a small handful of judges. A committee determines the relative importance of the dogs. This is the same thing as socialism. What if the dogs were ranked by voters? Then it would be a democracy. And if the dogs were ranked by donors, then it would be a market.

It’s hard for me to wrap my mind around the fact that a dog show can be used to safely and effectively test the difference between socialism, democracy and markets. Paul Krugman could easily do this. So why hasn’t he?

Do you regularly allocate any attention to Evonomics? I do, which is where I learned that Nicholas Gruen said this…

Krugman [is] about the most brilliant and useful economist we have. But his most brilliant work wasn’t useful, and his most useful work isn’t brilliant”

Krugman responded and had this to say in his defense…

“But one thing new trade theory certainly didn’t do was lend support to really bad ideas, or induce policy paralysis. And another thing it didn’t do was divert trade economists away from studying the real world. On the contrary, trade has become a far more empirical, open-minded field than it was when I first entered it.” https://www.nytimes.com/2018/06/27/opinion/uses-and-abuses-of-economic-formalism-wonkish-and-self-referential.html

Thanks to Steve Sailer’s comment on this entry of yours…

…I learned of this pretty great talk by Krugman… http://www.mit.edu/~krugman/evolute.html

I’m not exactly sure if I like it more than his great article about sweatshops…

http://www.slate.com/articles/business/the_dismal_science/1997/03/in_praise_of_cheap_labor.html

From my perspective, the previous Krugman was a lot more useful than the current Krugman. No man steps in the same river twice.

Krugman won his Nobel because some committee ranked him higher than other economists. How differently would he have been ranked by voting and donating? How would he rank now if all your readers could use their donations to rank economists?

When I looked over your older topics I naturally did a bit of searching for the economic ones. Here’s a relevant one that I found…

“Larry also writes of “Paul Krugman’s socialist bullshit parading as economics.” That’s another example of defining away the problem. I think I’d prefer to let Paul Krugman (or, on the other side, Greg Mankiw) define his approach. For better or worse, I think it’s ridiculous to describe what Krugman (or Mankiw) does as X “parading as economics,” for any X. Sorry, but what Krugman and Mankiw do is economics. They’re leading economists, and if you don’t like what they do, fine, but that just means there’s some aspect of economics that you don’t like. It’s silly to restrict “economics” to just the stuff you like. Just to shift sideways for a moment, I hate the so-called Fisher randomization test, and I also can’t stand the inverse-gamma (0.001, 0.001) prior distribution—but I recognize that these are part of statistics. They’re just statistical methods that I don’t like. For good reasons. I’m not saying that my dislike of these methods (or Larry’s dislike of Krugman’s economics) is merely a matter of taste—we have good reasons for our attitudes—but, no, we don’t have the authority to rule that a topic is not part of economics, or not part of statistics, just because we don’t like it.

Oddly enough, I don’t really have a problem with someone describing Krugman’s or Mankiw’s writing as “bullshit” (even though I don’t personally agree with this characterization, at least not most of the time) as with the attempt to define it away by saying it is “parading as economics.” Krugman’s and Mankiw’s writing may be bullshit, but it definitely is economics. No parading about that.” http://statmodeling.stat.columbia.edu/2014/01/16/22571/

I kind of agree with you. Consider this quote…

“However well balanced the general pattern of a nation’s life ought to be, there must at particular times be certain disturbances of the balance at the expense of other less vital tasks. If we do not succeed in bringing the German army as rapidly as possible to the rank of premier army in the world…then Germany will be lost! ”— Adolf Hitler (1936)

Only allowing one person to rank all the public goods is certainly economics… but anybody who advocates for this type of economic system is a very bad economist. The problem with this economic system is very very very simple. No matter how smart or knowledgeable a person is, their perspective is extremely limited. But again, everybody’s perspective is different, which is why it’s so beneficial to combine perspectives.

“Kolata’s article is excellent but I do have one complaint: every expert quoted in the article is a doctor. The topic is medical research, so, sure, doctors are experts. But these questions are not just medical: they involve statistics, they involve economics, they involve politics too. So I don’t think docs should be the only people interviewed.” http://statmodeling.stat.columbia.edu/2018/04/02/ones-important-better-analyze-cancer-drug-trials-using-multilevel-models/

Getting back to the dog show example, I’m hardly a dog expert. But I certainly rank some dogs a lot higher than others. Given the opportunity to vote for my favorite dog I probably would, after all, it’s not like it would cost me anything to do so. But it’s obviously a different story if we’re talking about donating. In this case, every dollar that I donated to help elevate my favorite dog is a dollar that I couldn’t donate to help elevate my favorite economist. From my perspective the opportunity cost would be very high. Therefore, I’d happily sacrifice my influence over the dog rankings in order to have more influence over the economist rankings.

