September 29, 2005

Externality Debate Continues

Earthevenvesslemz replied to my response here
The Distant Collegian posted an excellent addition to my orignal argument there as well.

Even if Nash's cooperative game theory does provide a precise solution, Earthenvesslemz did not mention, refer to, or argue for it. Therefore, I fail to see how he can claim that a vague reference to game theory equates to a clear presentation of an exact solution. I could equally say that by saying God discussed the problem of salvation in His awesome book the Bible, that I had clearly presented a solution to sin, obviously being Christ's death on the cross. A quick glance over his recent reply once more reveals that he still has not presented any solution, leaving us, within the context of this discussion, as advocating a vague middle ground between socialism and laissez-faire.

Earthenvesselmz argues that the "cooperative system is irreguar". What do he mean by this? If by this he means that cooperation is irregular because not all people seek the same social ideal or personal ideal, then I would say that you are correct and that is the beauty of the laissez-faire system. Under the system, each man is free to determine for himself what he wants society and his life to look like and freely pursue those goals while not being able to violate the freedom of others to do the same by using coersive methods. The problem with ANY middle ground, then, is that it carries with it the implied justification of that coersion based upon a single set of social or even personal ideals which are then forced upon the rest of the nation whether in part or in whole.

As for maximization of the economy, although this is a worthy goal, it is important to remember 4 things:

1 - The meaning of human life is not maximized economies. They are good, but not our purpose for living. Thus, the fact that a specific system may fall short of the maximum possible material production is NOT an issue that demands government intervention.

2 - Because maximization is dependant upon value and value is subjective, maximization is not a concrete state. Various people view maximization differently based on their valuations of various products.

3 - No man or group has the right to define the ideal and force everyone else to follow their ideal. That's why we recognize the divinely granted rights to life, liberty and property/pursuit of happiness in our government. Government is not about maximizing social "good" which requires the previous defining of a social good and forcing everyone else to seek it. Government is about allowing individuals to freely define their own ideal and seek it to the best of their ability while not violating the freedom of others.

4 - The world is imperfect, man is fallible, and the world is indeed fallen. We will not succeed in establishing Utopia under our rule.

September 25, 2005

Response to Earthenvesselmz

Earthenvesselmz commented on my last post here.

Although his comment is interesting and appears to attempt to contradict the conclusion I reached, it does not deal with the arguments I provided in support of my conclusion, and I believe it also demonstrates a misunderstanding of my conclusion itself.

In summary, my basic argument was that externality benefits do not justify government intervention for two primary reasons.

First, government's role is to protect property rights and individual liberty through the maintanance of a legal system. Both are violated by any coercive effort by government to correct for externality benefits, because an correction involves government arbitrarily determining a "social benefit" (violation of liberty/pursuit of happiness) and forcing individuals to pay in some way for that benefit which they otherwise would not have payed for (violation of property rights). To this end, I provided two lawn mowing examples demonstrating the absurdity of the arguments applied. Furthermore, I argued that an externality argument can conceivably be applied to ANY commodity, which means that if the criteria for government intervention is simply an externality occuring, logically, the government must intervene in ALL situations, which is pure socialism.

Second, economic history and theory demonstrate that the alternative, laissez-faire, works much better than socialism. Thus, while in theory, some corrections might be necessary to attain an ideal economy, due to the subjective nature of value (being essentially the average of all arbitrary values attributed to product X by all market players in the case of individual value, and the arbitrary social value attributed to product X by all market players), exact corrections as demonstrated in economic theory are virtually impossible. Furthermore, any estimate of social value depends upon a social philosophy of what society should look like, and thereby any government intervention based upon social value is based upon a social philosophy with the end goal being the forming of society in the image of that philosophy, whether the citizens want it or not. Additionally, it introduces further problems of the majority forcing the minority to conform to their wishes.

For these reasons, I reject the argument that externality benefits demand government correction. Furthermore, I reject Earthenvesselmz argument, which appears to me to be this:

Laissez-faire, under which individuals make decision based purely on their own benefit disregarding the views of others completely, and socialism, under which the government defines a social ideal and forces those under it's control to conform to this image, are both extremes and neither presents an ideal economic situation. The ideal economic system is found somewhere in between, where individual freedom is respected, but social value is taken into account, presummably by government coercion.

Before dealing with the errors specific to the above argument, I must first point out the lack of any specific vision as contrasted with the visions I presented earlier (laissez-faire and socialism). Even if neither is ideal, it is clear what is meant by them. With the presentation of two extremes and the vague argument the somewhere in the middle lies the solution, we are presented with no clear picture of how this middle ideal is to be determine or worked out. Furthermore, no attempt is made to refute the argument I presented dealing with externality benefits which led me to conclude that laissez-faire was the lesser of two evils (socialism and laissez-faire). Namely, a criteria by which externality benefits justify government intervention logically justifies government intervention in ALL cases. Thus, within a simple observation of externality benefits, we are left with only two choices, government intervention in all cases or no cases based upon externalities. Thus, in context, no middle ground was logically offered, and no logical argument to support that ground has been provided by any but utilitarian means, and the utilitarian argument remains clearly refuted by the argument I present that any intervention necessarily justifies all intervention, an evil which even Earthenvesselmz opposed.

