My Future Self May Agree With Daniel Kuehn…
…but as of right now, his post on “temporal autarky” strikes me as one of the oddest arguments for market failure I’ve ever encountered. (And he’s got stiff competition: Paul Krugman doesn’t like the food that people in England eat, ergo the market doesn’t work.)
Now I feel a responsibility to faithfully reproduce Daniel’s argument, since I think his post may partly be in response to my request in this comment. So let’s let Daniel speak for himself:
You have a better chance of making an economic transaction with someone from North Korea today than you have of making an economic transaction with someone living 100 years from now. We typically think of North Korea as an autarkic regime, so I’ve always felt that it’s reasonable to apply the same term to the future. We are simply not allowed to trade with anyone in the future – even our future selves. This is the problem of temporal autarky.
We have evolved to deal with this. The matter that composes us may extend in all four dimensions of space-time, but our experience of existence has evolved to be an experience of space-time as a three dimensional reality (space) moving along a fourth dimensional track (time). Einstein called this conceptualization of reality a “stubbornly persistent illusion”, but it is an illusion that works decently well for both neoclassical economics and Newtonian physics….
We have one investment to consider as a society that I talk about fairly regularly on here: the exploration, terraformation, and colonization of the planet Mars. That’s a costly endeavor, but also one with important benefits. But benefits to whom? Mostly to people living two hundred, three hundred, four hundred years in the future at least. It would be an adventurous, but not exactly pleasant place to live until at least that time. Now imagine if you lived in 2311, on the Earth. You have the option of living with a single planet civilization or a two planet civilization (with much better access to a resource-rich asteroid belt). You only know Earth now, of course, so you could be tempted to say you’re fine with a one planet civilization, but I think that’s naive. Imagine if half or even less than half of the Earth’s landmass were gone: if there were no North and South America. The world would be much more impoverished place. More places, more people, more opportunities for interaction, trade, and specialization is a good thing. It’s an enriching thing. Go even farther into the future – 2811 – and imagine metropolises on Mars. Imagine two Parises. Two New Yorks. Two Tokyos. Two Rios. Imagine the new cultures that would flourish there. Unambiguously more human civilization is better. Someone from 2311 or 2811 would want to make an investment in the past in this new, expansive human civilization. And in 2311 or 2811 they’re going to be tremendously wealthier than we are, so investing in a Martian colonization effort in 2011 would be a pittance for them.
The problem is, these humans that coexist with us in space-time but exist in 2311 or 2811 rather than 2011 can’t make this transaction with us. We are complex combinations of four-dimensional existence that can only (so far as we know) truck, barter, and exchange in three dimensions. We are living under a regime of temporal autarky, and autarky is impoverishing.
This is why I have substantial doubts about the optimality of a three dimensional market when it comes to four dimensional distributions of costs and benefits. We fake it, of course. We economists are happy to talk about “intertemporal choice”. But that’s not really the right term for what we’re discussing. Intertemporal choice models are actually principal-agent models where our present self is acting both on his own behalf and on behalf of our future self in a transaction, but the future self has no say. Behavioral economists have pointed out that humans generally do hyperbolic discounting (to varying degrees of course). This is discussed as a sort of cognitive bias. Of course what it really is a lack of standing in the transaction for our future selves. Hyperbolic discounting is a major problem for efficiently allocating costs and benefits between future and past versions of ourselves. The problem becomes even worse when we think about allocating costs and benefits between future and past people.
What does temporal autarky imply? Well, let’s think of it in terms of an autarky we’re more familiar with (say, North Korea). What does the autarky of two contemporaries in the United States and North Korea imply? Well for one thing it implies that mutually beneficial exchange can’t occur. So far as we know, we can’t get technology from the future (Sarah Connor probably thinks that’s a good thing). But if we think specifically in terms of direct investment from one trading partner to another, it means that investments that would be beneficial in North Korea and profitable to Americans can’t be made in North Korea.
The same is true of the future. Our faux-intertemporal choice allows us to make a few provisions for the future, but only because we gain some utility from the expectation that some future version of ourself will gain utility. No such transaction can occur between other future humans and ourselves. The conclusion is absolutely unambiguous: the market economy underinvests in the future. Period. The market is by far and away the best institution for allocation decisions we have, but it has certain predictable blindspots and this is one of them. [Bold added.]
OK let’s unpack this in two steps:
(1) The autarky of North Korea is not a “market failure” in the usual sense of the term.
Yes, there are potentially mutually advantageous trades that aren’t occurring between people in North America and North Korea. They aren’t occurring either because of government barriers or because of “real” transactions costs. Either way, that’s not a typical market failure. Either the government is causing the problem, or the problem is due to something “real” that can’t be solved politically. Look, there are farmers who let oranges rot in Florida even though they would be willing to sell them for a penny to people in India, and even though the people in India would be willing to pay 2 pennies for them. But it costs too much to ship them. That’s not a market failure in any conventional sense of the term.
So, if Daniel wants to use the analogy of North Korean autarky to prove that the market fails in intertemporal trade, I’d like him to first spell out exactly how the market is failing us in interspatial trade with respect to North Korea.
(2) The autarky of the future is even less of a market failure than North Korea.
Even if Daniel can get pass hurdle (1), it’s still not clear that he has made his case. It’s at least physically possible for trade flows to occur between North America and North Korea. That is, Americans obviously can send resources into North Korea and build a factory, and the North Koreans can send a stream of goods in exchange as dividend income on the investment. We know that if institutions changed, this type of thing would occur, so in a grand sense I could see Daniel arguing that “the market” isn’t delivering the best of all possible worlds, hence it’s “suboptimal” (even though that’s not the conventional definition of “market failure”).
But with respect to trading with someone from 2081, it’s not only institutionally impossible, it’s literally against the laws of physics (as we currently understand them). Go back and re-read Daniel’s post. He’s not talking about the well-known problems of people today, not properly taking into account their own future utility (which can include their concern for their descendants). No, at least if we take his post at face value, he is lamenting the fact that the market isn’t allowing people from the future to send us stuff in exchange for us investing in ways they would like.
Well, OK, but that is qualitatively less of an objection than even North Korean autarky. By the same token, if people didn’t have to sleep regularly, we could produce a lot more stuff. So clearly there is underutilization of human labor, period. Does anyone like that argument against the market’s allocation of resources?
No one can predict the future, but I find it very unlikely Daniel will sway me on this one.
“But with respect to trading with someone from 2081, it’s not only institutionally impossible, it’s literally against the laws of physics (as we currently understand them). ”
Bingo. NK Autarky is a socio-political constraint (it can change,) intertemporal autarky is a real constraint(it just is.)
I would love to trade my knowledge of what the stock market has done, or how the weather has affected agricultural yields, or the issues that lead to the financial crisis, with a past age. Clearly this would be great – a win-win. Unfortunately, time-travel and telepathy are not possible.
Although, as lifespans increase this becomes less of an issue.
I’m not completely sure what I think of DK’s post, but I’m not sure this critique succeeds. DK seems to be saying market outcomes are efficient to the extent they weigh all costs and benefits, and he’s arguing some significant costs aren’t being included in the market calculus. Seems like a standard externally argument to me. The analogies you offer as reductios don’t work. For example, the orange trade between the Florida and India doesn’t occur precisely because the costs exceed the benefits-not because the benefits aren’t considered.
I’ve talked about it as an externality argument in the past too, yes.
Since those future people will be much wealthier, there needs to be redistribution from the future to the present. Hence greater national debt (if that does, in fact, achieve such redistribution). QED
Bob –
It wasn’t really intended to be an argument against the market. If we don’t want to call it market failure I’m fine with that (I don’t think I called it a market failure in the post). It’s just thinking through the implications of the laws of physics, as you say. The laws of physics are protectionist, and that has consequences which are predictable. What are those consequences?
Projects that exceed the initial investors’ lifespans are already a reality. Ownership of the debt and/or equity simply passes on to the investors’ heirs. Institutional investors with longer time horizons invest in long-term bonds or hold equity that increases in value as projects progress and uncertainty is reduced.
http://www.fool.com/investing/general/2011/02/04/100-year-bonds.aspx
Please point out if I’m wrong, but I don’t think you’ve made the case that there is anything fundamentally different between investing in a 100-year project and investing in a 10-year project. Both cases can involve extended periods where expenses exceed receipts, and both cases allow for debt and/or equity to change hands any number of times before the projects are completed.
Anon – I don’t believe I’ve made the argument that long-term investments can’t or don’t exist. That would be absurd. Have I said that? I highly doubt it.
The sheer rarity of 100 year bonds tells you there is something very different between 100 year and 10 year bonds. And bonds are the simplest kind of investment you can make at that horizon.
“The sheer rarity of 100 year bonds tells you there is something very different between 100 year and 10 year bonds.”