“Moreover, men’s desires when left to achieve their own satisfactions, follow the order of decreasing intensity and importance: the essential ones being satisfied first. But when, instead of aggregates of desires spontaneously working for their ends, we get the judgments of governments, there is no guarantee that the order of relative importance will be followed, and there is abundant proof that it is not followed.” – Herbert Spencer, An Autobiography

Is this theory falsifiable? Here’s what you wrote…

“From the standpoint of the philosophy of science, pop economics or neoclassical economics is, like Freudian theory, unfalsifiable. Any behavior can be explained as rational (motivating economists’ mode 1 above) or as being open to improvement (motivating economists’ mode 2 of reasoning). Economists can play two roles: (1) to reassure people that the current practices are just fine and to use economic theory to explain the hidden benefits arising from seemingly irrational or unkind decisions; or (2) to improve people’s lives through rational and cold but effective reasoning (the famous “thinking like an economist”). For flexible Freudians, just about any behavior can be explained by just about any childhood trauma; and for modern economists, just about any behavior can be interpreted as a rational adaptation—or not. In either case, specific applications of the method can be falsified—after all, Freudians and neoclassical economists alike are free to make empirically testable predictions—but the larger edifice is unfalsifiable, as any erroneous prediction can simply be explained as an inappropriate application of the theory.” http://statmodeling.stat.columbia.edu/2018/04/26/quick-rule-thumb-someone-seems-acting-like-jerk-economist-will-defend-behavior-essence-morality-someone-seems-something-nice/

I disagree that the “larger edifice” is unfalsifiable. Like I said, it would be relatively easy for Krugman to use a dog show to test socialism, democracy and markets.

“It’s a frustrating thing that this sort of careful, policy-relevant work (I haven’t read the paper carefully so I can’t comment on the quality of the analysis, one way or another, but it certainly seems careful and policy-relevant) doesn’t get so much attention compared to headline-bait like pizzagate or himmicanes or gay genes or whatever. And I’m part of this! A careful quantitative analysis . . . what can I say about that? Not much, without doing a bunch of work.” http://statmodeling.stat.columbia.edu/2018/04/27/economic-growth-healthy-kids/

“Fake social science crap in the NYT, NPR, Ted, etc., sucks away attention from real issues.” http://statmodeling.stat.columbia.edu/2018/05/16/no-no-epidemic-loneliness-dog-bites-man-david-brooks-runs-another-column-based-fake-stats/

Socialism, democracy and markets are three very different allocation systems. Each system is going to allocate attention very differently. They aren’t going to allocate the same amount of attention to “loneliness epidemics” or pizzagate. In this sense, economic systems can be falsified.

“Huh? We should be complaining because a company is suboptimally allocating resources? I don’t get it. We can laugh at them, but why complain?” http://statmodeling.stat.columbia.edu/2018/04/24/words-words-twitters-280-experiment/

“I agree that one of the duties of academic research is service, and part of this can be discharged by communication to general audiences. On the plus side, if you can communicate to the general public, then you’re reaching more people who can uncover flaws in your ideas. So one of the benefits of public exposure is that you can get some valuable critiques from the outside.” http://statmodeling.stat.columbia.edu/2018/07/16/carl-sagan-effect/

Twitter uses the democratic economic system to allocate attention. I complain about this because, in theory, it’s misallocating a massive amount of society’s precious attention. My friend’s tweet has only been retweeted twice and it’s only received three hearts

My retweet/heart really doesn’t accurately reflect my valuation of the tweet/paper. Does my estimate of this content’s importance matter? I sure think it does.

From my perspective I’ve discovered a fundamental flaw in Twitter’s idea. All bugs are shallow given enough eyeballs (Linus’s Law). But it’s not like Twitter is going to listen to me. I’m not Paul Krugman.

Twitter’s idea is flawed, which means its priorities are flawed. I shouldn’t need to be a Nobel economist to help improve Twitter’s priorities. Right now everybody has the opportunity to use voting to help improve phpBB’s priorities… https://www.phpbb.com/community/ideas/ The world would be a much better place if everybody was free to use donating to help improve phpBB’s priorities, and Twitter’s priorities and the priorities of each and every organization.

If you get a chance, you should allocate some attention to this economic timeline….

https://docs.google.com/document/d/14g6lyjm2BsAmv_J7Yj-8evb2VJC3QR7oFanUZLGdn1E/edit?usp=sharing

Wow! That’s a long email. This dude should have his own blog.

All I have to say is to remind people of the distinction between willingness-to-pay and ability-to-pay. Economists often say “willingness to pay” when they really mean “ability to pay.” Also The K Foundation burns Cosma’s turkey.

40 Comments

  1. Krugman routinely subjugates economics to promote a political view. This is a guy who knows what the broken window fallacy is, and still uses it to justify things. He’s a guy who knows that the number of things that happen and the rate of things happening are different, and yet compares whichever gets his political goal accomplished. I’ve routinely read stuff where I’ve thought “this guy doesn’t have the slightest clue about economics” and then looked at the byline and it’s Krugman…. of course he knows about econ… he just doesn’t care… sometimes at least.

  2. Dale Lehman says:

    If I ever send someone an email like that, please remove me from your contact list.

    I will choose one piece – I think the central piece – which is worthy of considerable discussion in my view. That is the difference between choosing and expressing WTP. There are a number of dimensions to this, some of which have been studied and other which have not. One dimension is the difference firs mentioned in the email sent to you – choice seems to be a System 1 thing (gut feeling) while WTP involves System 2 (effortful thought). That seems to make WTP a more valid measure, but perhaps only in the dimension of whether it has been carefully thought about. Gut feelings may express a different type of preference – one potentially more important.

    A second dimension (not focused on above) is the difference between binary choices and WTP (which involves more complex choice situations). I think of the proto-typical binary choices as the optometrists’ tests. Which is clearer – A or B, etc etc etc. There is a reason they ask you to compare the same things multiple times and in different orders. Binary choices are difficult to make, except in extreme circumstances. I don’t think much research has been done concerning accuracy relative to the difficulty of choice, however.

