soup power

February 28th, 2012

A version of this post was originally composed around 2 December 2009

I will attempt to refute the notions of money as wealth, and capitalism as a system of conquest, in this exposition that analogizes the ingredients of a soup for the complementary factors of production.   I attempted this draft in e-prime.

Wealth makes life materially comfortable.  We create wealth by converting things from lower valued uses to higher valued uses.  If I cook a nice meal from lentils, tomatoes, ginger, garbanzo beans, onions, olive oil, and lemon, I have created wealth by that transformation (recipe to follow, if anyone likes).  That constitutes a purely a subjective determination of value, to be sure;  I like the soup, it makes me better off, I value it at this moment greater than the raw ingredients.  If I offer it to friends they may not like how it tastes; perhaps they tolerate it with sidelong glances.  If I offer it for sale on a street corner I have entered among the social interactions of the market, where my business prospects face the subjective valuations of the general public.  Maybe my friends correctly judged the quality and my tastes do not appeal to the public;  then my little business fails like so many others, because I did not understand the right combination of ingredients that would satisfy my potential customers.

On the other hand, some people might like my new soup, and they might choose to give me something in exchange, especially if I greeted them with a smile.  I have lots of soup, they might have extra almonds.  If I want almonds, when I make that trade I have further increased the value of my soup.  My situation has improved, and so has that of almond-man, because he now has a nice soup when all he had before were more nuts than he could eat.  The bartered trade of soup to nuts has increased the wealth of us both.  But that double coincidence of value becomes a rare circumstance; the next person wanting soup may have to trade only light bulbs, or size large v-neck tee shirts, or tickets to the theater, for which my interests may be less intense.

I could continue bartering for soup but the difficulty increases as my immediate need diminishes for the goods proffered in exchange.  Fortunately, people came up with "money" at this point, to serve as an intermediary for all those chains of barter that I might otherwise have to undertake in order to provide for my daily needs.  People began to identify some substance as more generally desired than others, through which they might exchange for what they really wanted based on the greater marketability of that commodity.  As a medium of exchange, the best features for this commodity include that it possess some intrinsic value among a broad portion of the population, that it divide easily into arbitrarily small portions, that people find it easy to recognize the genuine article, that interchangeable units have nominally equal value, that the material condition not degrade over time, and that people can easily carry amounts of high trade value.  The money commodity has taken the form of cigarettes and salt, cattle and cowrie shells, but eventually people settled on the most enduring form of money - precious metals such as gold (of course, legal tender laws now require us to accept paper for all debts public and private).

We can't eat money (unless you're still among the cattle money people), you can't wear it to keep warm (although it can look nice as decoration), or take shelter under it (although you can pound very large sheets of Gold from very small amounts).  Fiat paper has even less intrinsic value.  Money does not generally make us materially comfortable, but started with values of decoration and developed to provide the medium of exchange we use to trade for goods and services which themselves make life materially comfortable.

Those of you persisting to this point might ask what happens next in the soup story.  There are many possibilities.  Perhaps my recipe takes all day to prepare, or my favorite ingredients become difficult to obtain, or I picked the wrong street corner to sell my soup.  If all three are true maybe I can not sustain this soup business.  To avoid that result I may experiment with the factors of production, i.e. the recipe, to find some way to make it work.  Maybe my soup becomes a roaring success, people line up around the block to obtain it, and they value it so highly that I begin to accumulate more in exchange than required to sustain operations - I make a profit.

But the story does not end there.  Things are constantly changing: customers change their tastes (their subjective value of soup goodness); suppliers have different demands on the ingredients so their subjective values change; fewer people find soup satisfying as the days get warmer.  If I want to stay in business I must react to all these variables on a continually changing basis.  If I have large margins, someone else may see my profiting enterprise and decide to outdo me with their own recipe.