Right, but in degree, not in kind. In a freer, healthier, and wealthier market extra-long-term bonds would be more plentiful and of even longer duration. I’m pretty sure that’s the solution you’re looking for: a freer, healthier, wealthier market.
“A few issuers (such as the Canadian Pacific Corporation) have issued [1,000-year] bonds in the past. There have also been instances of bonds issued with no maturity date, meaning that they continue paying coupon payments forever.”
http://www.investopedia.com/ask/answers/06/100yearbond.asp
Daniel,
It’s good that you are open to realizing that the problem you perceive about intertemporal autarky is not a market failure per se. If I may, I would like to discuss what I strongly suspect lead you to think about this issue the way you are thinking about it. Interestingly, I had the exact same thought experiment a few years back, and it took me a while to work through it in order to arrive at a satisfactory conclusion that made sense to me, not just in the topic itself, but why I thought about it at all.
Let me know if the next few paragraphs are applicable to you.
In general, the motivation for this line of thinking is the very deep rooted tendency to want more freedom. Freedom from all limitation. If there is a barrier or limitation of any kind, we have an almost natural urge to want to free ourselves from them. To transcend them.
These limitations come in many forms. There are political limitations. There are knowledge limitations. There are production limitations. There are limitations everywhere. We perceive those limitations because we can imagine them not being there. You can’t live forever, but you can imagine living for 100,000 years. Because you can’t, that represents a limitation. The more we know about reality, and the world of humanity, it seems the more limitations we perceive. As a child, you have almost no conception of limitation. Sure, there are your parents’ commands, your relatively weak body, etc, but in terms of metaphysics, because you lack knowledge of physical laws, you don’t have a knowledge of what will eventually become limitations in your mind.
The process of learning more about reality often leads people to believe that the truths (laws) of metaphysics represent obstacles and limitations. Even if one accepts that physical laws are what they are, even if one appreciates that fact, even if one finds an intellectual pleasure in knowing more about what is true, there seems to always be that nagging and almost unconscious “rejection” of those metaphysical truths. We humans can perceive 3 spacial dimensions and time, and because we can perceive them, we can at least contemplate and imagine not being limited to living in 3 spacial dimensions and time.
This thought process of transcending metaphysical reality is the same thought process that some of the ancient Greeks, for example Plato, to the neoPlatonists, like Plotinus, to later German school thinkers like Hegel, and materialists like Marx, had when they tried to understand the world. To these and many other philosophers, the world of “things” that exist, or are at least perceived as, separate from the individual human observer, represented metaphysical barriers to “true” being and “true” reality.
Thus, when you consider Earthly affairs like human society, and economics, your standard that you bring to the table is the “limitless” framework you contemplated earlier. You imagine yourself existing outside of time, and contemplating what it is like to live in the years 2311 and 2811. Your mind is free to wander anywhere it wants to go. There is no seeming limitation. Then, the rational part of your mind “brings you back” so to speak, to the year 2011, and then you realize that you, and every other human that is alive right now, is not going to be around in the years 2311 or 2811. These years represent impassible gulfs of experience. Time itself becomes a mental limitation. We cannot trade with anyone in the year 2311. Because of that impossibility, our world through time, and the impassible gulfs between ages, is akin to present day impassible gulfs between “closed off” economies like North Korea and the rest of the “open” economies like the US.
Alongside all of this, there is the second general concept of “information”, whereby “efficient” trading, i.e.”efficient markets”, i.e. “optimal trading allocations”, can only be had if there is full information. Without full information, optimal allocations are impossible.
So taking these two things together, your “top” standard, the one you use to judge the world, and the free market, is one of full information, i.e. omniscience, and no metaphysical limitations, i.e. omnipotence. To the extent that individuals in the free market cannot live up to this standard, it is “lacking” in some respects. Because we cannot trade with our future selves with “omniscience”, we therefore cannot invest with “optimal” efficiency, therefore we “chronically underinvest.”
Your usage of the terms “optimal”, and “efficient” and “underinvest”, all convey that the real world, where we have actual “limitations” relative to, how shall I say this, “God”, we are not doing things as optimal and as efficient as the absolute standard of omnipotence and omniscience.
But what if you were to use a real world standard instead? One where reality actually is 3 dimensions and time, one where we can’t predict or transact with our future selves, and consider this not as a limitation, but as reality itself, and that to think otherwise is not to propose a more encompassing standard, but really what we are doing is REJECTING reality itself, and not accepting it?
For me, reality is not limiting at all, if the standard IS that which we can identify as reality, i.e. a “limitation”.
I propose a simple and to-the-point definition of “market failure”: When voluntary exchange and cooperation somehow allegedly fail, at which point another exogenous group of human beings must allegedly be brought in to “fix” this “failure” with the threat of violence, fines and/or jail and supported by SWAT teams. (I fail to see how the impossibility of our currently being able to trade and exchange with people of 100 years the future fits into this general outline.)
I have just read the chapter on “Labor Based Macroeconomics” from Garrison’s book “Time and Money” and I still haven’t found the proof that there is such a phenomenon as “market failure” (or even an attempt to prove the existence such a thing). Looking at the historical facts, we see the statists labeling situations clearly caused by war and wartime controls and various situations of fractional reserve banking as “market failure” but we see no actual market failure. (One the statists’ latest arguments against “laissez faire” and “free banking” is the alleged example of Australia in the late 1800s. We now learn from John Quiggin that Australia didn’t have much in the way of reserve requirements, so the Austrians win this one too):
http://critiquesofcollectivism.blogspot.com/2011/02/john-quiggin-on-abct.html
In the generic “market failure” scenario, I also fail to understand the source of the unproven assumption that the exogenous group which is authorized to use violence has better knowledge and morals a priori than the voluntarist group that consists of their victims. How could someone know this?
“Market failure” is a clunky term. Usually what’s being referred to is the absence of a market – at least in the case of an externality. The failure is that there isn’t a market (usually for institutional/property rights reasons), not that there’s something wrong with markets.
People get too emotional about this idea, and your comment here is a good example of over-emotionalizing the issue. It’s a shame we can’t talk about markets objectively without people worrying that we’re somehow “against markets”.
I don’t know why you immediately reach for violence and SWAT teams, too. People have figured out all kinds of innovations to address market failures. Not all of them are governmental or violent.
I don’t know why you immediately reach for violence and SWAT teams, too. People have figured out all kinds of innovations to address market failures. Not all of them are governmental or violent.
I don’t “reach for SWAT teams”. Advocates of government programs “reach for SWAT teams” by definition. There is no “third way”.
http://lewrockwell.com/tucker/tucker195.html
One of the most promising solutions to the “market failure” being discussed here (and again I stress that I never refered to it as a market failure in my initial post) is that some billionaires start to think critically and care about the long-term future of human civilization, and they make these investments themselves. That has nothing to do with the violence and the SWAT teams that you’re talking about, but it’s a way around the fact that future generations aren’t a party to our investment decisions.
One of the most promising solutions to the “market failure” being discussed here (and again I stress that I never refered to it as a market failure in my initial post) is that some billionaires start to think critically and care about the long-term future of human civilization, and they make these investments themselves.
You mean sacrificing their life and happiness for the sake of the unborn?
I consider Tragedy of the Commons to be a classic market failure.
Except tragedy of the commons applies to government (public) property. It’s not even related to markets.
*Slaps forehead*
That is something I have carried with me since Business Ethics over 10 years ago, and clearly I missed the point. I can’t believe I got that so twisted around!
“The conclusion is absolutely unambiguous: the market economy underinvests in the future. Period. The market is by far and away the best institution for allocation decisions we have, but it has certain predictable blindspots and this is one of them.”
I don’t particularly agree with this and I refer everyone to this great, but dated, interview with Doug Casey (http://www.caseyresearch.com/cwc/doug-casey-technology) on technological progress, colonizing other planets, the Singularity, and how the government is regulating so much it is destroying the ability to accumulate capital for such grand endeavors.
To identify one source of underinvestment is of course not to suggest there are no others.
That clearly wouldn’t follow.
“Temporal autarchy” is a ludicrous term. It conflates man made facts (autarchy) with metaphysical ones (temporal) and it smuggles in a presumption that man can/should be omniscient, which is a mystical standard to apply to ones volitional choices.
Applying this term to any reasoning of human choice and actions, economic or otherwise, corrupts the entire process and the only consideration one should give to it is its identification prompt dismissal.
Don’t put words in my mouth, please. There isn’t even a hint that man can or should be omniscient.
“Autarchy” is different from “autarky” btw.
Are these not your own words?
“The conclusion is absolutely unambiguous: the market economy underinvests in the future. Period.”