    Another dimension is the difference between WTP and ability to pay (or more typical, to an economist, willingness to accept compensation). Max WTP vs Min WTA is something that has been studied a lot. Economic theory says the two measures should be relatively close (both are affected by income). The exceptions may be important, however, as they arise when people have strong moral beliefs that stand in the way of expressing WTP (such as: how much are you wiling to pay to save an endangered species?). There is the further issue that even when both measures are similar, they are clearly affected by income. Markets readily allow our choices to be affected by our incomes – but surveys are typically done for goods and services where markets don’t exist or work well (ecological services, health services, etc.). Should we allocate things using a measure tied to income in such cases?

    A further issue concerns the reliability of surveys that involve WTP. Once you remove incentives to lie (such as, I express low WTP if I think it will affect how much I have to pay – if it won’t, I may have an incentive to overstate my WTP), there is still the question of whether I have an incentive to invest the energy to figure out what I am willing to pay. Choice between A and B seems simpler to me (but is it more accurate?).

    Then there is voting – does choice vs WTP say anything meaningful about voting behavior? I’d be most interested in AG’s thoughts on that.

    After reading the lengthy email sent to AG (and writing my somewhat lengthy reaction), I don’t have the stamina to read the original paper that was cited. I have a hard time believing that one study can hope to unravel all of these myriad facets of these issues. Please, someone summarize it for me.

    • I always enjoy reading Dale’s comments on economics.

      In addition to WTP being dependent on income, we should also consider dependency on *wealth*. It’s the unfortunate situation that a huge number of people in the US have 0 or negative net worth. Among black families it was close to 50% of them with negative net worth just a few years back for example. I think it’s now the median black family net worth is closer to $6000 last I looked but it’s still probably $0 is maybe the 45%tile. Median white family wealth was something on the order of $100k which is a dramatic difference! Even still, there are plenty of white families where net worth is near zero or negative, particularly people straight out of expensive college educations in heavy student loan debt.

      If a homeless guy spent the day panhandling, got $20, and spend $15 of it on food, he now has $5 total. What is his willingness to pay for overnight shelter and a shower and soforth? It’s irrelevant, because no one is willing to accept anything close to $5 to give it to him, or rather to the extent that they are willing to accept that it’s because they are providing charity.

      If instead of a homeless person you’re a black mother of three kids living in subsidized housing and working two jobs, and saving $5/month what’s your willingness to pay for a brake job on your car? It’s irrelevant, because no one will fix your breaks for $5 and that’s all you’ve got extra above and beyond feeding your family and staying in your subsidized housing etc…

      WTP is at best an *asymptotically* efficient way to allocate things, in the limit where everyone has reasonably large enough wealth that any given thing you might do doesn’t wipe you out.

      A major benefit of the concept of UBI is that it places everyone farther away from 0 income and 0 net worth because near zero the information transmission properties of the market are utterly compromised.

      It is also this situation that is the most important aspect of the problem of wealth inequality. As wealth inequality becomes extremely large, the incentive to provide mainly goods and services desired by the tiny group of ultra-wealthy people is very high, and the information flow is compromised.

      Every dollar transaction is essentially a packet of information. When we have groups of people who can’t participate in the market because of lack of money, we also have incredibly inefficient allocation of goods and services, because *that information can’t flow*. Willingness To Pay is only meaningful when market prices are below the Ability To Pay for a sufficiently large group of people that enough transactions do occur.

      Is the price of a brand new sailboat $1M because it costs anything close to $1M to build a sailboat? Or is it so high because the say $200k it costs to build a good functional sailboat is only a quantity of money that extremely wealthy people can afford, and extremely wealthy people all want *luxury* sailboats with “Soft Corinthian Leather”…. ?

      • jim says:

        In my neighborhood, there are immigrants who came to the U.S. utterly penniless and uneducated, worked in low wage jobs, saved money, bought homes, had children, educated their children and retired with enough wealth to remain in the US for retirement. And while doing all that, they still donated substantial resources to help the poor in their home countries.

        It’s no less possible to build wealth in the US than it’s ever been. Unfortunately it still requires the same sacrifice it always has.

        • > It’s no less possible to build wealth in the US than it’s ever been

          well, I suspect that’s not true. We have an economy that has been rigged by corruption and protectionism and subsidy and etc ensuring Monopoly profits for a select group of industries. Healthcare, education, pharma, Telecom, tech gadgets, entertainment, agribusiness, and finance to name a few. We also have incumbency power among homeowners in real estate keeping cost of housing high in coastal areas through zoning and permitting and soforth preventing the production of new housing.

          The drain this causes on the economy is severe relative to a world where those groups didn’t get extraordinary special treatments and get away with the kind of shenanigans in the Panama Papers…

          but sure, it’s still possible to succeed economically, it’s just far easier if you can get special treatment. Also those immigrants who have “retired” weren’t building wealth in today’s economy, they we’re building it in the 80s and 90s and soforth.

          The marginal productivity of labor has gone up over time, but median real wages measured against rent, food, transportation, taxes, education, healthcare and retirement savings, which i consider to be a good measurement basket, have gone down. and labor force participation is at a pretty low point still.

          • Anonymous says:

            Daniel Said:

            “Also those immigrants who have “retired” weren’t building wealth in today’s economy…”

            But people are still doing it. It’s happening.

            “…median real wages measured against rent, food, transportation, taxes, education, healthcare and retirement savings…have gone down.”

