Imagining Scarcity

by [anonymous]3 min read2nd Mar 201556 comments

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Sequence summary: This is a series of 18 articles on the most fundamental concepts of economics: scarcity, opportunity cost, marginalism, and self-interest. These are the atoms, molecules, cells, the core things you need to have a grip on to move on with the science, and, if all goes well, we will move on, but first it is absolutely vital to get a strong grasp of the fundamentals. Though these are basic concepts, they are not easy to understand. If you want evidence of this, open a newspaper....

 

 

Thank goodness this wasn't a restaurant where you had to order only one thing and you never found out what all the other things on the menu tasted like. Harry hated that, it was like a torture chamber for anyone with a spark of curiosity: Find out about only one of the mysteries on this list, ha ha ha!

                -HPMOR

A simple way to understand scarcity is to imagine you're trying to fit all your sand into a hole, but the hole is too small for all the sand to fit into.

It is, of course, possible to make the hole deeper or wider. It's also possible to compress the sand. However, either task can only be accomplished with the help of a mysterious element called "technology." The thing is, economists don't know what this element looks like or how to find it. Sometimes we look at all the people putting sand into holes and notice that the hole is bigger or the sand is more compressed, and we conclude "technology" must have happened. But it's not something we can predict or count on. So how are you going to get all of your sand into this hole?

You're not. Look, I don't know what's so special about this sand, and I don't know why you have to get it into this hole, but I know not all of it's going in. And that means if you want any of it to go in, you must leave some of it out.

That's scarcity: you must give up something to get anything.

It won't fit. Don't try to force it - it won't fit. And that means you're going to have to make a choice.

"Hold on," you say. "I don't really care which sand goes into the hole and which stays out here."

"Okay, okay, but this is economic sand. It's representative."

"Of what?"

"Take a closer look."

You give the sky (being uncertain of where this voice is coming from) a skeptical look, but you grudgingly crouch and inspect the sand (which stretches for miles around you). To your surprise, each grain is different from the rest. And, when you look really closely, each is a tiny, tiny gem, a reflection of something.

In some you see familiar faces. Others, you know just by looking, taste like chocolate, and smell like flowers, and feel like accomplishment, and smell like chlorine, a memory....

You pick up one. It is a pounding bass that sets your whole body vibrating. You drop it before your heart bursts out your chest.

It was your favorite techno remix of classical music.

Your are rubbing between your fingers the feeling of being curled up on the couch on a rainy night with your best friend watching a movie when a voice coughs.

"It's my values," you say, getting quickly to your feet.

"It's representative, like I said."

You look around. The sand seems to stretch on endlessly in all directions.

"There's a lot of it."

"Aren't you a marvelous creature? And to think it all fits between the sides of your skull."

"Some of it's out of reach."

"That's one of the problems, yes. And if the hole were big enough, all the sand, though it stretches on endlessly, would nevertheless fall into the hole."

"Can we abstract away from that, please? This is all a bit much."

"Certainly."

You open your eyes (though they hadn't been closed) and look around. Now you are in an empty room, the walls grey. There is a ball of sand that you know is made of all the sand from before, yet it is small and light enough to hold in your hands. There is no door. There is the hole, same as it ever was, only now you do not, you do not want to leave even a single grain of sand without.

"Can't I put some of it in, then take it out and put the rest in?"

"This hole, too, is an economic hole. It's representative."

You stare until it clicks. "Choice. There's no going back."

"Yep. The instant you fill the hole, it closes. And now you must make a choice."

Only so much will fit in...which means you have to leave some out. Take your time.

It's tough, but finally you separate the grains of sand you want to keep the most from the less important ones. The remaining sand will fit into the hole.

Notice something - once you've removed enough sand to fit the rest into the hole, there's no reason to remove any more. You only want to remove the minimum necessary to fit the sand into the hole.

So you remove the sand, and you pile the rest into the hole, and the hole closes, and then you suffocate to death in this doorless room....

So what's up with that hole, anyway? Notice how the fact that you couldn't fit all the sand into the hole forced you to make a choice. You could have removed this grain or that grain or made all the grains a little smaller. Or you could have thrown the sand down in despair and wept. But if you did that, you wouldn't have gotten any of the sand into the hole, so you did the smart thing, made a choice, and forwent some sand.

And what happens then? Why, the hole closes, and you can't go back and choose something different.

That's scarcity. You can't get everything, which means you have to give up something, which means you have to make a choice, and you can never go back, not entirely.

 

 

Next: defining scarcity....

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56 comments, sorted by Highlighting new comments since Today at 2:41 PM
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I feel a bit as if I have just read an article entitled "Imagining food" which, rather than acknowledging that every reader consumes food several times most days and at most needs to be reminded of that fact, makes an analogy about imagining that you're an industrial machine that needs to be constantly supplied with raw materials.