Finally, in pointing out the error in Earthenvesselmz argument, I believe it lies in a misunderstanding of laissez-faire. As an economy, it does deal with individuals and their personal valuations. However, no man is an island unto himself. Each of us has contact with other humans, and we value their input and well being. Thus, our true value takes into account both the value to us and possible values within our social network (if it were not so, no games requiring more than one person, such as chess, would ever be sold). Furthermore, a close examination of my proposed correction for externality benefits within the private sector (reasoning and private non-coercive intervention) also contradict Earthenvesselmz mis-characterization of laissez-faire within a larger social structure. The advantages of such a system are four fold. First, it allows for the freedom of individuals in a laissez-faire system. Second, it avoids any coercion. Third, it provides a mechanism for correcting externality benefits. Fourth, the correction is based upon the perceived benefits to third parties, not an arbitrarily determined social value by social engineers. Thus, one would expect the benefitted third parties to apply their reason and resources in direct relation to their expected benefit, arriving more accurately at the true aggrate social value than any arbitrary method is likely too. In this case, I believe Earthenvesselmz has made the common mistake of forgetting that any economic system must reside in a larger social system, and that the social system must not be forgotten if we are to see the complete picture.

September 22, 2005

Dr. Shawn Knabb, my Macroeconomics instructor, remarked yesterday that most economists agree on the basic principles and models of economics, and therefore almost any macroeconomics class (and I suspect microeconomics class) will cover virtually the same material regardless of who teaches them. What economists disagree on is how well markets (and by that, I suspect he means the market model) work and thus what the appropriate policy conclusions are, and that the reasons for this are related to assumptions and views beyond economics. In other words, economists generally agree on the market model. What they disagree on, for reasons external to economics, is the accuracy of the model.

This is doubtless an over-simplification, but in some ways it is likely true. For example, in reading the textbook (which was a grossly over-priced $98) they covered externalities (something we covered in micro as well). The basic ideas of externalities is that a product may have costs or benefits not accounted for in the price. For example, a steel plant which takes in clean air for free and releases dirty air for free costs the surrounding area by increasing respiratory irritants, dirt settling on property, etc. Another example, such as a vaccine, can be seen to have an externality benefit. Those who do not receive the vaccine pay nothing, but receive a decreased risk of getting sick because possible carriers of the disease to them are reduced. In other words, they become freeriders, receiving a benefit from a product without paying for it.

Both examples make some sense and seem like something most people would agree on. The disagreement, however, is in how to deal with the externalities. The first, externality cost, seem easier to deal with. As the actions of the steel mill damages the property of others, it owes them some kind of compensation through the legal system (although, determining the appropriate method of compensation is much more difficult to determine). However, the issue of externality benefits is much stickier. While it would seem on first glance that something should be done, the government has only several options available to correct this "problem". For example, subsidies, public distribution, etc. Unfortunately, all government options essentially involve forcing "free-riders" (those who receive a benefit they did not pay for) to pay for that benefit whether they want to or not. Such forced payment rests upon the idea that a provided service inherently demands a fee.

In other words, if I provide a service for you, you owe me regardless of any agreement between us. The classic argument demonstrating the absurdity of this idea involves the mowing of lawns. Assume that I come to your house and mow your lawn, without your permission or a previous agreement between us. Then, I come to your door and demand $20 in payment. Should you be required to pay? Do you really owe me anything? Certainly, I have provided a service for you. You have benefited without payment. You have received an externality benefit from my efforts and therefore owe me money. The clear answer is no. There is no agreement between us, and therefore you have no right to demand compensation for services rendered.

Some may object that the above example is not a good example of an externality benefit because it is a direct benefit to you, not an indirect benefit of a legitimate transaction between two people. However, consider this variation on the theme.

Your neighbor hires me to clean up his lawn, which is a complete mess. It is so ugly that it has a negative affect on its own property value and on your property value. I clean up the property and receive the agreed compensation from him. However, you have received an externality benefit of increased property value because I have corrected the negative influence of the neighbors mess. Thus, the real "value" of my labor is greater than the compensation received from the neighbor, whose payment represents only the value of the benefit received by him. Acting upon this reasoning, I continue on to your house and demand $40 for my services.

In the above, I put value in quotation marks because I believe that is where the core of the issue lies. The principle of externalities, when applied to public policy involves the pre-empting of personal freedom regarding determination of value. An individual (A) who agrees to pay a vaccination fee of $20 values his personal benefit at $20 or more and therefore freely agrees to pay $20. However, the government decides that the real value of the vaccine is $30 because the chances that another individual (B) will become sick is decreased. Thus, the value of the vaccine is $30 and to correct the production generated by supply and demand by the lower price does is less than the real value to society. To correct this, B is fined $10, which is then given to the provider of the vaccine, signaling increased demand and therefore increased production, allegedly correcting the "underproduction".

When viewed from a "societal" perspective, this appears to make sense. However, when viewed from the perspective of individuals, it makes little to no sense and adheres to the lawn mower counterexamples. The issue then, is one of determination of value. Does society (which inevitably translates into government) determine value or does the individual? This is not limited to a single product. This is really a question regarding the value of any product.