“underinvests” by what standard? by the standard that you somehow know in advance what a “proper” investment is and should be and estimate that investments now are insufficient.
that is nothing less than a mystical standard of omniscience.
autarchy or autarky, the fact still remains that both of these terms apply to a human condition based on choices made by volition and hence are not the same as the condition of time dictated by existence itself.
RS – point me to where I said I know in advance what a proper investment is before you accuse me of it.
Now your just being obtuse.
your conclusion that a market economy, which is really just a bunch of people making choices based on what they know, forever and always “underinvests” because people cannot make the choices that they should be making because they lack information about the future (a metaphysical fact), this necessarily implies that a “proper” or “sufficient” investment can only be one where people can make choices based on information they can never have, that is smuggling in an omniscient standard through the back door. Proper and sufficient in this context can only be achieved by someone who can overcome metaphysical fact and gain knowledge of something before it has actually happened.
That is naked mysticism; you may as well call for divine revelation as a prerequisite for any “proper” economic choice. The fact that you think a central planner can do this but not a free market participant is just a bias you have towards statism and collectivism, not individual rights and freedom.
RS this is not my argument. It’s not a lack of information that is the issue. That sort of uncertainty about the future of course exists and has consequences, but it was never an issue I raised in my post.
Please don’t call me “obtuse”, and please stop calling me “mystical”. If you’re just going to do that I’m not going to bother reading what you write anymore.
if the shoe fits
And I never said a central planner could make proper economic choices. That, along with statism, is completely anti-thetical to my worldview.
By arguing that the market (or more accurately, the human race) “underinvests, period” you are implying that we underinvest relative to some standard where there is no underinvestment, where there is a “optimal” quantity of investment.
Well, by even introducing such a standard of optimal investment, either you hold that standard as metaphysically real, in the sense that it is in principle possible to achieve in the real world, or else it must be a supernatural out of this world realm where the only entities that can “optimally” invest are those with omniscience, i.e. Gods.
It’s not necessary that you explicitly state this omniscience standard before you can be said to be espousing it. It logically follows from what you are arguing when you say that the real world of mankind cannont help but “underinvest”….”period.”
RS is correctly interpreting your arguments. They are in fact mystical. For some reason, you want to deny that you are being obtuse when feigning ignorance as to the logical conclusions of your arguments.
Cannot you not even see what you are saying? You are smuggling in a mystical standard for human existence. You are in fact claiming that because humans are NOT omniscient, we cannot “optimally” invest. We are forever going to “underinvest” relative to that omniscient standard.
If you instead held REALITY to be the ultimate standard, then you would not have concluded that our inability to live outside of time, and to trade with our future selves directly, somehow constitutes humans “underinvesting”. You would instead conclude that the optimal rate or quantity of investment is that which humans voluntarily decide to do on their own terms given the reality of what it means to be human, which is that we are not omniscient.
wow, thank you Major!
Don’t put words in my mouth, please. There isn’t even a hint that man can or should be omniscient.
No hint? There are LOTS of on the face hints that you are doing exactly that. By saying that man “underinvests, period”, you are saying that we underinvest relative to a particular standard. In this case, it is an omniscient entity that has full information about the future, and thus invests in the present “optimally.”
We humans underinvest relative to that standard.
However, if the standard is the reality of human life, and not omniscient investors, then we DON’T “underinvest” at all.
I repeatedly use the example of SWAT teams as a teaching device. In the Rothbardian world, if action is voluntary, then it is “the market”. Problems of human existence can be (and should be) solved with voluntary action. Statist economic policies MUST involve the state and the threat of violence. Otherwise, the activities are voluntary and part of the market process. If one does not obey a statist diktat, eventually a group of armed cops or soldiers will appear to arrest you. That’s what states do and that is what Keynesian policies ultimately rest upon. All I’m trying to do is point out that Keynesians cannot locate in logic or history the justification for their call for SWAT teams to solve problems that do not exist and that SWAT teams are the essence of their solution. And I’m trying to draw out an explanation as to why the people running the SWAT teams are smarter and more moral than their voluntarist victims. And how can they possibly know this generically in advance of familiarizing themselves with particular groups of individuals. And how the voters who are too dumb to manage their own lives in the market are smart enough to know for whom to vote as their overseers.
38 years of being an Austrian and 38 years of trying to establish simple definitions with statists. I’m getting exhausted.
I repeatedly use the example of SWAT teams as a teaching device.
It doesn’t seem to be a very effective one.
This can only be known to be true if there is no informational temporal autarchy; however, there is. Basically, Kuehn’s argument boils down to this- if we knew what the future would bring, we could make the right investments today, which is a trivial argument.
re: “Basically, Kuehn’s argument boils down to this- if we knew what the future would bring, we could make the right investments today, which is a trivial argument”
No.
I specifically link to Bossie to point out that this is not my argument.
When I read:
“The same is true of the future. Our faux-intertemporal choice allows us to make a few provisions for the future, but only because we gain some utility from the expectation that some future version of ourself will gain utility. No such transaction can occur between other future humans and ourselves. The conclusion is absolutely unambiguous: the market economy underinvests in the future. Period.”
This argument clearly states that only if we know the future exactly, where can in the present trade with our future selves, then and only then will we NOT “underinvest”, but “invest in just the right amount.”
Yancey is also interpreting your arguments correctly.
But you are linking an assertion to your argument- that the present is underinvesting in the future by definition. Without this asserted knowledge, your argument is trivial. With it, your argument is nothing more than an opinion, right or wrong.
Daniel, you’re right, you didn’t use the term “market failure.” But you said markets underinvest in the future (period), that the market allocates things quite nicely in some contexts but not in this one, and in the previous post, you specifically said you see a need for government intervention. So I don’t think we’re being paranoid in taking this as a “market failure” argument. Plus, in the comments here you endorsed the use of the term “externality.” Well, if there’s an externality (unless there’s an exactly offsetting one) then there’s a market failure, the way those terms are conventionally defined.
Now on to the substance: You need to please spell out exactly why we underinvest in the present. If a billionaire did it, that would not be a Pareto improvement, the way you’ve outlined the “problem.” No, the billionaire today would be worse off–according to his preferences–and the people in 2811 would be better off, according to their preferences. It’s not a Pareto improvement then for the billionaire to invest more than he is right now. Rather, it would transfer consumption out of our hands and into the hands of the ga-jillionaires in 2811.
Your point is that it *would* be a Pareto improvement, if the gajillionaires in 2811 could time-transport back a hover car or something in exchange for the billionaire paying $1 million to scientists today to start groundbreaking research in terraformation. Right, just like it would be a Pareto improvement if I could cure cancer by staring at people for 3 minutes really intently, and they gave me $1000 for every such cure I performed. But I can’t do that physically. So is the market underinvesting in cancer cures today? Does the market work well in resource allocation, except when it comes to terraformation research and my Good Eye cancer curing?
My point is only that if it makes you uncomfortable you don’t have to think of it as a market failure. You seem to identify market failures with attacks on free markets or second guessing free markets, which obviously I don’t want to do. If calling physics protectionist instead of identifying market failures alleviates that, then fine. Some people just read a lot of ill intention into discussion of market failure.
I’ve never loved the term “market failure” myself anyway. For something to fail it implies it’s goal oriented or sentient which is an odd way of talking about the market.
As for your billionaires and jillionaires – the whole reason why these transactions don’t occur is that the jillionaire can’t compensate the billionaire. If they did we would certainly have Pareto-improving transactions.
My point is only that if it makes you uncomfortable you don’t have to think of it as a market failure. You seem to identify market failures with attacks on free markets or second guessing free markets, which obviously I don’t want to do.
Daniel, you should have been aware of the terminology. The phrase “market failure” was developed, and is used by, anti-capitalist intellectuals, who use that phrase to justify government intervention in the economy. The term market failure means that there are allegedly failures in the free market economy that only central planning can solve.
Why did you say MARKET “failure” specifically, instead of what you are actually referring to, which is METAPHYSICAL REALITY OF HUMAN LIFE “failure”?
Major_freedom, I can’t anticipate all your sensitivities. “Market failure” is not an inherently anti-capitalist idea. It simply isn’t.
Daniel wrote:
“…the market economy underinvests in the future.”
Investments are based in part on investors’ tolerance for risk and uncertainty. To say that there is underinvestment in the future is to say that investors have misjudged the risks and uncertainty inherent in extra-long-term projects. However, it is the investors themselves who are in the best position to make these judgments,
Furthermore, the market already works to allow for greater risk tolerance in investing. As wealth is increased and a larger proportion of income is invested rather than consumed, marginal units of saved capital are put to work in projects of longer duration with higher levels of risk and uncertainty.
Risk and uncertainty are definitely important to consider – I talk about them all the time.
There’s a difference between a risky transaction that can occur and a transaction that can’t occur, though. You’re talking about an entirely different problem than I am.