I'm disgruntled that economy vanished. This is the only other article of his that I can track down...

What Scarcity Is and Isn't

.... do you have links to the other ones?

Scarcity is the Presence of Choice

I think those three were all s/he wrote.

Thanks for that article. But wasn't there also another one? I think his most recent article was about three different types of choices.

Would benefit considerably from a very brief introduction describing the series of articles this is the start of, and maybe another brief para at the end saying what comes next.

Not sure I see a point.

Is anyone arguing that there is no scarcity, or that they don't understand it in some way that this metaphor helps with?

Your analogy does not click for me at all, and I have lived with what can be reasonably described as scarcity. Do you have any better ones?

[-][anonymous]6y 3

All of tomorrow's article will be about nailing down what scarcity is. Among other things, we shall see that everyone has lived with scarcity all their...lives? (Which is correct here, life or lives? Do not mean to be suggesting reincarnation.)

Will say right now for avoiding confusion that scarcity is being used as technical economics word, not implying deprivation or poverty.

You have asked a difficult grammar question. I prefer "lives". This is definitely not correct (the two nouns and the verb should agree in number), but at some point you have to stop letting mere grammar push you around.

Collective nouns like "everyone" can be treated as either singular or plural, depending on whether you want to treat the collection as single entity, or deal with each part of the group separately. In your case, each person in "everyone" has their own life, they're not all living the same life, so we should treat "everyone" as plural and use "lives"...

...but, the verb must agree with the noun! So now we have "...everyone have lived with scarcity all their lives". This sort of thing is common British English, but to my American ear it sounds very strange. In American usage collective nouns almost always take singular verbs, with a few word-specific exceptions like "police".

You can't say "everyone have lived" in British English, either. But number agreement in English is generally not to be taken entirely seriously, so "everyone has ... their life/lives" is fine in both variants. The reason is that "everyone" works semantically like "all people", not like "every person", but just happens to nonetheless trigger singular agreement on the verb. That's also why you can say "everyone liked each other", like "all people liked each other", but not "every person liked each other".

Thanks for elaborating. Is British English generally freer with plural verbs on collective nouns, would you say? I was taught that it is, but by American grammarians.

Is British English generally freer with plural verbs on collective nouns, would you say? I was taught that it is, but by American grammarians.

Some fictional evidence upon the matter. :)

That's quite true. It's just that the pronoun "everyone" is a different kind of animal from collective nouns.

[-][anonymous]6y 5

Much thanks to my volunteer editors, Vaniver, Alsadius, Evan Gaensbauer (triple-checked the spelling and still think I got it wrong), AlexSchell, and especially the thorough and grammatically astute richard reitz, who defends the poor ellipsis from my abuse....

Please allocate friendship and karma to them.

[-][anonymous]6y 2

My economics education is best described as: [pollid:839]

Read some blogs. I'd like to read the good blogs, but I have no idea where to find them; any pointers?

[-][anonymous]6y 2

Quite like marginalrevolution.com myself....

"Good" is, of course, super subjective. But here are some that I'd recommend...

More liberal perspective...

Miles Kimball John Quiggin Noah Smith

More market perspective...

CafeHayek Coordination Problem EconLog AskBlog

For both a market perspective (Tabarrok) and a liberal perspective (Cowen)...

MarginalRevolution

And for a pragmatarian perspective... my own blog...

Pragmatarianism

needs a "none" option

[-][anonymous]6y 3

Needs a "this poll is inadequate option".

Where's the "I design financial systems used by more than a million people to secure billions in value, but despise economic blogs of all sorts and have no formal training from academic sources"?

[-][anonymous]6y 3

Will be sure to remember that for next time....

Yes, I concur. I've yet to have taken my required HS Econ class, and while I read the occasional post here and on Overcoming Bias about economics, that probably doesn't count.

Just out of curiosity, were the poll choices arranged in any particular fashion? They look a little bit to me like they're arranged in descending order of expertise (i.e. the further down the list you go, the more expertise you have), but I can't see "I read *good* books about economics" below "B.A./B.S. in economics", or "I write my own economics blog" below "Nobel prize in economics". Or was the arrangement more or less random?

[-][anonymous]6y 2

In order of expertise plus joke at end. Probably anyone smart and curious enough to read seriously about economics on their own will be far ahead of typical undergrad after 4 years.

I took the classes, read some blogs, and read some books. I marked it down as taking required classes. Should I have wrote reading the books?

[-][anonymous]6y 0

Is not really important, poll cheap to make and cheap to answer, no need to be so accurate....

Splendid. As inexplicably haunting as the rest of your work. Looking forward to more.

[-][anonymous]6y 0

What other work...?

I have high confidence, based on style, that I have read work you have published elsewhere; but on the default assumption that you don't want that context connected to this, I'll say no more.