The limited premium value of my engaging smile and good name demands I make further changes to sustain my business, but how?  The only reliable way requires that I continue to satisfy the fickle wants of my customers, by offering them something that they value some amount above my marginal cost of soup production.  Those people might value variety, convenience, speed, nutrition, richness, or presentation; they might value a snooty manner but I suspect such an approach would turn off more people than attract.  Perhaps instead of those changes, I might use my profits to purchase a machine that allows me to increase my soup production and reduce costs.

So flows my story of soup, but that flow also represents the story of the lentil farmer, fertilizer provider, serving dish supplier, tomato trucker, knife sharpener, sign painter, and every person who works for one of those businesses.  Each provides something of value to their customers.  Each converts something from a lower value use to a use of higher value.  Some add a sliver of value to a number of items, others add greater unit value to fewer items.  Subjective value in each case as determined by each customer.  Wealth created in each transformation.  When people say they make money, when neither forcing nor defrauding the participants, that they create wealth in this way is the unspoken and often unrecognized implication.

Of course my soup story could have taken a different approach.  When faced with competition, I could have convinced the legislature that the community could only handle a single soup supplier, and get them to restrict access to my line of work.  I could demand licensing or appeal to tribalism, for the public good of course, to keep those nasty neighboring soup vendors out of the market.  I could advocate taxes that my business can afford but that would ruin an upstart.  I could do all those things but then my story would not represent capitalism.  These far too common corruptions do not represent the free market, but symptoms of the corporate welfare state.

overcoming tragedy on econtalk

February 24th, 2012

... on the nobel prize-winning study of how people sometimes overcome the tragedy of the commons, pointing out how people are able to develop arrangements on their own for dealing with public goods.

The tragedy of the commons is a recurring theme/meme in the arguments of libertarians, used to illustrate how public ownership is fraught with consquences that run counter to the nominal aims of resource preservation and sustainment.  The public goods are overused, poorly managed, and ultimately destroyed by the the actions of people in the absence of clear property rights.  So the argument goes.

What the Ostroms brought to this discussion is the observation that sometimes communities manage to avoide this outcome, so the question is why, and much of the answer relates to personal contact in the community, long associations, and slowly developing mores that establish rewards and punishments for better or less good stewardship of the resource held in common.

The finding of course relates to how people live in small and personal communities, but also in much larger an less personal ones, and the approaches that work in one do not necessarily work well in the other.

Elinor Ostrom, Vincent Ostrom, and the Bloomington School (11/30/2009) - Peter Boettke of George Mason University and author of Challenging Institutional Analysis and Development: The Bloomington School (co-authored with Paul Dragos Aligica), talks about the Bloomington School--the political economy of Elinor Ostrom (2009 Nobel Laureate in Economics), Vincent Ostrom, and their students and colleagues at Indiana University. The discussion begins with the empirical approach of Elinor Ostrom and others who have studied the myriad of ways that actual communities have avoided the tragedy of commons. Boettke emphasizes the distinction between privatization vs. informal norms and cultural rules that prevent overuse. The conversation also looks at urban development and the benefits and costs of multiple municipalities vs. a single, large city. Throughout, Boettke embeds the conversation in the Ostroms' interest in how the citizenry can be self-governing and the challenges of implementing local knowledge.

airline profits from carbon tax?

February 20th, 2012

So, airlines can profit from EU carbon tax?   I confess to some skepticism about the claim

The rationale is less than convincing, that these profits accrue because the airlines can charge passengers for the cost by way of higher fares.  The idea harkens to a cost theory of value that exposes an ignorance of economics that would be plain enough by the authors considering what drives their own choices when purchasing airline tickets.

Full story »

Smith: Theory of Moral Sentiments, on econtalk

February 20th, 2012

This side project on econtalk was a six part book club discussion of "The Theory of Moral Sentiments" (1759), which besides the Wealth of Nations (1776) is perhaps the most well known writings of 18th century economist Adam Smith (1723-1790).  Of note to me about this discussion is the emphasis on all the varied motivations of human beings in striving for the good life, important to consider that economic man is incomplete, while self-direction is just as important.