Hmm… I understand your point that people can not transact with future versions of themselves, nor can they transact with people who do not coexist with them in space-time. What I don’t understand is how you get from that observation to the claim that there should be more investment in terraforming Mars (for example).
When investments are freely chosen to maximize the utility of current investors the situation IS optimal – from the perspective of the investors. Are you claiming that future (currently nonexistent) people have some sort of ethical claim on the capital of present people?
Well from that point we can pretty safely conclude that there is less investment in the future than would be optimal.
Exactly what form that oughta take and how you’re going to compensate someone is a much trickier issue. Between terraforming Mars and present consumption, it’s pretty clear that the terraformation of Mars is artificially overpriced due ot the nature of space-time. Between terraforming of Mars and other long-term investments the tradeoff is unclear.
That means we’ll make mistakes – but I don’t think the fear of making mistakes ought to induce paralysis.
“we can pretty safely conclude that there is less investment in the future than would be optimal. ”
NO, you can’t. “Optimal” is not based on any actual standard, only a potential one that you have spun up with moonbeams and pixie dust.
The future does not yet exist, that is an undeniable fact so it is nonsensical to say that a choice made today is always “insufficient” based on what you cannot know.
Am I the only one here will to state that DK has no clothes?
oops, I meant to say “willing” not “will”.
re: “The future does not yet exist, that is an undeniable fact”
WOW. Really? Is science education in this country really this bad?
What type of physics are you going by here, to say it’s trivially obvious that the future does exist.
That would make sense in a timeless formalism, such as Gary Drescher and Julian Barbour’s timeless physics, which simply takes the time-independent Schoedinger equation of amplitudes over configurations as being fundamental reality.
But I didn’t think you were taking that view, in which the concept of time travel is not just “interesting but impossible”, but a confused understanding in toto — like talking about two congruent triangles where one is bigger.
So in what non-trivial sense do you lament the impossibility of time-travel?
what kind of “science” do you practice then? the kind that makes no distinction between the actual and the potential?
you seem to think that every potential fact is an actual one and must be met with equal consideration or risk being accused of “under” investing in the future.
“Well from that point we can pretty safely conclude that there is less investment in the future than would be optimal.”
Optimal from whose perspective: present investors or future beneficiaries of present investment?
“…it’s pretty clear that the terraformation of Mars is artificially overpriced due ot the nature of space-time.”
I think it is more accurate to say that the terraformation of Mars is PRICED due to the nature of space-time. The price is not excessive, nor is it artificial. It is born of natural constraints.
If someone figures out how to change the nature of space-time, the price of terraforming Mars may well come down, but as things stand presently, Newtonian pricing is optimal.
I don’t want to pick sides here, but in overlapping generations models in which some households die and others are born, the competitive equilibrium is not Pareto optimal precisely because markets are incomplete – future households and past households can’t trade. This is often described as market failure.
Hawk30, yes I remember studying those OLG models and they made sense insofar as they went. I am making the much stronger claim that (as far as I can tell) Daniel isn’t even proving “market failure” on those grounds.
In the OLG models, if the government institutes Social Security (or whatever) then everybody in the model gets more utility, so that’s why the non-interventionist outcome is Pareto inefficient. To wit, there is a *feasible* rearrangement of the use of resources that makes everybody better off, according to each person’s subjective preferences.
In Daniel’s case, he is saying that right now Bill Gates should care more about the future than he actually does. So Daniel wishes the government would take money from us and invest more of it for space colonization than anybody wants to do right now. This is not a Pareto improvement. The people who are being forced to invest more are going to have less utility, while the future gajillionaires will have more.
Again, Daniel, if I’m misrepresenting your position I will retract this. But so far you haven’t shown me how people today will be better off if they change their behavior. That’s what you need to do, to show that the market is misallocating resources.
(For example, if global warming is really a threat, then in theory the people in Bangladesh would be willing to pay the emitters of CO2 to get them to emit less. So the current outcome is not Pareto efficient, the way mainstream economics models things. But Daniel seems to be saying something qualitatively different in my opinion. It would be like saying, “If the people of Bangladesh could create computers with their mind, then they would be willing to pay Americans with new computers to emit less. Hence, Americans in the real world right now are emitting too much, and it’s just the laws of physics holding us back.” That seems way different from the standard global warming-type argument.)
re: “So Daniel wishes the government would take money from us and invest more of it for space colonization than anybody wants to do right now.”
Well, I actually said “society” not the government. I’m clearly comfortable with a government space program and I’ve discussed it elsewhere, but there’s nothing about this particular post that of necessity leads to a government solution.
I want society to solve its problems. The market has a blindspot on this problem. I think government is one OK way of society solving its problems. Others disagree – but the disagreement is over other issues.
re: “But so far you haven’t shown me how people today will be better off if they change their behavior.”
Right!!! That’s WHY they don’t change their behavior. Market solutions to social problems require compensation, and compensation isn’t possible in this problem. Now, some people today will of course think they’re better off to change their behavior – they like the idea of working on these projects. But it’s not the market that’s organizing that action. Some – like Elon Musk – have a mix of vision and dedication on the one hand, and the hopes of some shorter-term profits on the other. That combination is good too, obviously.
DK: I realize you are trying to avoid the lectures from Bob Roddis, but please stop denying that your past self invoked the government. From your DARPA post:
“It’s precisely this temporal externality that frustrates me so much and the best I can come up with is a government solution. That is riddled with problems itself, of course.”
See? I’m not putting words in your mouth. I grant you didn’t have a SWAT team in your mind when you typed that. 🙂
Right, but the point is more general. You can accept temporal autarky without accepting government. Bob’s citing SWAT teams to refute a post that doesn’t invoke government isn’t all that convincing.
It isn’t all that convincing even when I do invoke public collective action, but it’s certainly not a case against my point about temporal autarky.
A pet peeve of mine for 36 years:
Shanahan:
“Professor von Hayek, your fellow Nobel laureate, Professor Leontief, is an advocate of planning, and two of our prominent Senators, Humphrey and Javits, have introduced legislation to implement his idea, which is largely a matter of study by various government agencies and recommendations, not.. nothing compulsory. Do you see in that kind of planning the same dangers that you see in a more mandatory form?”
Hayek:
“Well if it’s really nothing compulsory, it would also be completely uneffective and therefore would do no harm. I think there’s a very simple answer. It really imagines that somehow people are being made to do what he is planning.”
Shanahan:
“The thought, I believe, that they have expressed is that such things as foreseeing shortages of industrial productive capacity could be highlighted, and the industries encouraged to go ahead with building new plants, that sort of thing. Does…do you encompass that in your thought that it would be completely ineffective?”
Hayek:
“But why call that planning? If you can give industry better information, by all means do.”
Shanahan:
“Can we then say you would support that legislation, despite your fears of planning?”
Hayek:
“Well, there’s nothing to do with planning.”
http://www.johnlocke.org/fmm/display.html?id=5206
One thing I found interesting about the DARPA RFI is that they specifically want ideas that avoid public involvement. I think that’s naive of them, but it was interesting to see that.
But then again… should we trust the black-helicopter/black budget people when they say they don’t want government involved?????
Daniel thinks the market underinvests in the future and I think it overinvests in the future. What do we do now?
A short, and to the point, point. I like it. It shows in the most precise way the problem with Kuehn’s entire argument.
Care to elaborate?
What problem does this showcase?
The comment does preface a potential future debate over public provision, but it doesn’t speak at all to the fundamental externality (or effective protecitonism, if you prefer) that I highlight (which is why I wasn’t quite sure how to respond to Avram initially… it struck me as something of an underdeveloped non-sequitor).
I don’t understand why the term autarky (the quality of being self sufficient) is being introduced here. I think we can all acknowledge the nature of the future — namely that our future descendents have exactly zero way of altering the past.
So of course we cannot “trade” with our future descendents.
It’s seems clear to me that you want to use this “interesting” fact to promote the idea that we are underinvesting in the future. I am curious how you think society should respond if we are, in fact, overinvesting in the future.
Thanks, and I appreciate your gracious presence in the economic blogosphere.
I recanted below – I think it’s probably better to say that externalities are exascerbated. Some things are going to be underinvested in, and some overinvested.
Why, it showcases the pretense of knowledge of course.
The point goes to your assertion that the present underinvests in the future. How can one possibly know that? Indeed, the assertion itself is entirely subjective.
As far as I can tell, no is denying that investment in the future is clouded by a lack of foreknowledge- except for you. Talk about a blind spot.
How can one possibly know that? Indeed, the assertion itself is entirely subjective
Bingo. Daniel is subtly and implicitly claiming to speak on behalf of an omniscient deity, who looks down on humanity, and knows the past, present and future, and then sees that because humans cannot see into the future, they cannot trade with their future selves, and hence they “underinvest” according to the opinion of that omniscient deity.