[-][anonymous]6y 0

Don't know what this could be, so am mildly curious. If it is also about economics, message me with guess....

Of course I gave this a thumbs up! Opportunity cost is a fundamentally important concept. Unfortunately, it doesn't tell the second half of the story.

And what happens then?

You've effectively communicated/revealed what's important to you. Producers take this accurate information and allocate society's limited resources accordingly. Why? Because they want your money...and my money too! They want all our money!

consumer information + producer incentive = more bang for our buck (we all get more value from our scarce resources)

And because producers want more, rather than less, money... it's a given that the general trend is for consumers to derive more and more value from scarce resources. Producers are incentivized to think of more valuable uses of scarce resources.

It's really easy to test how well somebody understands this story. Just ask them whether taxpayers should be allowed to choose where their taxes go. If they say no, then clearly they don't understand that consumer choice has extremely beneficial consequences. Which is, of course, the biggest possible problem.

You've done a great job of telling the first half of the story. The question is... can you do an equally great job of telling the second half of the story? I sure hope so!

Do you have a blog? If so, please share the link. If not, then please start one!

[-][anonymous]6y 1

No blog...these articles consume so much of my time and energy as it is....

Heh, errr... starting a blog doesn't mean that you'll have to write twice as many articles... It just means that you copy and paste some, or all, of what you've already written into a blog entry and hit "post". The additional time and energy is extremely marginal. It's vanishingly small.

When you have a blog, people can easily subscribe to it. This way they are notified whenever you post something new. Plus, having a blog creates a wider net which increases your chances of catching more fish (aka educating more people). It also provides you with helpful traffic statistics. I always love it when somebody in China finds my blog.

When I add you to my blogroll... then anybody who visits my blog will be able to hop on over to your blog. Then they'll hop on over here... or anywhere else you link them to.

Generally I wouldn't tell somebody that the opportunity cost of blogging isn't that high. Because... how in the world could I possibly know what they would have to sacrifice? But in your case... the opportunity cost is extremely small because you're already making the sacrifice. All a blog does is help you get the most bang for your buck/sacrifice.

Just some food for thought!

It's really easy to test how well somebody understands this story. Just ask them whether taxpayers should be allowed to choose where their taxes go. If they say no, then clearly they don't understand that consumer choice has extremely beneficial consequences.

That's exceedingly glib, because "taxpayers should be allowed to choose where their taxes go" doesn't automatically follow from "consumer choice has extremely beneficial consequences". For one thing, consumer choice has costs as well as benefits; for another, just because choice works well for everyday consumer goods doesn't mean it'll work equally well for goods & services provided by taxation. (What happens, for example, if tax choice is instituted and each taxpayer realizes that their marginal tax contribution has only a negligible effect on how well the nation's army defends them personally, and each taxpayer therefore re-directs that share of their taxes to something else?)

It's a non-sequitur? I don't think so. It's a non-sequitur when the supply of goods/services doesn't follow from the preferences of consumers. To take a pacifist's money and supply them with war is just as much a non-sequitur as it is to take a vegetarian's money and supply them with a juicy steak.

If you're so willing to assume that our country's defense efforts do more good than harm... then why stop there? Why not assume that steak does more good than harm as well? Surely we're not all that different?

In other words, if you're so confident of the conclusion that you're willing to leap to regarding people's preferences for public goods... then isn't it strange if that confidence suddenly disappears in terms of private goods?

If somebody is willing to forego a marginally greater supply of defense in order to gain a marginally greater supply of cancer research... then who am I to override their valuation? Am I sleeping next to them at night? Do I know what fear/concern/anxiety is most likely to rob them of sound slumber? In this case, then maybe, just maybe, it might not be exceedingly unreasonable for me to override their valuation. But anything outside of such an extremely personal and intimate knowledge of somebody else's preferences... is fundamental hubris. The kind of hubris that results in the worst kind of misallocations of a nation's most valuable resources.

Please be aware that, if you're arguing that everybody's going to be inclined to divest armies... then you're arguing that pragmatarianism would produce world peace. If, on the other hand, you're saying that some exceptional individuals would be inclined to invest in armies... are you saying that some country will have a monopoly on exceptional individuals? Or, are you saying that each country would have roughly the same percentage of exceptional individuals? Or, are you saying that no two countries would have the same exact percentage of exceptional individuals? If so, would exceptional individuals foot vote accordingly? Would they all want to flock together? And then there'd be a nation of exceptional individuals who would only invest in armies? If this is true, then just how much taxes would they be able to spend? A lot?

Imagine a baker who only spends his money on one ingredient. Do you think his singular strategy would have consumers lining up for miles?

In case you missed it... we're all different. Economic growth and prosperity is a function of this difference. Blocking nearly all this difference from the public sector ensures that we get the balance of public ingredients/inputs really wrong.