Theory of Moral Sentiments (4/6 to 5/27/2009) - Dan Klein and Russ Roberts offer a six-part podcast series reading and discussing The Theory of Moral Sentiments, by Adam Smith.

Of related interest about Adam Smith is how he completely missed subjectivity in establishing value on the market (in Wealth of Nations), stating instead the erroneous labor theory and missing out on contemporaries and predecessors in the process.

Boeing Examining 777-8LX Concept

February 14th, 2012

From my AIAA news feed this morning (2/14/2012) - emphasis added

Flightglobal Pro (2/14, Ostrower) reports, "Boeing is exploring an ultra long-range replacement of the 777-200LR, conceptually dubbed the 777-8LX" that is "estimated to be a 14% to 16% improvement over the 777-300ER, and the extended range may, for the first time, open the prospect of profitably operating flights between Sydney and London without a 'kangaroo' stop in Southeast Asia." The article notes how this model would have several "common" elements with other planes like the 787-9X. Furthermore, the plane "is understood to be a lower priority concept for Boeing as the heart of the market remains focused on the 777-200ER and 777-300ER-sized aircraft to respond to the A350-900 and -1000."

London to Sydney–I stretched out a great circle route on my office globe.  That’sonly about 15 degreesfrom reaching the opposite side of the planet– pretty amazing to contemplate, but a long time to sit in an airplane.

one of my favs

February 2nd, 2012

Groundhog Day has a couple points going for it out of the box - Bill Murray and Harold Ramis most importantly.  But Andi MacDowell is sincere and the rest of the ensemble cast give heartfelt and amusing performances.  Plus, the story is one for the ages.

on the perpetuation of ignorance

January 29th, 2012

One of my regular podcasts is The Skeptics Guide to the Universe, which features a "science or fiction" segment where the host tries to stump the panel to distinguish obscure science news items from roughly plausible science fictions, following up with discussion of details. A recent segment included the following assertion:

"A new study shows that people avoid information about topics about which they are ignorant and yet deem important." (SGU#332 - 11/26/2011)

It turns out that this was based on research published by the American Psychological Association in the Journal of Personality and Social Psychology; the details are particularly interesting for an election year where the economy is a major issue. The full paper is available for review, so you can find it yourself.

"On the Perpetuation of Ignorance: System Dependence, System Justification, and the Motivated Avoidance of Sociopolitical Information"

The study asked the question of how people behave when faced with recognized ignorance about personally important but complicated subjects, and found that ignorance in such topics is self-reinforcing, particularly in subjects where experts in government are supposedly in charge. That is, "a lack of knowledge about a specific sociopolitical issue will (a) foster feelings of dependence on the government, which will (b) increase system justification and government trust, which will (c) increase desires to avoid learning about the relevant issue when information is negative or when information valence is unknown. ... In the contexts of energy, environmental, and economic issues, the authors present 5 studies that (a) provide evidence for this specific psychological chain (i.e., ignorance about an issue --> dependence --> government trust --> avoidance of information about that issue)"

Prior to going much further, I should repeat something I've written elsewhere:

The social sciences have a harder time than physical sciences - measurement is complicated by the constantly changing psychology of the experimenter and the subjects, parameters can be nebulous, there are so many uncontrolled variables in human differences, and test conditions can be subject to environmental effects that are not recorded in the lab notes or published works. My sense is that social sciences often overreach when they try to quantify individual and group behavior, because there is no overcoming many of these difficulties beyond the most rudimentary of conditions. Perhaps for these reasons we should be a little more skeptical of other broad claims and predictions in the social sciences

With that proviso, the details of this paper are of some interest. The five studies build up the thesis in stages that address each of these links. Over 400 people were involved, from Canada and the United States. The measurement protocol involved concrete statements by the subjects about their sense of ignorance, helplessness, and interest in (for example) dealing with the recession. The interview protocol differentiated between immediate versus more long term effects, as one way to control for personal relevance of the subjects. It cites many other studies that treats constituent aspects of related human behavior.

