How should negative externalities be handled? (Warning: politics)

by nigerweiss2 min read8th May 2013132 comments

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Politics ahead!  Read at your own risk, mind killers, etc.  Let all caveats be well and thoroughly emptored.

It seems reasonably clear to me that, from a computational perspective, functional central planning is not practically possible.  Resource allocation among many agents looks an awful lot like an exponential time problem, and the world market is quite an efficient approximation.  In the real world, markets, regulated to preclude blackmail, theft, and slavery, will tend to provide a better approximation of "correct" resource allocation between free agents than a central resource allocation algorithm could plausibly achieve without a tremendous, invasive amount of information about the desires of every market participant, and quite a lot of computing power (within a few orders of magnitude of the combined computational budget of the human species).  

It would be naive to say that we'd need exactly the computational power of the human species in order to achieve it: we can imagine how we might optimize the resource allocation scheme by quite a lot.  Populations are (at least somewhat) compressible, in that there are a number of groups of individual people who optimize for similar things, allowing you to save on simulating all of them.  Additionally, a decent chunk of human neurological and intellectual activity is not dedicated to economic optimization of any kind, which saves you some computing time there as well.  And, of course, humans are not rational, and the homunculi representing them in the optimized market simulation could be, giving them substantially more bang for their cognitive buck - we can imagine, for instance, that this market simulation would not sink billions of dollars into lotteries each year!  It may also be that the behavior of the market itself, on some level, is lawful, and a sufficiently intelligent agent could find general-case solutions that are less expensive than market simulation.    

Still, though, the amount of information and raw processing power needed to pull off central planning competitive with the market approximation seems to be out of our reach for the time being.  As a result of this, and a few other factors, my own politics tend to lean Libertarian / minarchist, and I'm aware that there is some of this sentiment in circulation on this site, though generally not explicitly.  I'm trying to refine my beliefs surrounding some of the sticky issues in Libertarian philosophy (mostly related to children and extreme policy cases), and I thought I'd ask LW what they thought about one issue in particular.  

I have been wondering whether or not there are any interventions in the economy that can have a positive expected benefit.  I honestly don't know if this is the case: put another way, the question is really asking if there are any characteristic behaviors of markets that are undesirable in some sense, and can be corrected by the application of an external law.  Furthermore, such things cannot be profitable to correct for any participant or plausibly-sized collection of participants in the market, but must be good for the market as a whole, or must be something that requires regulatory power to fix.  

An obvious example of this sort of thing is the tragedy of the commons and negative externalities.  The most pressing case study would be climate change: the science suggests, fairly firmly, that human CO2 emissions are causing long-term shifts in global climate.  How disastrous these shifts will actually be is less well settled, but there is at least a reasonable probability that it will be fairly unpleasant, in the long term.  Personally, I feel that we are likely to run into much bigger problems much sooner than the 50-200 year timescales these disasters seem to expected on.  However, were this not the case, I find that I'm not quite sure how my ideal government, run by a few thousand much smarter and better informed copies of me, ought to respond to the issue.  I don't know what I think the ideal policy for dealing with these sorts of externalities is, and I thought I'd ask for LessWrong's thoughts on the matter.

In my own mind, I think that as light a touch as possible is probably desirable.  Law is a very blunt instrument, and crude legislation like a carbon tax could easily have its own serious negative implications (driving industry to countries that simply don't care about CO2 emissions, for example).  However, actions like subsidizing and partially deregulating nuclear power plants could help a lot by making coal-fired power plants noncompetitive.  We could also declare a policy of slowly withdrawing any government involvement in overseas oil acquisition, which would drive up the price of petroleum products and make electric cars a more appealing alternative.  However, I don't know if there would be horrifying consequences to any of these actions: this is the underlying problem - I am not as smart as the market, and guessing its moods is not something that I, or any human is going to be very good at.  However, it seems clear that some intervention is necessary in this sort of case.  Rock, hard place, you are here.  

Thoughts?  

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