If you're interested in critiquing pragmatarianism... it might help to read the FAQ.

Most of that doesn't seem very relevant to my specific objection. I'm not especially interested in criticizing pragmatarianism, whatever that is. I'm interested in refuting the specific idea that if someone disagrees with tax choice, they "clearly" "don't understand that consumer choice has extremely beneficial consequences". Because that idea strikes me as transparently wrong & over-confident.

It's a non-sequitur? I don't think so.

I think it is, because the premise "consumer choice has extremely beneficial consequences" has to be combined with extra premises before it generates the conclusion that tax choice is patently good — and your "test" leaves out those premises. One can't take the lone premise and immediately get the conclusion, so inferring the conclusion from just the premise is a non sequitur.

I alluded to (two of) the necessary extra premises above. One is that consumer choice doesn't have extremely costly consequences which outweigh the benefits for the good/service under consideration. Another is that choice works as well for taxation-funded goods & services as it does for ordinary consumer goods.

That last premise probably isn't true in general, because certain taxation-funded goods & services generate positive externalities, introducing an obvious problem of free riding. National defence is a canonical example, hence my use of the army as an example. The point there is not "WHOOO! GO ARMY!" or "anyone who doesn't value the army as much as I do is wrong or an idiot", the point is "there is a systematic incentive to free ride here, which could predictably lead to under-provision, and there's no indication that Xerographic has understood this".

Please be aware that, if you're arguing that everybody's going to be inclined to divest armies... then you're arguing that pragmatarianism would produce world peace. If, on the other hand, you're saying [...] are you saying that [...] Or, are you saying that [...] are you saying that [...]

What I'm pointing at with the army example is free riding due to positive externalities from a public good. Searching the comments on your top-level post, I see someone else has mentioned the issue to you before but you didn't seem to understand it. I could try to explain it myself but it would probably be quicker for both of us if you consult the sections of an economics textbook on externalities and public goods.

  1. consumer choice has extremely beneficial consequences
  2. we shouldn't have consumer choice in the public sector

If somebody agrees with both #1 and #2... then they can't truly understand why consumer choice has extremely beneficial consequences.

  1. smoking is hazardous to your health
  2. it's ok to smoke indoors

If somebody agrees with both #1 and #2... then they can't truly understand why smoking is hazardous to your health.

  1. consumer choice has extremely beneficial consequences
  2. Netflix shouldn't allow people to allocate their monthly fees

If somebody agrees with both #1 and #2... then they can't truly understand why consumer choice has extremely beneficial consequences.

Let's say that Netflix allowed subscribers to allocate their monthly fees to their favorite content. Netflix would take its cut and pass the rest onto the creators of this content. Yay or nay?

According to you, this would be a bad idea. Why? Because nothing would prevent people from consuming content and not paying for it. You could watch every single episode of the Gilmore Girls but not allocate a single penny to the creators of the show. In case you missed it, this is the "issue" with externalities. This issue is ridiculous though because you're allocating your monthly fees somewhere. Some content is getting your money. And if, on the chance that nobody allocates any of their fees to the Gilmore Girls... then all the resources being used by this show would be freed up for more valuable shows/movies/documentaries, etc. This is the process by which we derive more and more value from society's limited resources.

You want me to look up "externalities" as if I'm arguing that we should kick education, or healthcare, or defense, or environmental protection or any other public good over to the private sector. But that's really not what I'm arguing. As a pragmatarian, my argument is that consumer choice makes just as much sense in the public sector as it does in the private sector. If you want to convince me that we don't need consumer choice in the public sector... then you just need to convince me that the government is good at accurately measuring the harm/benefit of externalities. And if you can convince me of that... then you've also convinced me that consumer choice in the private sector is unnecessary. If the government can accurately predict the distance at which a smoker will motivate me to bravely run away... then I'll be happy giving congress all my money so that they can spend it for me. This way I won't have to bother with the hassle of shopping.

[Three enthymemes about public sector choice, smoking, and Netflix.]

Right, each of these has at least one tacit extra premise. The smoking enthymeme relies on an implicit premise (we might label it "1b") that it's not OK to do things hazardous to your health. The Netflix enthymeme has an implicit "1b" premise, for example that consumer choice also has extremely costly consequences.

Let's say that Netflix allowed subscribers to allocate their monthly fees to their favorite content. Netflix would take its cut and pass the rest onto the creators of this content. Yay or nay?

According to you, this would be a bad idea. Why? Because nothing would prevent people from consuming content and not paying for it. You could watch every single episode of the Gilmore Girls but not allocate a single penny to the creators of the show.

If I understand you, in this hypothetical Netflix subscribers would be able to watch everything in Netflix's library, whether or not they allocated any of their fee to what they actually watched.

If so, yes, there are positive externalities, and in the absence of some opposing effect I'd expect your imagined change to Netflix's policy to cause under-funding of potentially profitable programmes.