Daniel is going through what Professor Tucker characterized Hegel went through his adult life, which is severe and cosmic solipsistic megalomania on a grand and massive scale:
“For Hegel alienation is finitude, and finitude in turn is bondage. The experience of self-estrangement in the presence of an apparent objective world is an experience
of enslavement… Spirit [or the world-self], when confronted with an object or ‘other’, is ipso facto aware of itself as merely finite being, as embracing only so
much and no more of reality, as extending only so far and no farther. The object is, therefore, a ‘limit’. (Grenze.) And a limit, since it contradicts spirit’s notion of itself as absolute being, Le., being-without-limit, is necessarily apprehended as a ‘barrier’ or ‘fetter’. (Schranke.) It is a barrier to spirit’s awareness of itself as that which it conceives itself truly to be – the whole of reality. In its confrontation with an apparent object, spirit feels imprisoned in limitation. It experiences what Hegel
calls the ‘sorrow of finitude’. The transcendence of the object through knowing is spirit’s way of rebelling
against finitude and making the break for freedom. In Hegel’s quite unique conception of it, freedom means the consciousness of self as unbounded: it is the absence of a limiting object or non-self…This consciousness of ‘being alone with self’ .. .is precisely what Hegel means by the consciousness of freedom…Accordingly, the growth of spirit’s self-knowledge in history is alternatively describable as a progress of the consciousness of freedom.”
re: “Daniel is subtly and implicitly claiming to speak on behalf of an omniscient deity”
I’m not claiming this at all. Why are you guys so freaking quick to reach for “oh you think you know and can plan everything”. When have I ever made a claim anything remotely like that. You should completely remove this from your rhetorical lexicon.
I’m not claiming this at all.
Yes, in fact you are. You might not have intended it, but that is exactly what follows from what you are saying.
Why are you guys so freaking quick to reach for “oh you think you know and can plan everything”.
Who’s freaking out? By saying that humans, due to not being able to invest like a deity, cannot help but “underinvest”, you are speaking on behalf of that deity.
When have I ever made a claim anything remotely like that.
Your posting that Bob quoted. “The market underinvests. Period” etc.
You should completely remove this from your rhetorical lexicon.
You should completely realize what you are saying and stop denying saying what you are saying.
cont’d When have I ever made a claim anything remotely like that.
Then there is this comment:
“I want society to solve its problems. The market has a blindspot on this problem. I think government is one OK way of society solving its problems. Others disagree – but the disagreement is over other issues.”
How you can claim to not have said “anything remotely” to state control or central planning means you’re either not even reading what you are writing, or when you write “government,” you don’t mean the government that everyone has in mind when you say government.
Daniel thinks the market underinvests in the future and I think it overinvests in the future. What do we do now?
Well, Daniel gave a reason for thinking that the market underinvests in the future. Do you have a reason for thinking it overinvests?
Well you see Daniel is saying that colonizing mars would be a great thing and that the market should invest more in it. Well I think mars will blow up in three years so I see the small amount of investment going into that goal today as too much. Ergo the conclusion is absolutely unambiguous: the market economy *overinvests* in the future. Period.
I don’t really think this, of course, but I don’t have to to prove my point. The point is there is no such thing as a riskless future, and that one guy saying “well the future could be like this if we did this, so what we are doing now is not optimal” carries as much weight as some other guy saying the same thing but with different terms, and I think that differences in valuations like this are handled optimally by markets.
Daniel seems to conceptualize the future as belonging to some set of “future states” some “better” and some “worse” than others (as measured by oppurtunities for trade) and in this sort of framework it is simply a matter of choosing the right one, and there is no risk, just choice. His point is that presented with these choices the market systematically chooses incorrectly. But even in this framework he doesn’t actually know that, maybe it is choosing perfectly correctly all the time, how would Daniel know? Like I said I am pretty sure mars will blow up in three years so he can’t just point to the lack of space exploration programs to prove me wrong. And thats the entire thing no one knows what the right choice is, he doesn’t, I don’t and you don’t, because the future is uncertain.
So just saying “its so obvious the market is underinvesting in the future, we could have a whole ‘nother civilization on mars to trade with by now” doesn’t cut it, cause I can say its overinvesting and be the *exact same* amount of correct.
It might be a technological failure that we do not have perfect future prediction machines that tell us exactly what will happen with our future investments, but it is not a market failure.
Avram,
Suppose there are two towns nearby each other, but separated by a giant canyon. Someone in the first town might say “you know, if there were a bridge over the canyon, people in our town could trade with people in the other town, to the benefit of both. It’s too bad there’s no bridge between the two towns.”
Saying “oh yeah? Well I think the other town will explode next Tuesday,” is not a great response.
Blackadder wrote:
Suppose there are two towns nearby each other, but separated by a giant canyon. Someone in the first town might say “you know, if there were a bridge over the canyon, people in our town could trade with people in the other town, to the benefit of both. It’s too bad there’s no bridge between the two towns.”
Saying “oh yeah? Well I think the other town will explode next Tuesday,” is not a great response.
Right, you are being fair to Daniel and giving him the benefit of the doubt.
But continue with your scenario Blackadder. There’s no bridge between the two towns, or rather, there’s a one-way bridge. Town A can send stuff to Town B, but not vice versa.
Everybody knows if the bridge went both ways, then there’d be a lot of trade and both towns would be richer.
Now, did I just prove that Town A (which is .0001% as wealthy as Town B, btw) should send more stuff unilaterally over to Town B?
Bob,
I think your criticism of Daniel is right on. If we could trade with the future that would be wonderful, but short of building a time machine we can’t actually do that, and there’s no substitute course of action that will solve the problem.
Except we are talking about the future so its actually like that there is just one town and one huge canyon and *no one* knows whats on the other side (you see this was my whole point) and then one guy says “well if we build a bridge over this canyon we will be able to trade with whatever is on the other side” but no one knows whats on the other side, it could very well be nothing!
Except we are talking about the future so its actually like that there is just one town and one huge canyon and *no one* knows whats on the other side (you see this was my whole point)
Suppose I say “sunrise will be around 7:00 am tomorrow, local time,” and you respond “tomorrow the sun will explode.”
They are both statements about the future. Yet we can be pretty certain that the first statement is true and the second is false.
So it’s not really the case that we know nothing about the future. There’s often more uncertainty about it than about the present, but that doesn’t really affect Daniel’s point.
And to further this analogy saying “oh yeah well I think there is nothing on the other side” is not unreasonable at all.
And, blackadder, as I mentioned but I want to spell it out now, you missed the entire point. It is not that I actually think the market is overinvesting in the future, just that saying so can only be a guess, and that Daniel saying it underinvests is only a guess too, no matter the quality of the reasons he gives for thinking so, unless he can see into the future (and still be able to change it?)
I have another unrelated criticism of Daniel’s position too. Namely his approach is one sided he is looking at all the things the market isn’t investing in that could turn out profitable in the long run. By the same token you can identify the opposite “failure” by pointing out all the things the market *is* investing in that will turn out bad. So if you want to go down the false road of thinking in these terms, even there I don’t think Daniel’s argument holds much weight.
you missed the entire point. It is not that I actually think the market is overinvesting in the future, just that saying so can only be a guess
No, I understood your point. I don’t think it serves as a refutation of what Daniel was saying.
Every trade or exchange involves some degree of guesswork on the part of the trading parties. It doesn’t follow that all guesses are the same and that an educated guess is equally valid as a guess you just pull out of your ass.
Ok, I agree with this and what you wrote above too, and have said as much myself elsewhere.
But I don’t see how that invalidates my criticim, at all.
How does what we would do if we could trade directly with future societies have any bearing on what we should do now?
There are an infinite number of areas where investment would be different if the facts were different. If we shared the earth with a civilization of man sized spiders that had intelligence rivaling our own we would invest more in all manner of arachnid related ventures. Does this unambiguously prove that businesses should be doing more to reach out to the man sized spider demographic?
The hypothetical effects of the mutually beneficial trade between present and future individuals clearly tell us nothing about to what extent, if any, third parties should be imposing costs on present individuals so as to potentially provide benefits to some unknown collection of future individuals.
I note too that typical of a Keynesian Daniel thinks in crude aggregation terms and as a result misses what is really important. The quality of civilization is to me, and I would venture this was the same for most people, far more important than the quantity of civilizations that exist. Even assuming we could guarantee the future flourishing of more civilizations we have absolutely no idea what they would look like. For all we know we could be decreasing our own quality of life all for the benefit of a group of people who practice slavery, eat children and listen to jazz fusion.
The quality of civlization, the opportunity to truck, barter, exchange, specialize, form relationships, extended experience, explore, learn, etc. is all I am interested in here, teqzilla.