            I don’t know that I buy that. For starters, many households now have two full time wage earners vs one earner back in the day. Healthcare costs have gone through the roof because the amount of care people consume has also gone through the roof. And in 1970 most people didn’t have much retirement savings. No doubt taxes are higher because a much higher proportion of tax dollars are spent on entitlements rather than on economic development. And education – if we’re going to expect to educate kids with significant learning disabilities along with the rest of the population, I’m sorry to tell you that’s going to cost a shitload more and return a worse result. If the education system is going to feed and house kids and be their parents too in addition to educating them, newsflash, that’s going to cost more.

            So despite all wealth consumed new services demanded by Progressives, thankfully, the efficiencies generated by corporations have roughly compensated and people can still people build wealth!! Amazing. Thank you, Corporate America! :)

            • You bring up some interesting points that it would take a whole multi-day blog exchange to really touch on, and it’s not entirely on topic etc, but I will point out some issues that should be discussed:

              1) 2 wage earners…

              This is interesting. Back in the day, with one wage earner, only one person was giving up their productive personal time to get money, whereas the other was directly building *real* wealth in their home (real wealth that was *unmeasured*). Now, two people are giving up their productive work time to get money. Unfortunately if the higher earner earns anything like a median wage, then the second earner pays something like 40 to 50 percent of their earnings in taxes depending on the state they live in (~ 15% goes to FICA, 25% to federal tax, 10-15% to state in the form of combined income and sales), and they have to hire people to take care of their kids if they have any… The result? Working a second job is a total losing proposition for the upper approximately half of households. Only poor people work two jobs (because the taxes are lower and the marginal value of extra cash is higher for them), or people don’t have kids (fertility is at a lifetime low)… You might argue that’s their choice, but it’s a choice created by a shitty economic policy (namely the progressive tax code and the excessive regulatory barriers to starting small businesses and etc). Whether real *after tax* income is up or down needs to be decided via actual careful measurement. I strongly suspect that after doing that measurement, you’ll find that american families making between about .5 and 2 x the median household income have lower real income measured against the benchmark I mentioned than in the past.

              2) Healthcare costs… Yes, care consumption is up, but this is a consequence of regulatory capture. Basically regulations have cemented the idea that some of the wages you receive should always come in the form of healthcare granted to you by your employer using pre-tax money. This is good for the bottom lines of healthcare industry because of the principal agent problem: people are spending their health insurance company’s money not their own… or rather people are trying to get higher wages by consuming a thing that has become an earmarked kind of wage… or whatever. It’s still a shitty policy and doesn’t reflect market values and market prices. It is in essence a tremendous way to burn real wealth that is codified into the tax code etc. The real problem with Obamacare is that it didn’t go far enough towards a market based health insurance. It should have actually *outlawed* employer provided health insurance once the state individual markets were in place.

              3) Education: again same as health care. The govt ensures lenders can never lose money, so lenders lend lots of student loan money at low rates. Students, a financially naive group, are induced to spend by borrowing. prices go up… only later do the naive students figure out that all the stuff their parents and counselors were telling them about how education is important and soforth was economically naive… But by then they’re already stuck with lifetime debt, and educational institutions have spent record amounts of money on things like the Louisiana State University “lazy river” water park. This doesn’t represent a market efficiency, it represents government protection of the education and finance industries. It’s practically organized crime.

              4) Efficiencies generated by corporate america…. Yeah no, what corporate america has generated a tremendous amount of in the last 25 years is protection. Copyright extensions, patent trolls, subsidized loans, recording industry suing its own customers, financial bailouts, offshore tax shelters from friendly governments willing to take bribes… etc. Almost all the benefit that consumers see in the last 25 years has come from poor chinese factory workers willing to build cheap consumer products. In the last few years we’ve seen the US middle-men getting cut out of that system via Aliexpress and soforth. You might argue that at least the US is building the technology that enables the production of this stuff… but a huge fraction of the tech that has been generated in the last 25 years has come in the form of Open Source software built collaboratively in many cases in spite of the efforts of people like Microsoft in the 90’s and early 2000’s to try to kill it. Today consumers are the *product* not the customer. Even television manufacturers subsidize their products by spying on the viewing habits of their customers and selling personal information. In the mean time, bad actors are busy stealing this information or using it against people by incorporating stuff like how long the spying network sees you sitting on the couch to set your healthcare prices…

              So, I really think your tale of heroic corporate america is a joke, but it’s not because I think some kind of Progressive utopia would be better… it’s because I think the US specializes in producing rent seeking schemes these days rather than market driven quality goods and services. More *real* market is needed, not less.

        • Martha (Smith) says:

          Jim said,

          “It’s no less possible to build wealth in the US than it’s ever been. Unfortunately it still requires the same sacrifice it always has.”

          You may be correct, if you are talking “on average” — but the possibility of building wealth (as well as the sacrifice needed to do so) depends (as do many things) on the details of who and where. For example, in Austin (where I live), my impression is that it is much less possible for people starting with little wealth to build wealth now than it was in the early 1970’s (when I first moved here), but it may be more possible for people starting with a moderate amount of wealth to build wealth now. A big factor: Austin’s population is much greater than it was then. This means land and housing prices have gone up strongly, and are continuing to grow at a fast rate. This provides good opportunities for the “have’s” to get richer, but much less opportunity for the “have not’s” to get richer –rising housing prices mean they need to spend a much larger proportion of their income for even minimal rental housing, whereas those (including myself) who already own a house or land can just sit and do nothing, but gain wealth nonetheless by luck of circumstance.