This issue is ridiculous though because you're allocating your monthly fees somewhere. Some content is getting your money.

Some content is getting my money, but if I can free ride on your fees, and I'm allowed to direct my fees where I like, I can engage in tactical behaviour that causes economic inefficiency. So you haven't actually shown the "issue is ridiculous".

And if, on the chance that nobody allocates any of their fees to the Gilmore Girls... then all the resources being used by this show would be freed up for more valuable shows/movies/documentaries, etc. This is the process by which we derive more and more value from society's limited resources.

Yes, I've taken economics classes and that process was covered pretty early on. And in subsequent lessons we covered a potential failure mode of that process: those externalities I keep going on about.

Let me run with the imaginary Netflix example.

For simplicity, suppose Netflix's library has just three shows: Gilmore Girls, Arrested Development, and House of Cards. But that's OK because the two of us are Netflix's only subscribers. We both like GG, only I like AD, only you like HC, and all this is common knowledge.

I get an email from Netflix telling me I can choose which shows deserve my Netflix fees. I don't care about HC, so I can safely allocate nothing to it. Only I like AD, so I have to allocate it some of my fees, otherwise it won't get funded. But what about GG? I like it, so I'm willing to allocate some money to it, but I know you like it too — so why don't I just hold out to see whether you fund it instead?

You get an email from Netflix telling you you can choose which shows deserve your Netflix fees. You don't care about AD, so it's easy to deny that your money. You're the only one who likes HC, so of course you allocate that some of your fees. But what about GG? You like it, so you could direct some of your fees to it, but you know I like it too — so why not just hold out to see whether I fund it instead?

Next year, Netflix drops GG from its library because no one paid for it, even though it's the only show we both like. Because it's the only show we both like.

You want me to look up "externalities" as if I'm arguing that we should kick education, or healthcare, or defense, or environmental protection or any other public good over to the private sector. But that's really not what I'm arguing.

I'm really not arguing that you're really arguing that. I want you to peruse a textbook discussion of externalities and public goods simply because I don't think you understand those two ideas well enough to recognize how & when to apply them. Whether you're pro-privatization is a separate issue.

If you want to convince me that we don't need consumer choice in the public sector... then you just need to convince me that the government is good at accurately measuring the harm/benefit of externalities. And if you can convince me of that... then you've also convinced me that consumer choice in the private sector is unnecessary.

That line of argument screams "Package-deal fallacy!" to me. I expect individual choice to be good for allocating some things, and bad for allocating others. Forcing ourselves into a general dichotomy of consumer-choice-is-necessary vs. consumer-choice-is-unnecessary is a bad idea, and economics gives us some mental tools for understanding why.

I like you. Can we be facebook friends?

You really don't like HC?

Do you even know how you'd allocate your monthly fees if given the chance?

At the top of my list would be The Man From Earth. Have you seen it? It's wonderful. It turns me on intellectually. It really sucks that so few fictional content does so. I wonder why there's such a shortage of fictional content that excites my mind? Oh wait, I know why! It's because Netflix doesn't know what really does it for me.

Sure, I gave it 5 stars... but... am I supposed to give only one thing on Netflix 5 stars? Because... I've given other things 5 stars as well.

Perhaps Netflix should add more stars? Like, I would be able to give [The Man From] Earth 100 stars? Then I'd give all my other 5 star content say... 90 stars?

Is there an abundance of fictional content on Netflix that excites your mind? If so, please share your list! Maybe you've found some Easter Eggs that I've overlooked!

Next year, Netflix drops GG from its library because no one paid for it, even though it's the only show we both like. Because it's the only show we both like.

Are you really sure that I liked it? Just because you're allocating your time to me right now... does this necessarily indicate that you want to be facebook friends? Yes? poke poke

Right now we're consuming each other's content. Therefore... what? This implies that we both agree that each other's content is worth X amount of money? This implies we'll always want to consume each other's content? You + me = BFF?

Next year, Netflix drops GG from its library because no one paid for it, even though it's the only show we both like. Because it's the only show we both like.

That's the end of your story? Lauren Graham and Alexis Bledel just vanished into thin air? What a terrible ending! If your story was a Netflix movie then I wouldn't even allocate a penny to it. I'd boycott the heck out of it.

My story ended with Alexis Bledel playing the female lead in 50 Shades of Gray. I mean, acting in some movie that excites me even more than Earth does. Same thing with Lauren Graham.

Do you get my points?

Point 1. You don't know what I value... and neither does Netflix. Which means that neither do the content creators. I'm the only one who knows how many GGs I'd sacrifice for more Earths. For some reason you don't think that content creators need to have access to this information. Either you think the star rating system communicates more than it actually does... or you think Netflix is omniscient... or... you don't truly understand how or why consumer choice has extremely beneficial consequences.