The book attempts to argue that their are products that have no externalities, such as burgers, due to exclusivity of consumption. My consumption of a burger does not in any way harm or benefit you, right? However, while most people would probably agree that this is generally true, it is not necessarily true. Consider this. A burger is generally considered to be a relatively unhealthy food. Thus, consumption could be argue to decrease your value to society, decreasing your output, making you sick, shortening your life, etc. The externality cost then, is decreased benefit to society. Thus, government should step in and "correct" this externality cost with a "fat tax". You may laugh, but the above argument in various forms and arguments of a similar nature have already been advanced for the "fat taxes".

Thus, the real question is not regarding a few commodities, but ALL of them. Logically, if we accept the argument of externality benefits demanding government intervention, a criteria of societal value is implicitly accepted. Thus, the individual loses the freedom to determine his own actions. What he would choose to do is limited by governmental skewing of prices and coerced distribution of resources (your own resources).

Therefore, in this case, it seems to me that my professor was correct. Most people agree on the model. The question is how well the market model works without government intervention, and model evaluation depends upon one's perspective or adopted criteria (in this case, the perspective and criteria of determining value). Thus, the real question here is one of socialism or laissez-faire, public control or private (individual control), communism or property rights. Essentially, to accept government interventions on an argumentation of externality effects is to accept a criteria of social rather than individual valuing of products based on majority decisions and enforcing that choice on all of society.

Clearly, I fall on the side of laissez-faire, private control, and property rights. My reasons for this are 2 fold. First, I believe freedom and property rights are important rights of individuals granted by our Creator, as stated essentially stated by the Declaration of Independence. Second, I believe that both market history and the clarity of the market model do (in contradiction of my professors initial premise) demonstrate that a free market based on property rights and individuals acting in their own interest leads to a much productive and richer economy than a socialist or communist system of "social" (ie. government ownership and control of everything) control.

In closing, one might be wondering what I would recommend we do with externality. The first, external costs, are clear. External costs represent a real cost to individuals, damaging their property and thereby violating their property rights. A free, rights based legal system has built in handling of externality costs, which are more than just externality issues, but issues of property rights as well. However, externality benefits are not property rights issues and therefore not really governments business. If a group of citizens believe the societal value of a product is greater than the current price indicates, they have two options. First, they can convince more people to freely purchase the product based on the social benefits. Second, they can personal contribute private subsidies or extra incentives for the production or consumption of the product.

September 19, 2005

Various Thingamabobbers...

On the 3rd, Cameron and I moved to Bellingham and have been living up here since. It took until a couple days ago to finally get the internet set up, so I have been mostly reading and playing games. Since we moved, I have read:

Hitchhiker's Guide to the Galaxy (all 5 books)
Harry Potter (1-4)

All were pretty good.

On the 12th, we went to Transitions and started registering for classes. So far, it looks like I will be taking the following:

Ada for C++ and Java programmers (1 credit)
Macroeconomics (4 credits)
Chemistry (5 credits)
Linear Algebra (4 credits)

Unfortunately, as most of the programming classes at Western are taught in the obscure language Ada, I can not take to many of the other classes until I learn it. Fortunately, it looks like it should be pretty easy to pick up, but the syntax looks evil, particularly because it is needlessly verbose. One of the things I really like about C/C++ is it's respect of the fact that those using it will be repeatedly typing the same syntax over and over again, and therefore the syntax is a brief as possible. A great example of this is the naming of types, such as int (integer), bool (boolean - true/false), and char (character). Of course, in Ada, the type names are the full word (integer, boolean, etc.). To make matters worse, instead of simply following a specific syntax to declare a function, you have to begin with the word function like so:

function X
random code
end X

Instead of the beautiful simplicity of C/C++:

void X()
random code

Another example of the unnecessary verbosity of Ada is in the if operator:

if condition then
end if;

as compared to:

if (condition)

At least it looks like it has some redeeming features, or I would seriously wonder what illness plagued the Computer Science department at WWU, and if they caught it from UW, where they teach in Java (a thoroughly horrid language which doesn't even have the excuse of being ancient. At least it is widely used though...).

Linear Algebra should be fun though. It will help me understand a lot of the math behind 3D graphics programming, such as that in DirectX and OpenGL, especially the uses of matrices.

As a start at a new college, one of the things that strikes me is how many people I will know on campus as a I start. Not only do I already know my room mate, but serveral people from Edmonds that I know at least a little bit will be here, Joel (Pax) from debate, and a few other people. I even ran into John from Science Olympiad on campus today.

The other interesting thing that happened today was the working on campus workshop that Cameron and I went to. We were the only people there, so we got to chat with the speaker for a bit. Turns out he started at Edmonds Community College like we did and even pursued a Computer Science degree for a while, before deciding that he didn't want to spend his life tracking down misplaced or missing semicolons and decided to major in math/economics. He even said that he and some of his buddies are into computer gaming and have lan parties about once a quarter. We'll have to keep him in mind when we try to start a club on campus.