          • jim says:

            Martha (Smith) said:

            “You may be correct…”

            Housing prices are rising as fast here in Seattle as anywhere in the nation. Seattle also has among the highest rates in the US for water and sewer. But in 1970 most families had a single wage earner, while today most have two wage earners. And many necessities are either a) relatively cheaper today; or b) much higher quality today. My Honda will last two or three times as long as a 1970 car built by GM and will still cost less to maintain. Clothes are *way* cheaper than in 1970. I can’t find any data on appliances, but the Maytag Repairman really is lonely.

            So on balance, it’s still possible to build wealth. I’ll grant that today it almost always requires two incomes to do it. But it’s no less possible because of that.

            • have you done the math on a second income? Suppose you’re a couple who both have masters degrees and therefore have invested a lot up front to hopefully reap economic rewards at the back end….

              Suppose because it’s the traditional situation, that the husband has a good job with his masters degree, say $100,000 in income, and the wife is say 1 year younger and makes say $90,000 for the moment we’re going to ignore any gender inequality issues… she’s on track to make the same as him, but one year behind.

              Now, let’s examine the woman’s actual earnings potential. We’ll compare the following two situations (childless):

              Woman stays home making food, cleaning, maintaining the house, getting repairs accomplished, etc… vs woman takes her $90,000 a year “upper middle class job”, commutes, the family buys restaurant food, hires a housekeeper, etc. Let’s take an average level of state income tax (washington is not typical)

              After about 8% FICA, 22% federal, and say 6% state income taxes, her income is 57600, now to keep her quality of living relatively constant, her expenses are up by say hiring a $15/hr housekeeper say 4 hours/day or about $15,000 and buying mostly restaurant or pre-prepared food, and more commuting let’s call that another $10,000… So after that, her take home income is $32600 which is *just over minimum wage* here in CA.

              Now she has her first child and needs to buy a lot of child care and soforth… her after tax income is now about $0

              Now she has her second child… although she’s making $90,000 a year in gross income, her net income is maybe – $20,000

              • it looks like I said maybe —- $20,000 but that dash isn’t supposed to be an em-dash it’s supposed to be a negative sign… A woman with an upper middle class job with a husband also with an upper middle class job… after taxes and replacing the value of her own labor in the home (which is consumed tax free) is somewhere between breaking even and losing $20k/yr typically

                Now, I only mention the woman here because it’s traditional and we’re comparing to the 1970’s or whatnot… But a growing number of *men* are in this situation as well, with their wives making a marginal amount more than them, if anyone’s going to go off work to produce directly in the home, it’s going to be them, so if they have children as a family, there’s no efficient way for them to work full time and pull it off, and the efficient idea is for him to give up his $90k/yr upper middle class job and stay home…

                Essentially *every* couple I know with children is in this situation one way or another, be it the wife or the husband, one of them is staying home and keeping things together for the family and maybe doing some small amount of consulting on the side. I can off the top of my head think of 7 or 8 families like this.

                the only highly educated group that makes 2 incomes work is childless couples

              • Andrew says:

                Daniel:

                I know lots of couples with kids where both parents work. That said, I did choose my profession in large part so that, once I had kids, I’d have lots of flexibility with my time.

              • Another piece of the puzzle that I forgot to mention is that the taxes on this two income couple with $190k in income are basically exactly the same as the taxes on a second theoretical couple, one where the primary earner makes $190k and the second earner stays home and entirely manufactures and consumes household utility… But this *second* couple has maybe *double* the real income. First off, they make after taxes around say $150k, second of all they have no childcare monetary costs, third of all they have no extra commute costs, no housekeeper services to procure no restaurant meals to cook…. (my family of 4 spends $50 at a typical single restaurant meal… that’s $4500/mo for 100% restaurant food)

                So, whatever, the two earner family with $190k in gross monetary income from two earners has something like $50k in disposable income, whereas the $190k in gross monetary income with a single earner has something like $150k in disposable income, or about 3x as much…. even if it’s $100k it’s 2x as much.

              • Andrew: I really can’t think of *any* couples with Masters or better education who have kids and both parents work full time jobs, except couples where both of them are doctors earning the highly inflated wages of the healthcare industry.

                I was listing them out in my head and counting off about 8 or so couples with both parents highly educated but only one of them working full time and the other doing usual stay at home parent stuff, or doing some consulting type work for less than say 20 hrs a week typically. In my wife’s biology academic department it’s like every single colleague has a stay at home or at most part time spouse. When the spouse is working it’s often as a lab manager of the primary earner.

                I know a woman with an MD who teaches part time, her husband is a bioinformatics researcher, I know an Obstetrical surgeon whose husband has a PhD in social sciences and he isn’t in the full time labor market, I know a pair of Harvey Mudd educated engineers one of whom left Boeing about 10 years ago and she stays at home with two kids and teaches yoga on the side… I know an architect who quit her job and stays home while her husband works in pharma… I know a pharmacy PhD whose wife has a masters in comp sci and does like 3 days a week 4 hours a day consulting…

                I don’t think all of these people would choose to do this if it weren’t for the fact that they have essentially no good economically sound opportunity to do anything else. In the world of doctors, where the wages are maybe $300k or more each… I know couples where they both work. But that’s basically the only people.