Point 2. The thought of you playing chicken with all the other Netflix users is very humorous. Are you going to call me up and we'll have a Princess Bridian battle of wits?

satt: Have you ever heard of Plato, Aristotle, Socrates?

xero: Yes?

satt: Morons!

xero: Truly you have a dizzying intellect. You win! Your prisoners' dilemma is so good! I'll allocate my monthly Netflix fees to any content that you want!

Are you going to have every single Netflix user on your speed dial? Errr... when are you going to have the time to watch any of the content that you're tricking everybody into funding?

Point 3. If Netflix gave me the option to be a free-rider... then, if there weren't any strings attached, I'd choose this option. Most people would. The logical conclusion is that the content that we truly value would be undersupplied. So Netflix doesn't give us the option to free-ride. We have to pay a monthly fee. This solves the free-rider problem but it doesn't solve the problem of deriving people's priorities. This preference ranking problem can be easily solved simply by giving us the option to directly allocate our monthly fees. Why would consumer choice solve the priority problem? Because of opportunity cost.

Point 4. I uploaded this just for you... The Assumption Of Omniscience And Benevolence. Because... if you want to consume what I'm writing here... then you should want to consume what I write anywhere.

I like you. Can we be facebook friends?

Afraid not, I don't use Facebook.

You really don't like HC? [...] At the top of my list would be The Man From Earth. Have you seen it?

Oh, I was using HC only as an example. I've never seen it! Ditto The Man from Earth.

Perhaps Netflix should add more stars?

That might help, though people rate online videos in a very polarized way. YouTube used to have a 5-star rating system but switched to thumbs up vs. thumbs down because almost all the ratings were 1 or 5.

Is there an abundance of fictional content on Netflix that excites your mind?

No idea, I don't have a Netflix account. Thinking about TV fiction in general...yeah, it's got a poor hit rate for tickling my smart parts.

Right now we're consuming each other's content. Therefore... what? This implies that we both agree that each other's content is worth X amount of money? This implies we'll always want to consume each other's content? You + me = BFF?

Now you make me think about it, I would be willing to pay someone I trusted a token bit of money to correct your LW comments for me. But until then, I have to roll up my own sleeves. On to your points.

Point 1. You don't know what I value... and neither does Netflix. Which means that neither do the content creators. [...] For some reason you don't think that content creators need to have access to this information. Either you think the star rating system communicates more than it actually does... or you think Netflix is omniscient... or... you don't truly understand how or why consumer choice has extremely beneficial consequences.

False trichotomy. I take door number 4: your hypothetical mechanism to communicate your preferences to TV producers won't work (unless you have some counteracting mechanism up your sleeve to cancel out free riding). Now, that doesn't necessarily mean your proposal is worse than the status quo, but I've used a toy example to illustrate why your proposal risks the paradox of directing less money to more popular shows. If your policy were implemented, Netflix and TV producers most likely still wouldn't know what you (or Netflix subscribers in general) valued, because you'd be incentivized to distort your monetary representation of your preferences.

(We are of course making the simplifying assumption that TV studios get their information about TV viewers' preferences via Netflix, but the real world is obviously more complicated. Whatever Netflix does, TV studios also have focus groups, viewing statistics and critics' reviews to garner information about what viewers like. Hell, you yourself could even post cheques directly to TV studios...although private companies tend to be squeamish about accepting donations.)

Point 2. The thought of you playing chicken with all the other Netflix users is very humorous. Are you going to call me up and we'll have a Princess Bridian battle of wits?

Notice that in my two-subscriber Netflix example there wasn't any communication between us.

Even if there had been, well, that would've just turned things into a bargaining game. I don't think it'd be a bargaining game as those games are usually modelled, because there'd be no enforcement mechanism backing whatever we'd agree on the telephone. So I expect something like the no-communication equilibrium would still happen.

Point 3. If Netflix gave me the option to be a free-rider... then, if there weren't any strings attached, I'd choose this option. Most people would. The logical conclusion is that the content that we truly value would be undersupplied.

Yup.

So Netflix doesn't give us the option to free-ride. We have to pay a monthly fee. This solves the free-rider problem but it doesn't solve the problem of deriving people's priorities.

That's true...

This preference ranking problem can be easily solved simply by giving us the option to directly allocate our monthly fees. Why would consumer choice solve the priority problem? Because of opportunity cost.

...but that doesn't follow, because introducing choice would hand subscribers a way to free ride. Hence the "choice" Netflix observed wouldn't match subscribers' true preference rankings. The preference ranking problem would therefore remain unsolved.

Point 4. I uploaded this just for you... The Assumption Of Omniscience And Benevolence.

I don't understand the relevance. As far as I can tell I'm neither citing Paul Samuelson, nor assuming omniscient & benevolent government planners. The didactic example I used here involved a private company and TV producers!