Don’t refer to my thoughts as “crude” when you clearly have such a poor understanding of my thought.
People can only go by what you say in writing.
Which is exactly why they should take the opportunity to do that and not make shit up.
It takes effort to engage people who think differently. When I get insulted and accused of statism or central planning I seriously reconsider whether that effort is worth it.
Which is exactly why they should take the opportunity to do that and not make shit up.
Nobody is making shit up, Daniel.
It takes effort to engage people who think differently.
You’re not thinking “differently.” Many people have thought exactly like you are thinking throughout history.
http://consultingbyrpm.com/blog/2011/05/my-future-self-may-agree-with-daniel-kuehn.html#comment-16911
When I get insulted and accused of statism or central planning I seriously reconsider whether that effort is worth it.
When you make statist, mystical, or central planning advocacies, then well…
…the shoe fits! lol
Daniel’s post reminds me of the Douglas Adams story Young Zaphod Plays It Safe:
A man invents an aorist rod to mine energy from the past, and within a year tracts of the past were being fully drained. Those who complained were accused of an “extremely expensive form of sentimentality”, as the past was a cheap, clean and plentiful source of energy. Anyone who said “draining the past impoverished the present” was told to “keep a sense of proportion”.
Only when the people realised that the “selfish plundering wastrel bastards up in the future” were doing the same thing to their era were aorist rods banned. “They claimed it was for the sake of their grandparents and grandchildren, but it was of course for the sake of their grandparent’s grandchildren, and their grandchildren’s grandparents.”
Daniel, I’m “down here” because I want to start fresh, as it were. I understand your frustration, since some people above are misconstruing your argument. But I think I know what you are saying, and I still think it’s wrong…
You have noted that people in the present don’t take into account the fact their investments in Mars research etc. could benefit the people in 2811 (because those people are prevented from compensating them), and then you conclude that the market therefore underinvests in the future. I think you need to spell that jump out a little more carefully.
Let’s take something like vaccinations. A standard mainstream argument could go like this: “We need the government to subsidize vaccinations, because in the decentralized market people only take into account private costs and benefits. People don’t realize that if they are immunized, then not only are they avoiding infection themselves, but nobody else will get sick from them. So the market underinvests in immunization.”
OK now the way I could prove that the market underinvests, is to show that the market equilibrium is Pareto inefficient. In principle, if we could collect 34 cents from everybody who would choose not to get vaccinated, and give it to the person who is on the fence, then it would be a win-win transaction. But shucks, the transaction costs are too high, and so the government just does it.
That’s not analogous to what you are proposing, though. The government isn’t forcing us to invest more in the present, and then forcing the bajillionaires in 2811 to send us back the hover car. No, the government is just forcing us to make the investment.
Going further, *there is no physically possible way* for the government to make both our generation and the people in 2811 better off. That’s why this isn’t simply an issue of transaction costs, it’s a production frontier issue. In other words, you are framing it as, “The people in 2811 don’t have the means to compensate us,” and I’m framing it as, “The people in 2811 don’t have the means to produce a hover car in 2011.”
Note that in a market failure type argument, the government solution doesn’t have to be a Pareto improvement. But to prove market failure, it has to be the case that a Pareto improvement is technically possible.
That’s why I keep coming back to that point, which you are not answering. There is no possible way for government to change resource allocation, to make the present and future generations better off. (That’s not true in OLG models of Social Security, for example.) So it’s simply not true (until you show me otherwise) that the present underinvests.
Last point: The whole “neat” thing with your perspective is that we drop time and just think of the people in 2811 as neighbors living in the zip code “2811.” OK, so how can it possibly be that you conclude we–the poorest people in the whole space-time neighborhood–should give even more of our limited wealth to our neighbors over in the 2811 zip code? If anything, I would say the fact that they aren’t allowed to send us the cure for cancer, plans for a cold fusion generator, etc. means that we should stop investing for them at all. Clearly we are on the losing end of the physics-timeflow stick.
Bob, great explanation. The 2811 zip code analogy cements it for me.
Yeah Bob, it’s great how you surgically removed the time element while keeping the essentials of the problem intact. It’s much easier to see what’s going on now:
PROBLEM: Party B can not receive compensation from Party A.
SOLUTION: Party B should give more to Party A.
The solution doesn’t address the problem: compensation.
The fact that future people can not compensate present people points to a deeper problem. After all, future people benefit from ALL profitable investments made in the present but are not required to pay for the utility they receive. This is a classic positive externality market failure.
One solution would be for the government to invent time machines and send out legions of IRS agents to tax the future. However, given that time machines still reside within the realm of science fiction, another means of taxing the future must be employed.
A sure-fire way of making the future poorer and the present richer is to increase present consumption and decrease investment. Therefore, while it is correct for Daniel to point out that future citizens can not compensate present citizens, the logical implication is that present citizens are OVERINVESTING in the future. That is why all efforts to terraform Mars should be eliminated entirely.
Presumably there are positive and negative externalities, right?
Sure, but:
1) It is sub-optimal – from the victim’s perspective – to attempt to internalize an externality through aggression.
2) There is nothing anyone can do to internalize the particular externality in question – including diverting stolen funds from war to space exploration.
3) So, while I agree with the observation you’ve made, I disagree that there is anything anyone can do about it.
It was wrong of me to say “underinvest” I think. What I should have said is that externalities are exacerbated. Any decisions that we make are weighted towards higher costs and higher benefits relative to what would be the case without this temporal autarky. So certainly the relative weights will be skewed such that we’ll have more burned carbon than is optimal and less scientific research and space exploration than is optimal.
re: “There is no possible way for government to change resource allocation, to make the present and future generations better off.”
We could contract debts and inflate the money supply (until we reached full employment of course) to pay for projects that would benefit the future. We could also rearrange our current priorities. Let’s sneak $20 billion out of dumbass ag subsidies and give it to NASA. Let’s sneak $50 billion out of dumbass wars and give it to the NSF or prize funds. My whole point and problem is that there’s no way for anyone to solve this short of repealing the laws of physics (which is harder than repealing North Korean protectionist laws). However we can do a few things. We can to a certain degree foot the future with the bill (Jefferson called this “swindling futurity”, but I have a somewhat less value-laden view of it than he did – although Jefferson was ahead of his contemporaries in thinking about the implications of time for political philosophy). And we can at least reorder our public expenditures in accordance with this understanding of the situation.
Hans Blumenberg said that the transformation that defines modernity is the abandonment of concerns for immortality and the embrace of an effort to make the world a better place for our great-great grandchildren. A large part of this is just a social transformation, regardless of how preoccupied Bob Roddis is with governments and SWAT teams.
Economics and definitions of efficiency set the stage for talking about why it’s impoverishing not to be able to trade across time.
re: “Note that in a market failure type argument, the government solution doesn’t have to be a Pareto improvement. But to prove market failure, it has to be the case that a Pareto improvement is technically possible.”
Then – as I had said above – perhaps it’s best not to talk about this as a market failure.
I’m somewhat surprised by the response. You all are happy to reject welfare criteria as a guide for action when government action is at issue, and promote another moral vision that you hold as the justification for action. Thinking about “the economic possibilities for our grandchildren” seems to be another moral orientation which – as I’ve said several times now – is stymied by physics. The whole problem is they can’t compensate us. I understand the critique – it’s my whole argument after all! You all could care less about welfare criteria as a guide when it suits your ethical imperatives, but now you’re enforcing it as a guide when I’m suggesting there might be some ethical reasons to provide for the future in the face of an autarkic situation?
It was wrong of me to say “underinvest” I think. What I should have said is that externalities are exacerbated. Any decisions that we make are weighted towards higher costs and higher benefits relative to what would be the case without this temporal autarky. So certainly the relative weights will be skewed such that we’ll have more burned carbon than is optimal and less scientific research and space exploration than is optimal.
What would be the case without temporal autarky is existence outside of time, or omniscience.
Our perceived benefits and costs is skewed NOW relative to what an omniscient deity would have held.
We burn more carbon NOW than what an omniscient deity would have burned.
We engage in less scientific research NOW than what an omniscient deity would have engaged in.
We engage in less space exploration NOW than what an omniscient deity would have engaged in.
Your standard for judging humanity is not the reality of humanity. You are using supernatural concepts instead. It is illogical to use non-existence as a standard for judging existence.
If I proposed that a flying bowl of spaghetti knows all, knows the past, present and future, and acts “perfectly” in the sense of having full information about the future such that he can trade with his future self, and “escape” the boundary of time, then I too can say that us humans are sub-optimal, and who, compared to this magical bowl of spaghetti, will forever “underinvest”, we will “skew” our benefits and costs, we will engage in “less scientific research”, we will “burn more carbon”, we will “engage in less space flight”, etc.