              • Also Andrew, I did some research on this back in 2017. I pulled *all* the ACS microdata, and looked at couples with kids where both parents had high educational attainment… the probability that both parents worked as a function of household income… It plunges significantly as you get into the 100k range. It plunges even faster when the second earner has lower educational attainment.

                the tax code is destroying the human capital of well educated couples, and it’s a submarine issue that no-one is discussing.

              • Carlos Ungil says:

                > Another piece of the puzzle that I forgot to mention is that the taxes on this two income couple with $190k in income are basically exactly the same as the taxes [when] the primary earner makes $190k and the second earner stays home

                Consider these situations:

                1) Alice works full time and makes $190k, Bob doesn’t work

                2) Albert and Betty both work part time earning $85k each

                3) Amanda works full time and makes $140k, Bernard stays at home but does some work on the side and makes $50k

                4) Anthony works full time for $140k and then does as well some work on the side to earn $50k more, Barbara stays at home and doesn’t work

                What would you say it’s the “fair” ranking of tax charges?

              • Carlos Ungil says:

                Of course what I meant was

                2) Albert and Betty both work part time earning $95k each

                and let me add a new one

                5) Ava and Ben both work full time earning $95k each

              • My personal belief is that for a married couple making any 2 incomes A and B, the taxes should be the same as for anyone making A+B… In other words, the tax function *should* be linear. This also makes it extremely easy to administer.

                Of course to combat the ill effects of linear taxes on the poor, we can easily fix this by offering the universal basic income, which makes the effective tax rate *even more progressive* than the progressive taxes we already have…

                http://models.street-artists.org/2017/05/28/the-reality-of-actual-average-taxes-paid/

              • Carlos Ungil says:

                It seemed as if you found problematic that a couple with $100k + $90k = $190k in income was paying basically the same taxes as a couple making $190k + $0 where someone stays home, because the former would have to spend one third of their after tax income in restaurants…

              • No the real problem is that a couple where the second earner gives up an additional 40 hours a week or more to earn X is taxed at the same *excessive marginal* tax rate as the couple where the primary earner has a job giving up 40 hours a week to earn X and then suddenly gets a massive raise to 2X while the stay at home members still gets to “keep” their 40 hours…

                in other words, the progressive tax system is entirely predicated on the idea that if you earn $BIGX per year it’s because one person in your family works earning $BIGX/2000 dollars an hour… which was approximately true in 1940 or whatever, but today is completely wrong.

              • Martha (Smith) says:

                I wasn’t thinking of people with household income $190,000. The median household income in Austin appears to be $57,689 (https://patch.com/texas/downtownaustin/austin-cost-live-comfortably-increase-highest-nation), so you’re talking about high income situations.

              • You might think so, but income needs to be divided by some basket of goods to be compared from place to place… In San Francisco you are at the poverty level for a family of 4 and can qualify for subsidized low income housing if you make less than $120k

                And in any case, a person who has put in say 4 years of undergrad, 6 years of grad school, and 7 years of postdoc and is finally eligible to make say $130k/yr at a biotech company might on paper seem like someone making a fortune to a median $55k/yr Austin resident, but they’re maybe $1M in the hole compared to that Austin resident and the jobs are all in places where the median house price is between $700,000 and $2,000,000

                So the country has a serious economic problem in my opinion, and it’s extremely poorly measured by “traditional” measurement techniques utilized by typical govt economics publications.

              • Also, yes, of course there are different problems for different people who live in different places with different incomes… But they can both be problems, and problems for one group can lead to problems for another… For example, if you’ve overinvested in education, and finally get that high end job you wanted, and then suddenly realize that even though you make twice the median income, you can’t make ends meet after taxes and childcare and need to quit your job… This is a problem for society, because society loses both your $100k of productivity, and the prospective nanny loses the $35-45k that would have gone to him/her if you’d been able to stay in your high end job… and soforth

                It’s not like this is new, econ policy nerds have talked about the problem of progressive tax rates for decades, but it’s become more and more of an actual thing as our society has gone from say 1950 where about 5% of people 25 to 29 years old had completed college and about 55% completed high school… To now, with 30% completed college and 90% completed high school (cite: https://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States ) with most women trying to work for wages.

                Looking at the entire picture, it’s insane that there’s this tremendous energy barrier where it’s impossible to do well with a second earner if the primary earner earns more than about $60k.

                The system we have for taxation, wages, health insurance, etc is broken and is keeping the real economic growth much more limited than it should be, which means everyone earning less than around $300k suffers one way or another, which is more or less almost everyone in the US.

  3. Roy says:

    Wow, someone has a lot of time on their hands!!! But seriously, the link to “The K Foundation burns Cosma’s turkey.” is broken. Shalizi also has a nice discussion of an article about “Economics in the Jungle” (http://bactra.org/weblog/942.html) of how an economy based on coercion. The abstract of the paper he discusses is:

    “In the jungle, power and coercion govern the exchange of resources. We study a simple, stylized model of the jungle that mirrors an exchange economy. We define the notion of jungle equilibrium and demonstrate that a number of standard results of competitive markets hold in the jungle.”

  4. Matt Skaggs says:

    “Krugman routinely subjugates economics to promote a political view.”

    Krugman routinely presents a cooperator’s view of economics. Others present a competitor’s view. It only seems political because cooperators tend to cluster in one political party.