Thinking about TV fiction in general...yeah, it's got a poor hit rate for tickling my smart parts

You're in this boat, and I'm in this boat, and Robin Hanson is in this boat. How many other people are in this boat? You'd figure that smarter people have more money to spend on content than dumber people do... yet, for some reason there's a shortage of smarter content. Shall we call this "satt's paradox"? Ok!

Your reply failed in all types of ways. Let's wipe the board clean.

Right now the US has a non-profit sector. It contains organizations like the NRA and PETA. Donations to the non-profit organizations are entirely voluntarily. And, given that people can benefit from what many non-profits supply without having to chip in, it stands to reason that the free-rider problem is applicable. Yet, in 2012 non-profits received $1.65 trillion in total revenues. Most of it wasn't from the government so we can conclude that the free-rider problem clearly doesn't entirely exclude the possibility of voluntary contributions to collective goods.

But what if we made contribution to the non-profit sector mandatory? Maybe everybody would have to chip in at least 10% of their income... but they could choose which non-profits they gave their donations to. Would this improve the outcome? Well... there would still be the free-rider problem... right?

So let's take it a step further. Everybody would have to chip in... and we'd elect 500 representatives to choose how to divvy up the pool of funds among the various non-profits. Would this improve the outcome more... or less?

Which non-profit system would create the most value?

  1. The current system
  2. The minimum contribution + consumer choice system
  3. The minimum contribution + representative choice system

There's still some room on the board!

This website uses thumbs up/down to valuate the articles. What if we all had a website bank account (WBA) that we could make a deposit to using paypal? This would allow us to valuate the articles with actual money rather than thumbs. There would still be the free-rider problem right?

So what if everybody had to contribute say a minimum of $2/month to their WBA? But they would be able to choose which articles they allocated their money to. There would still be the free-rider problem right?

So what if we still have the minimum contribution... but we elect 5 representatives to allocate the money for us?

Which website system would create the most value?

  1. The current thumbs up/down system
  2. The voluntary contribution + consumer choice system
  3. The minimum contribution + consumer choice system
  4. The minimum contribution + representative choice system

Please explain your answers.

You'd figure that smarter people have more money to spend on content than dumber people do... yet, for some reason there's a shortage of smarter content.

Dropping the economists for a moment and turning to a writer: "Television is the way it is simply because people tend to be extremely similar in their vulgar and prurient and dumb interests and wildly different in their refined and aesthetic and noble interests".

More mundanely, smarter people are probably better at pirating what they like than dumb people, too.

Your reply failed in all types of ways. Let's wipe the board clean.

You don't describe any of the ways my reply "failed", so that appears to be an evasion.

Which non-profit system would create the most value?

Not sure. I'd need more information.

The current system presumably gives less money to non-profits than your two alternatives. But maybe under your system 2 the extra money would go to existing ineffective charities and not improve on the status quo. That seems unlikely to be a big enough effect to outweigh the benefit of more non-profit revenue, though. But then again, maybe under system 2 and/or system 3 people would start setting up spurious non-profits to enrich themselves, and how much of a problem that'd be would depend on the precise regulation imposed on non-profits in your counterfactual systems. You don't specify.

Which website system would create the most value?

Probably the current thumbs up/down system. Options 3 & 4 involve involuntary contributions, and the effect of that driving people away from Less Wrong would probably swamp any benefit from the contributions. Under option 2 the vast majority of users wouldn't bother to use the system, and I wouldn't expect the minority who did use it to be representative of LW, so option 2 would likely lead to a distorted representation of how much the overall userbase liked posts. And then there's the risk that introducing monetary payments adds more incentives for people to post crowd-pleasing stuff instead of the stuff I'd say adds value! (And don't we already have technologies for throwing money at people who write stuff one likes on the Internet? Does option 2 bring much new to the table?)

Please explain your answers.

Done. But your questions don't clearly address the specific points I made before, and arguing with people who don't address the specific points I'm making is unproductive. Don't expect me to answer any more tangential essay questions.

If you zig some times... and zag other times... and you're failing to explain your zig vs zag rules... then perhaps if you answer enough essay questions we'll be able to elucidate/illuminate whether your rules are so good or no good (incoherent).

  1. The Satt
  2. Satt's Paradox

My rule is simple. Consumer choice is always better than representative choice. Your rule isn't so simple. Some times you believe that consumer choice is better... and other times you don't.

Your rule isn't so simple. Some times you believe that consumer choice is better... and other times you don't.

My sole defence is that reality is complicated. I do think it's a pretty good defence; it also explains why sometimes when I get sick I think it's better to take antibiotics than not to, and other times I don't. For example.

perhaps if you answer enough essay questions we'll be able to elucidate/illuminate whether your rules are so good or no good (incoherent)

Hmm, something that would take no small amount of time, and have a dubious & uncertain benefit. Unpromising. And I reckon I've made my original point adequately, so I'm going to call this a wrap.