Here is one of the intermediate results: "When participants read a complex description of how the economy operates, they exhibited increased perceptions of helplessness in getting through the economic downturn, and this in turn predicted an increase in perceived dependence on the government to manage the economy. This sense of dependence then predicted increased trust in the government to deal with the economy, which in turn predicted an increased desire to “turn a blind eye” to economic issues and ignore the problem."

In short, this study reports on the people that conducted and participated in the study. As stated in the Implications, "Clearly, some people do seek more information when they feel unknowledgeable about a specific issue and/or when problems become more severe, and some people show reactance to feelings of government dependence". I'll be interested in follow-up and replicative studies, but in the mean time have a new model to consider when thinking about the public reaction to politics this year.

College Bowls, 2011-12

December 11th, 2011

I watch more college football than the (formally) professional variety, so found myself reviewing the 2011-12 bowl schedule, which this season extends from the "Gildan New Mexico" to the "Allstate BCS National Championship Game". Between those limits, the proliferation of bowls has continued, and their names are becoming much more closely tied to sponsors.

Full story »

problems with science

January 7th, 2011

Some things can look like science (e.g., be published in peer-reviewed journals) but still be subject to subtle procedural and statistical and other errors and biases that can call the results into question.

Full story »

the singularity on econtalk

January 3rd, 2011

The subject matter for this episode holds my interest, but the discussion ended with a stark and bleak dystopian vision that I originally had no interest in writing about (which writing here shows I changed my mind about that).  A couple interesting historical points - the current doubling rate for the economy is about 15 years, which makes it interesting to consider 8 times greater wealth in just the span of my life, a point that seems easy to understand just in terms of how much better cars are now, how much easier it is to find good ethnic food just about anywhere, improved health care technology, and so on.

Past "singularities".  With the industrial revolution, about 200 years ago, the doubling rate increased to 15 from closer to every thousand years.  The advent of agriculture, about 10,000 years ago, allowed people to stay put and save and develop tools and slightly more roundabout production techniques, shortening the doubling time from ~250,000 years.  Of course those past events are roughly measured, but provide historical examples of such relatively rapid transitions, which by extrapolation might suggest the next singularity to lead to a doubling every 2 weeks.

  • Before 10,000 years ago - doubling rate ~250,000 years, then people develop farming
  • 10,000 to 200 years ago - doubling rate ~1,000 years, then people develop the industrial revolution
  • Most recent 200 years - doubling rate ~15 years, then the guest predicts people will develop advanced AI
  • Future prospects - doubling rate ~ 2 weeks

The guest promotes a vision of this next singularity driven by rapid population growth represented by the eventual ability of people to replicate their brains in silicon, which is where the discussion starts to break down.  I'm not qualified to judge the feasibility of the technology projection;  on certain levels the modeling analogy works fine, but the neurological connectivities requiring such functional replication occur at exceedingly fine spatial scales, and mapping the current state sufficiently to replicate a person represent similar temporal refinement, that by the time we reach the ability to replicate those functions there may likely be other successful approaches to broadly capable AI.  The discussion also fails to adequately explore the conditions that would drive us to treat these creations as human in the sense of having certain rights and requirements for life.  Then were the questions about the economic implications of such creatures, which barely scratched the subjects of their innovation and specialization and creation of new and better ways of satisfying human needs.  In short, the episode was unsatisfying, but worth further discussion.

Hanson on the Technological Singularity (1/3/2011) - Robin Hanson of GMU talks about the idea of a technological singularity--a sudden, large increase in the rate of growth due to technological change. Hanson argues that it is plausible that a change in technology could lead to world output doubling every two weeks rather than every 15 years, as it does currently. Hanson suggests a likely route to such a change is to port the human brain into a computer-based emulation. Such a breakthrough in artificial intelligence would lead to an extraordinary increase in productivity creating enormous wealth and radically changing the returns to capital and labor. The conversation looks at the feasibility of the process and the intuition behind the conclusions. Hanson argues for the virtues of such a world.