We could contract debts and inflate the money supply (until we reached full employment of course) to pay for projects that would benefit the future.
I giggled when I read that. After all your posturing about not advocating for central planning, here you are advocating for central planning in money production, in investment, and in scientific research.
You know what you are doing? You are holding reality to be too limiting, the reality of other people’s desires too limiting to your desires, and you want to bring the future to the present more quickly, and because you know that the process of peaceful market exchange will result in what you want taking a lot longer than what you subjectively desire (less carbon burning, more scientific research, more space flight, etc) you want to basically steal purchasing power away from people, so that a strong, enlightened, central planner can accomplish what you want the human race to accomplish. You are completely shitting on other people, on their own lives, on what they want, on what they find to be more urgent relative to what is less urgent, on their choices on what to consume and invest in for themselves.
If there are many people who still find it difficult to secure enough food and other basic necessities for themselves, which only investment in more food production can alleviate, you swoop in and say FU to all these people, you advocate for a central bank with central planning powers to print more money, steal purchasing power away from these people, make it even more difficult for them to acquire enough food, all so that you can plan society the way you want, so that you can acquire the needed scarce resources to accomplish what you cannot accomplish through the method of peaceful market exchange. It’s a good think you’re not in any position of power, because you would end up literally killing people in your megalomaniacal pursuits.
We could also rearrange our current priorities. Let’s sneak $20 billion out of dumbass ag subsidies and give it to NASA. Let’s sneak $50 billion out of dumbass wars and give it to the NSF or prize funds.
Socialists disagree all the time when it comes to which economic plans should be enacted. One socialist wants to build schools instead of hospitals. Another wants to build more tanks instead of transport trucks.
You want the government to plan for more space exploration instead of agriculture. You want the government to plan for more health and safety instead of military equipment. You’re just trying to plan society yourself and become the head socialist dictator, instead of doing what a true market advocate would do, which is advocate for no economic dictator, and let individuals pursue their petty, short sighted, skewed, sub-optimal, wasteful, unscientific, selfish pursuits.
But that makes you cringe doesn’t it? Society will not look very “noble” would it? Today, we would have more corn and bread, and less d@*k measuring contest idols of pride like moon bases. How dare other people pursue their own selfish pursuits instead of your selfish pursuits? Obviously there is something wrong with people. If only you had more economic power over others, then all our problems will go away!
My whole point and problem is that there’s no way for anyone to solve this short of repealing the laws of physics (which is harder than repealing North Korean protectionist laws).
How can the existence of physical laws, which is the truths of reality, represent a “problem”? Only if you consider reality itself to be a problem, that’s how. This is exactly the thinking of someone who rejects reality, and wishes he could shape reality according to his own plans. To be a creator of reality. To not be limited by what reality presents to you.
However we can do a few things.
Thankfully, there exists an institution in our society that has enough power to stop selfish individuals from pursuing their own prosperity and their own happiness. This institution, which shall not be named, lest the river of denial overflow, and cries of misunderstanding and paranoia again be claimed, can control some aspects of reality. It can control the PEOPLE in it. If this strong centralized institution can control people, then it can force people to shape economic reality, if not exactly the way you want it, then at least closer to the “optimal”, the “ideal”, which is in reality just your own subjective preference, masquerading as an objectively driven standard of judging all action.
We can to a certain degree foot the future with the bill (Jefferson called this “swindling futurity”, but I have a somewhat less value-laden view of it than he did – although Jefferson was ahead of his contemporaries in thinking about the implications of time for political philosophy).
“In the long run, we’re all dead.”
And we can at least reorder our public expenditures in accordance with this understanding of the situation.
If only we adopted a socialist plan, your socialist plan, then everything will be awesome.
Hans Blumenberg said that the transformation that defines modernity is the abandonment of concerns for immortality and the embrace of an effort to make the world a better place for our great-great grandchildren.
By footing them with a bill for your socialist plan, making them liable to incur the costs for being born? This is just sickening to my stomach. Not only do you want to sacrifice the living for the sake of the unliving, but you actually believe that footing the unborn with the costs of your benefits today are somehow making their world better.
How about you instead respect your fellow human beings, and respect the choices they make for themselves and their children and grand children? How about you stop trying to plan everyone’s lives?
You’re not supporter of the free market. You talk out of both sides of your mouth. You claim to be a free market supporter, which in reality just means you claim to respect your fellow human beings enough to not exploit them or advocate for violence against them, as long as they do not initiate violence against others. But then you do a 180, and, along with the passage quoted by Murphy in the heading, everything you have argued is exactly the thinking of a socialist dictator wannabe. The motivation for your desire to be socialist planner is based on a resentment of the laws of reality and of human life.
A large part of this is just a social transformation, regardless of how preoccupied Bob Roddis is with governments and SWAT teams.
At least Bob Roddis is not preoccupied with wanting to use SWAT teams when dealing with other people, unlike you, whose worldview requires them, in order to force people to act in ways different than how they will act in economic freedom. The free market underinvests in space flight, so let’s bring out the SWAT teams and have them stand ready to stop anyone who dares plan their own lives according to their own minds, so that the central bank can remain in operation, so that the government can acquire enough scarce resources, so that your economic plans for everyone are put into effect.
Roddis is not paranoid. He can see exactly through your miasma.
Economics and definitions of efficiency set the stage for talking about why it’s impoverishing not to be able to trade across time.
It’s not impoverishing to not be a God, Daniel. It’s your ideology that is impoverishing.
An individual who finds utility in working and saving enough for his own family, and considers Big Macs as more important to his life than moon bases, will be impoverished if you were able to implement your socialist plans. You want to sacrifice this person’s life and happiness for the sake of the unborn, all so that reality can be closer to what you want it to be.
Then – as I had said above – perhaps it’s best not to talk about this as a market failure.
I’m somewhat surprised by the response. You all are happy to reject welfare criteria as a guide for action when government action is at issue, and promote another moral vision that you hold as the justification for action.
Selfishness is a morality. Altruism is a different morality. To want to abolish sacrificing people (altruism) and replace it with protecting and defending individual happiness (selfishness), is not calling for one socialist plan to replace another, such that you can claim “we are all” hypocrites (I wish that you would not play “us versus them”, like “we” and “us” and “you all”, because it makes it hard to identify arguments).
I am surprised by your claims. You are all happy to say that the market is the optimal method of human interaction, when your socialist plan is not threatened, but then you promote socialist central planning, your own socialist central planning, when the free market clashes with it.
Thinking about “the economic possibilities for our grandchildren” seems to be another moral orientation which – as I’ve said several times now – is stymied by physics.
It’s not completely stymied. We can put aside savings for our grandchildren, who can then utilize those savings when they are old enough. But it is against the morality of the free market to call for the sacrifice of the living for the sake of the unliving, such that every generation lives in squalor, while they work and toil and save everything, where each generation devotes maximum production to future generations, leading to an economy where life is miserable, but people will have the thought that someday, in the distant future, some generation will do what you say we should not do, which is enjoy life when it exists.
What you are saying makes no sense. If you want us to sacrifice ourselves for the sake of the unborn, then why should the unborn consume what we invested? Wouldn’t your position, if it is consistent, call for not only us to sacrifice ourselves for the sake of the unborn, but for the unborn to then sacrifice themselves for the sake of the unborn after them?
Why should our great-grand-children consume more, but we should consume less and invest more? Why should any generation benefit from a moon base, when the entire planet’s population could save and invest 99.9999999999% of their incomes, live in absolute squalor, and devote almost all their time and energy into producing a spacecraft that can travel to another galaxy?
See, when your worldview is based on a cosmic resentment, it is always possible to out-crazy your own crazy. Why stop at moon bases or space flight or reducing carbon footprints, which is what you want to do? Why not devote maximum resources to building a moon sized death star that will take even longer to complete? What, you aren’t suggesting that great-grandchildren benefit from (consume the output of) investments made by their great-grandparents, are you? That’s selfish! They should also sacrifice themselves for the benefit of the future too.
In fact, the human race as such should be destitute forever, so that an unnamed and forever out of reach generation of people can finally live in paradise once there simply isn’t any more knowledge or technology to be had.
The whole problem is they can’t compensate us. I understand the critique – it’s my whole argument after all! You all could care less about welfare criteria as a guide when it suits your ethical imperatives, but now you’re enforcing it as a guide when I’m suggesting there might be some ethical reasons to provide for the future in the face of an autarkic situation?
“You all”? Stop playing the victim, and stop lumping everyone into the same group.
I am not enforcing a welfare criteria. I am not enforcing any criteria other than let individuals pursue their own criteria.