This claims that movies, books, etc. can't have different prices like cars do because higher-priced movies could be cheaply pirated.

The world did exist before the Internet became popular. Your explanation may explain why we don't have the movie equivalent of million dollar cars today, but it fails at explaining this back in the day when it was impossible to pirate a movie reasonably.

First, it's important to note that my "failure" doesn't change the fact that linvoids aren't rivalrous). In other words, my "failure" has absolutely no bearing on the validity of my verdict.

Second, markets don't mean that every Easter Egg (EE) will be spotted. With markets you have a lot more people participating in the search process so it increases the chances that an EE will be found. Plus, finders reap the rewards of finding EEs... so there's more incentive to find them. My point is that just because nobody has spotted an EE doesn't mean that it doesn't exist.

Thirdly, it's not necessarily clear how back in the day a movie producer would have been able to charge more for a superior product. Perhaps in a big city like Los Angeles you could have filled a theater with people willing to pay $1500 for the opportunity to see a smarter movie? Right now people are willing to pay around $5000 for the opportunity to attend TED talks. There's no reason that the contents of TED talks can't be served in a movie format.

Fourthly, if we did shift linvoids over to the public sector and give taxpayers the freedom to choose where their taxes go... taxes wouldn't be paying for the opportunity to consume the linvoid... they would be paying for the production of the linvoid.

With the current system, we buy a movie if it's worth it to do so. It's binary.... yes or no. A DVD either is, or it isn't, worth $15. In reality though... there's a continuum of valuations that range from $0.00 all the way to thousands of dollars. A pricing system only captures the tip of the tip of this iceberg. A pragmatarian system would capture the entire iceberg. If a movie is only worth $1 to you... then that's how much you could allocate to it. If its worth $1000 to me... then that's how much I'd allocate to it. As a result, the supply would far more accurately reflect demand.

How many other people are in this boat? You'd figure that smarter people have more money to spend on content than dumber people do... yet, for some reason there's a shortage of smarter content.

Television actually has gotten noticeably smarter over the last century, with institutions like HBO occupying the 'smart and rich' niche. But you'll note that HBO still targets a low enough degree of intelligence that it can sell lots and lots of subscriptions, because that's the profit-maximizing thing to do.

Television actually has gotten noticeably smarter over the last century, with institutions like HBO occupying the 'smart and rich' niche.

While that may be true, I feel that the TV got noticeably dumber over the last decade or so as the "smart and rich" decamped for the internet.

Very possibly--I, for one, watch very little in the way of new television, and what I do watch I watch over the internet.

What's HBO producing that's smarter?

This states roughly the argument I had in mind.

Complexity = smarter?

I go back into time and try and persuade Adam Smith to include a section on pragmatarianism in his Wealth of Nations.

"Hey Adam Smith... if your invisible hand is good enough for the private sector... then why isn't it good enough for the public sector?"

The story is pretty simple... but the topic is smarter.

I'd be willing to pay a lot more for this story than pretty much all the stories mentioned in that article you shared. The problem is that there isn't a mechanism for me to do so. So the question is... how could we create such a mechanism?

Right now we have a private sector (for-profit sector + non-profit sector) and a public sector. Imagine if we created an entertainment sector. Everybody would have to contribute 10% of their income to this sector... but they could choose which content they paid for. This would create a mechanism by which the supply of smarter content would come to more accurately reflect the true demand for smarter content.

But why 10%? Why not 5% or 25%? Clearly we're really screwed if we have to spend too much money on entertainment! We wouldn't have enough money left over for more important things. But if we spend too little on entertainment then we'll all be kinda sad.

The solution? We simply label "entertainment" a public good and move it into the public sector. Then we allow taxpayers to choose where their taxes go. This way we can ensure a more optimal proportion/balance.

A car is a private good because it's rivalrous and excludable. There are expensive cars and cheap cars. A movie isn't rivalrous but clearly we've figured out how to make it excludable. You have to buy a ticket to watch it in a theater. You have to buy the DVD to watch it at home. Or pay for Netflix. But these mechanisms all fight against the movie's true nature. As a result, movies all cost consumers pretty much the same amount of money and we end up with a huge disparity between supply and demand. We could eliminate this disparity simply by...

  1. acknowledging the true nature of movies/songs/books
  2. moving them over to the public sector
  3. allowing people to choose where their taxes go
[-][anonymous]6y 0

My economics education is best described as: [pollid:838]

[This comment is no longer endorsed by its author]Reply

Any voting guidelines for those of us who prefer to read books over online blogs?

[-][anonymous]6y 2

See new, better poll in comments.

[-][anonymous]6y 2

How peculiar that this did not occur to me. It seems that I cannot retroactively add this option....