    • I don’t think that’s right, but I’ve long ago stopped reading Krugman so I’m no expert on what he writes… But before I reflexively stopped reading as soon as I saw his name… examples of things he’s said simply *do not follow any logic of economics* or of basic quantitative ideas at all, it’s the kind of thing where he clearly wants to show that things are worse off for some group now… so he shows that there are 20% more people in that group now who have some problem than there were 20 years ago… never mind that the groups size has doubled, so the rate has gone from say 1/1000 = .001 to 1.2/2000 = 0.0006

      This isn’t a direct example but it’s the *kind of thing* I’ve seen which has infuriated me in the past.

      There are other things I am infuriated by in Econ, like the fact that routinely you’ll see basic stuff in intro Econ textbooks like emphasizing the difference between real wealth and dollars (The “Money Illusion”) and then newspaper economists just fail to make that distinction, or simply accept that things like inflation via the CPI are *definitional* for “real wealth”

  5. Michael Nelson says:

    Andrew,

    Willingness-to-pay is the same thing as ability-to-pay, from a pure-market economics perspective. Where do we get the ability-to-pay from? In a market-driven paradigm, we get it by providing valuable goods and services, for which we get money. And why do we put in the work to make money? Because we want to buy things–“want to buy” being another way of saying willingness-to-pay. How can we measure the strength of a person’s willingness-to-pay in a market? Well, more desire leads to contributing more to the market and making more money, money being another word for ability-to-pay. The person who has the money to buy the thing must have wanted it more than someone who doesn’t have the money. So willingness-to-pay ~= ability to pay. You might argue that there are few incentives greater for buying a turkey than starvation, and a rich man won’t starve, so surely the willingness of the poor man is greater than that of the rich man. But in market terms, the rich man had such a strong will to never experience unfulfilled need (including starvation) that he long ago contributed more to the market to get more money to prevent his ever starving. Likewise, if we charged people to vote, then the people who cared the most about electing their candidates would put in the work to get the money to buy the votes.

    This is all very cold arithmetic, not to mention empirically wrong, but that’s capitalism for you–and why I reject pure market paradigms. They ignore real-world factors like not everyone being born to parents of equal wealth, some people having obstacles to participating in the market (mental, physical, cultural) that are beyond their own control, the inherent and infinite value of a human life, people acting against their own rational interests, general luck, etc.

    • Dale Lehman says:

      I have to take issue with this – there is an important distinction between willingness and ability to pay. Both are affected by income (the latter is, by definition, some form of income). But willingness to pay expresses a relative valuation. In aggregate, my willingness to pay for stuff is pretty much the same thing as my ability to buy stuff – but willingness to pay is used as a measure of how much I want particular stuff rather than other stuff. One of the greatest features of a market economy is that willingness to pay mostly guides what stuff gets produced. If people like cosmetics more than organic food, then their willingness to pay guides how much of each gets produced. It may also be true that richer people prefer one good or the other, and that may account for the higher willingness to pay for one than the other. So, it is hard to disentangle whether it is an expression of relative intrinsic valuation or differential access to resources to pay.

      While it is easy to lament the fact that income plays a large part in what our economy produces, I am reluctant to throw out markets are replace them with – what, exactly? There has always been a tension in economics between the generally accepted fact that markets are the best way we have to decide what gets produced and the other generally accepted fact that we can’t let income determine who gets kidney transplants, whether people get enough to eat, etc. Libertarians and socialists often take extreme views on these things – either everything should be left to the market or nothing. I am willing to accept the market’s determination of whether people prefer expensive iPhones to organic produce, but I’m not willing to accept the market’s valuation on whether a rich person gets a kidney transplant rather than a poor person. Deciding where to draw the line between allowing the market to determine things or whether to attempt to remove income as a factor is messy and uncomfortable. I suspect that line will also change over time.

      It would be nice to find a better economic system. The universal basic income is one proposal that offers to remove some of the influence of income while still allowing markets to work. A universal health care system is another option to remove particular sectors of the economy from income-based willingness to pay decisions. I find it hard to generalize when and how much to intervene in market processes, though I am quite comfortable with the idea that intervention is necessary in a civilized society. I would just caution people to not automatically reject willingness to pay because it is obviously tied to income. If we adopt that simple conclusion, then what are we left with? The one system we have experience with that rejects willingness to pay as a determinant of relative valuations is a centrally planned economy, and I’m not a fan of that.

      • Willingness to Accept is also affected by how big the goons are threatening the other guy if he doesn’t accept the terms of the protected party. Apple received over a billion dollars from Samsung essentially for using rounded rectangular corners on their cellphones and for visually indicating to people when they’d reached the bottom of a scrolling region by “rubber banding” the region… Martin Shkreli went to jail for lying to people about his hedge fund, not for the perfectly legal tactic of buying up the production facilities for an out of patent drug and using the legal system to prevent anyone else from selling that drug because they didn’t have approved production facilities, regardless of whether they were producing the drug safely and effectively…

        the list goes on and on, one of the biggest problems with “market” economies is that people work hard to make them nothing of the kind, and to get protection and profit guarantees and subsidies and protection from having bankruptcy erase the enormous loans they give out and soforth.

      • Michael Nelson says:

        +1

        You’re right that the equivalence emerges only at the macro level. Thank you for catching my error–I *almost* had that insight when I started talking about the more aggregate concept of wealth as a means of avoiding “unfulfilled need.”