Yes, there is an ethical reason why an individual should be sacrificed by a central planner with monopoly money printing powers, so that you can enact your socialist plan. That ethic is called altruism. But the free market is antithetical to altruism, because the free market process is one in which individuals are not sacrificed for the sake of anybody. The individual decides for himself how much to save, how much to consume, what to consume, what to invest in, and how much to leave to his heirs. Not you. Not any other socialist.
It is not hypocritical to be against violence backed welfare, and for peaceful market exchange only.
What you want is to be able to control other people’s economic lives. You want to control people’s lives so that the pain and intolerance you feel towards physical reality is mitigated. Of course this means other individuals will have to be sacrificed for the sake of your socialist plans, which is why your worldview requires an ethic to support it. That ethic is altruism. You are chastising people for rejecting your ethic of altruism and upholding their ethic of individual liberty, i.e. “selfishness.”
I don’t really have much of an incentive to read posts this long from you anyway.
I have even less of an incentive when I skim it and read you refering to me as a socialist.
Please don’t call me that, major_freedom. I’m not a socialist.
I’m not a socialist.
OK, then what should a person who advocates for centralized (government) economic planning be referred as?
You’ve already advocated for central planning of money production and thus inflation, which can enable big and expensive projects to be financed by government, that could not be financed in capitalism where people would be silly, myopic, and brainwashed by Newtonian physics, and devote their time and effort to improving their own lives and their family’s lives, instead of future generations who will benefit from moon bases and other government projects, financed by those who will never benefit from them.
To be called socialist is not merely a pejorative. It is the word used to describe one who adheres to and supports socialist plans, in your case it is to the extent that the free market cannot live up to a non-existent standard of omniscience, of not being able to build moon bases as quickly as you want them built, which of course means always, which of course means you want socialist plans to be enacted permanently so that the economy can get closer to your ideal vision of society.
Anyone who has in their mind a vision for what other people should invest in and what they should consume, in an aggregate sense, in terms of economic plans for “society”, is right away setting themselves down the path to socialism. You find it insulting to be called a socialist, but socialism is exactly what you are espousing.
The free market seems to be completely lose on you. You seem to have absolutely no understanding of what a free market actually is. You think central economic planning process and the free market process can somehow coexist. They cannot.
From someone who actually supports the free market, I can tell you that you are in fact espousing socialism. You can call this extreme, dogmatic, or whatever, but it won’t matter.
Daniel,
I realize you are fighting an n-front war here, and maybe some of our criticisms are running together in your mind. But just to clarify what I’ve been doing:
==> You’re right, I normally don’t care too much about “Pareto optimality” the way mainstream guys use it, and certainly not as a justification for government action. After all, I think it’s wrong to tax people to blow up an asteroid.
==> However, you think you are using standard economics (externality arguments) applied in a novel way, because of the trade barrier of time’s one-way flow. I think you are wrong, and so that’s what I’ve been doing ever since I saw your post. I’m trying to get you to see that your argument doesn’t work, even on its own terms. (Or rather, I’m trying to get you to spell out exactly what your argument is, to test whether it works even on neoclassical grounds.)
I think you are changing the subject with this latest talk of defunding wars etc. Of course I would rather the government spend $1 billion on NASA than bullets for the Middle East. But that doesn’t mean I think the current generation is underinvesting in NASA right now.
I’ll do another post on this when I get back from DC.
I agree with Bob on this one. This is just a convoluted issue of transaction costs. Let’s take Bob’s analogy of Florida oranges being shipped to India, and extrapolate. Let’s suppose that an advanced alien civilization lives on a planet 300 light years away in another solar system, and let us also suppose that we can travel at the speed of light (as a maximum defined by the mathematical reality of Einstein’s relativity and time-space). We could actually, in accordance of the laws of physics, trade with this civilization. However, the transaction would take 300 years to take place. As such there is no Pareto improvement, and thus no incentive for us (the people of present day earth) to engage in trade with this alternate civilization. BUT it would make sense for this alternate civilization to make a long-term (600+ year) investment in the earth’s productive capacity via the introduction of advanced technology. This would not be dissimilar from first world nations investing in the third world. (Yet, their desire to do this is also hedged by uncertainty.) In the case of the future investing in the past, it’s not physically possible and could simply be modeled as prohibitively large transaction costs. It reminds me of the time value of money… what’s a billion dollars worth to you in 300 years? Time (like distance) is another contributor to transaction costs, and unlike space, one that seems to flow “as a persistent illusion” in one direction.
We’re dealing with two issues here: the autarky and the externality.
Floridians don’t have to have much of an effect on Indians. We don’t have all that much effect on someone 300 light years away. We do have a powerful effect on people in the future.
The autarky point is just an interesting thought experiment that points out that people still think in Newtonian terms, and that that has implications for how we think about intertemporal choice. It would just be an interesting thought experiment if we didn’t have such a major impact on the future.
The autarky point is just an interesting thought experiment that points out that people still think in Newtonian terms
Yeah, what morons. Only if they thought outside of time, and thought like a God, would they “understand.”
Why is it thinking like a God to think about the way the world is?
You perplex me Major_freedom.
Aren’t you an atheist anyway?
Why is it thinking like a God to think about the way the world is?
But you’re not doing that. You are JUDGING reality according to a standard that is God. All your terms and phrases, for example “optimal investment”, “efficient allocation”, “non-skewed perceptions of benefits and costs”, etc, are all from a God’s perspective, not a reality of humanity perspective.
Aren’t you an atheist anyway?
Yes, but I don’t see how identifying when other people utilize a God standard to judge human life would be inconsistent with this.
@DK
“We’re dealing with two issues here: the autarky and the externality”
It’s not an “issue” for those of us who deal with facts that an actual human consciousness can integrate and extrapolate from. Calling future generations an “externality” that can/should/must be taken into consideration by our current choices is a mystical/subjective standard to apply since no human consciousness has the means to know the future on that scale.
By this standard, any choice one makes or any action one takes has an “impact” on some “externality” but this “thought experiment” really does not tell us anything we do not already know since we do in fact take action in the real world and not in a fantasy world (presumptuous of me, I know). As others have already pointed out, judging such impacts as positive or negative in advance is both premature and impossible to anyone who is not omniscient so the “thought experiment” is anything but useful.
It seems to me that you are applying a “chaos” type of theory to economic interactions so just like a butterfly in Brazil is alleged to “cause” a hurricane in FL so too will my “investment” in a cheeseburger for lunch today is alleged to “cause” a future failure that you imagined out of thin air. The difference is is that both the butterfly and the hurricane can be documented to exist while the causality between them is just a fiction, impossible to prove with current technology.
You presume to go even further by manufacturing both the causality and the future event which is nothing less than fantastic and just shows that you have a good imagination that has nothing to do with the real world.
Daniel,
This is still a subjective judgment because you still can’t know the future, but this goes even deeper since you can’t even know differences of alternative outcomes. Your “optimals” are all based on your own opinions on what is good for the future. Let me turn it around, and maybe let you more understand the arguments others are raising to what you have been writing. Instead of thinking about the future and the present, let’s consider the present and the past. Can we look around today and point out the areas that we wished past people had invested more, or invested differently? Do you think we could even reach a consensus on that? One might claim that the past overinvested in fossil fuel energy generation. However, how would one determine this? How could we even know that different investments in the past would have actually been beneficial even to the present?
Now, back to the quote I excerpted above- you claim we will have burned more carbon than is optimal, for example. How can you know this? How can you know that the future might reach the consensus that their ancestors didn’t burn enough? You claimed that we will underinvest in research and space travel. Again, how can you know what a descendant might think of our decisions? You are taking the stance that we are making the wrong decisions because the future can’t give us information about what is optimal, but then you keep putting yourself in the position of knowing what would be optimal only if we had this information. You can’t have it both ways- you simply can’t.
Bob,
Is there any way to turn off the comment-threading? I understand the idea behind it but in practice it just seems to make comment-threads unreadable.
Synthesizing a little bit.
We can trade with the future, even the far distant future. You just need to find younger people to carry on the on going project, and they need to do same, until its done.
For example, if you had a well definite project for a cheap-and-profitable colonization of Mars that would undertake 100+ years from start until it made it first dollar of profit, it would still have a present value, even though its conclusion would not very likely be achieved during your life span .
If you could convince other people about the future value of the project, it would have a market value, that could be estimated via the discount of the expected future earnings by the expected future interest rates.
But of course, the hypothesis here is that you can confidently predict the state of demand and offer in a 100 years, and also the interest rate fluctuations during the period, variables which depend on several economical, technological and political developments that are very difficult to foresee.
In that sense, making transactions with the future is very much like going on a trading expedition with a not so well known country. It involves taking some risks within an environment of very limited information.
The point is that there is no reason at all for thinking that government officials, scientists or technocrats, while taking decisions with other people’s money, are better informed about future developments and more able to make sound investments than people operating their own risks.