        Perhaps it would be accurate to say that the market gives greater weight to the willingness of the wealthy, that is, what we end up with is willingness*ability rather than willingness+ability. This idea sort of goes along with what Carlos Cruz was originally saying about the benefit of determining value by charging people to make a choice. In the case of deciding which statistics blog entries should be posted first, you want to give more “spending power” to those with the greatest statistics expertise–i.e., if a bunch of qualitative researchers flood the site, their votes would ideally not count as much as statistics experts, if in fact that’s how you’re defining the worthiness of a post. So we need a way to give more votes to the people whose judgment is better.

        In real life, the market implicitly gives more weight to the value choices of the wealthy, under the assumption that consumers favor the judgment of those who succeed in the market. The upshot is that, in a universe where we allow people to pay for electoral votes, the more efficient strategy is to worry less about having enough money to buy a lot of votes for your candidate and worry more about buying products from the kind of people who support your candidate–or more abstractly, whom you perceive will use your money to wisely select a candidate. Buy from Amazon if you think Bezos has better electoral judgment, buy from Walmart if you think the Walton family votes more like you.

        This would be a perverse system: The wealthy in such a system would spend their money to persuade the public that a) their products are great and b) their political views are great. People would select products based on a combination of these factors, thus “voting with their dollars” for wealthy people who make good products to vote on their behalf for candidates. Come to think of it, this is oddly like Trump’s 2016 campaign–vote for me because I’m a successful business man who has proven his judgment in the market, as proven by the wealth you already gave to me (through advertising) to support my TV show premised on my having great judgment.

    • > But in market terms, the rich man had such a strong will to never experience unfulfilled need (including starvation) that he long ago contributed more to the market to get more money to prevent his ever starving.

      >This is all very cold arithmetic, not to mention empirically wrong

      I take from these two statements that Michael’s point is … on the one hand you have theory: a guy with a lot of money has done a lot for society to get it… and therefore deserves to be able to spend that money to pay for things… while a poor person has produced little and has no real “right” to demand much of anything…

      and on the other hand you have practice: There are lots of parasitic ultra-rich people who have on average reduced the quality of life for others and gotten rich in the process… Martin Shkreli is or was a shining example, Bernie Madoff… those are just the ones who’ve been convicted of crimes in high profile cases.

      But guys like Bill Gates may have gotten where he is by producing some stuff, but he also got where he was by ruthlessly squashing useful companies who afterwards were NOT producing stuff… and he got where he is by exploiting intense long-lasting monopoly protections in the form of Copyright… Even the antitrust lawsuit against MS was a joke, they came out of it with a slap on the wrist for the most part. Today we have Google controlling access to Android apps through their exclusive app store, and Apple doing the same for their platform… we have Copyright lasting a couple of lifetimes, far longer than the typical media on which anything much is recorded, so that we can expect to *never* have public domain access to the bulk of societal intellectual products produced after about 1940 or so…

      The point being, there are MANY MANY ways for people to get rich in the US that *do not* involve producing high quality goods and services at *market* prices… most of them involve getting some kind of government protected monopoly prices.

      • Dale Lehman says:

        I don’t disagree – but, the question is who/how can determine whether someone got rich because they deserved it versus through luck or deception? Any system I can envision to distinguish between the two is fraught with problems (unless you can find a benevolent dictator). Some of the people in market economies get rich because they work hard, are talented, or both? Others got lucky or took advantage. Jim (above) seems to think of the former and David and Martha are highlighting the latter. But both are true to varying extents, and I’m not sure how we can codify the difference. What we can do – and should do – is have rules against particular practices (we are far to lenient regarding deceptive marketing, and in our treatment of market concentration, in my view), and we can do a better job of limiting the ability to pass along wealth from one generation to the next.

        • > What we can do – and should do – is have rules against particular practices (we are far to lenient regarding deceptive marketing, and in our treatment of market concentration, in my view), and we can do a better job of limiting the ability to pass along wealth from one generation to the next.

          I agree with these things, particularly regarding deceptive marketing, and I also argue that we should always be skeptical of government granted monopoly like copyright and patent as well as regulatory capture that can produce effective monopoly or oligopoly.

          Although I think intergenerational wealth transfer is important, it should be limited to something “human scale”. Again I argue for dimensional analysis… set a human scale by use of dimensional scaling: For example 100 years * GDP/Capita/Year/recipient could transfer tax free, and then a large tax on excess, perhaps 75% for example… This would let people transfer wealth to whoever they want but have to spread it among multiple family members, friends, churchgoers, alumni, whatever. Excesses taken in taxes could be used to fund UBI… again preventing concentration of wealth that leads to bad outcomes through loss of informational flow.

  6. Wonks Anonymous says:

    I think the proposal of “quadratic voting” is an attempt to capture the tradeoffs from willingness-to-pay without the inegalitarian starting point of ability-to-pay.

  7. Dzhaughn says:

    “Each link to a page counts as a vote for it. The more votes a page receives, the higher its ranking.”

    Even as a description of what is in Google’s “Page Rank” paper, that’s naive. A link from a highly ranked page counts much more than a link from a low ranked one. Page Rank better resembles accumulation and dispersal of capital, from that perspective.

    Beyond that, who knows whether Google really uses PageRank much anymore? If I was them I would be modeling expected revenue from a search result. We know they relentlessly track behavior. They have said they use page load time in their ranking. There’s also ad hoc interventions, like an artificial boost for Wikipedia matches, just to make the system look less stupid.

  8. Terry says:

    Let’s have a show of hands. Who actually read all of the OP (original post)?

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