Carlos Cruz writes:
Here’s an economics joke. Two economists are walking along when they happen to end up in front of a Tesla showroom. One economist points to a shiny new car and says, “I want that!” The other economist replies, “You’re lying.”
The premise of this joke is that if the one economist had truly wanted the car then he would have walked into the showroom and bought it. The reason that he didn’t do so is because he evidently has more important things to spend his money on.
The basic economic problem is…
Society’s wants: unlimited
Society’s resources: limited
How people divide their limited dollars accurately reflects how they truly want society’s limited resources to be divided. This is the basic premise of the market.
From the perspective of biology, costly signals are credible signals.
The same is true from at least one perspective in psychology…
“If a woman told us that she loved flowers, and we saw that she forgot to water them, we would not believe in her “love” for flowers. Love is the active concern for the life and the growth of that which we love. Where this active concern is lacking, there is no love.” – Erich Fromm, The Art of Loving
Unlike spending, voting is a cheap signal, so it’s extremely curious that surveys primarily rely on voting instead of spending. There are precious few exceptions to this rule. Here are the ones that I know of…
1. Donating was used to determine whether men or women are better tippers.
2. Donating was used to determine which prominent skeptic to prank.
3. Donating was used to determine which theme to use for the libertarian convention…
$6,327.00 — I’m That Libertarian!
$5,200.00 — Building Bridges, Not Walls
$1,620.00 — Pro Choice on Everything
$1,377.77 — Empowering the Individual
$395.00 — The Power of Principle
$150.00 — Future of Freedom
$135.00 — Life, Liberty and the Pursuit of Happiness
$105.00 — Rise of the Libertarians
$75.00 — Free Lives Matter
$42.00 — Be Me, Be Free
$17.76 — Make Taxation Theft Again
$15.42 — Taxation is Theft
$15.00 — Jazzed About Liberty
$15.00 — All of Your Freedoms, All of the Time
$5.00 — Am I Being Detained!
$5.00 — Liberty Here and Now
Do you know of any others?
How different would the results have been if voting had been used instead of spending? For example, would the theme “Taxation is Theft” have been ranked higher or lower?
Voting and spending are very different things, so they must create very different hierarchies. If you search Google for “hierarchy”… the hierarchy of the results is determined by voting. Each link to a page counts as a vote for it. Google got this idea from how scholarly papers are ranked by citations. Each citation counts as a vote. All the videos on Youtube are also primarily ranked by voting. The only reason that so many people are talking about Jordan Peterson these day is because his video about pronouns received so many votes. His fans, at no cost to themselves, propelled him to prominence. Thanks to his lofty pedestal he now earns around $50,000/month on Patreon.
At the grocery store, on the other hand, we really don’t simply vote for our favorite products. Instead, we use our money to help rank them. The hierarchy of food is determined by spending. Same with clothes, cars and computers.
Voting and spending are used to rank many different things… yet their relative effectiveness has not been formally tested. I wish that I could effectively articulate the absurdity of this situation. What makes it especially absurd is that it wouldn’t be very costly to conduct a decent experiment. It’s not like it would be necessary to spend $5 billion dollars to build a particle accelerator.
Imagine if a bunch of college students rank some books. Here are some potential books…
The Origin Of Species
Harry Potter and the Sorcerer’s Stone
The Handmaid’s Tale
A Tale of Two Cities
50 Shades of Grey
War and Peace
A Theory of Justice
The Cat in the Hat
The Wealth of Nations
The Hunger Games
One group of students would use voting to rank them, while another would use spending. To be clear, the spenders wouldn’t be buying the books. They would simply be using their money to reveal the amount of love they have for each book. All the money they spent would help crowdfund the experiment.
How differently would voting and spending rank these books? Which hierarchy would be better? Which hierarchy would be closer to your own?
My guess is that voting elevates trash while spending elevates treasure. All the biggest improvements to the mainstream are naturally going to come from the margins. So, basically, spending is far better than voting at facilitating the most beneficial social evolution.
Imagine if the same experiment was conducted with beer. Would the students be willing to spend more money to rank beer than books? Colleges could be graded accordingly!
A group of people will have collectively tried a greater variety of beer than any single member of the group. When members compare their own beer preferences to the group’s beer preferences, naturally they will notice the disparities. Then the goal is to identify whether the individual or the group is mistaken. In some cases it will be the individual, in other cases it will be the group. The information that individuals share with the group will largely be for the purpose of eliminating errors.
Spending is the best way for detrimental disparities to be discovered and dispatched. Using another alliteration… earmarking is the examination that will most efficiently eliminate errors.
Here’s Karl Popper…
“If I am standing quietly, without making any movement, then (according to the physiologists) my muscles are constantly at work, contracting and relaxing in an almost random fashion, but controlled, without my being aware of it, by error-elimination so that every little deviation from my posture is almost at once corrected. So I am kept standing, quietly, by more or less the same method by which an automatic pilot keeps an aircraft steadily on its course.” — Karl Popper, Of Clouds and Clocks
Here’s Adam Smith…
“It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society.” — Adam Smith, Wealth of Nations
As far as I know, even though this passage is perfectly relevant to Popper’s point, he never referred to it. I’m guessing that he wasn’t even aware of it.
We all have very limited perspectives so it’s way too easy to overlook important things. However, our perspectives aren’t equally limited, which is why it’s so beneficial to know the group’s perspective. Are voting and spending equally effective at revealing the group’s perspective? I’m guessing that spending is far more effective… but I could be wrong.
There are two questions here, the measurement question and the policy question.
1. The measurement question: How best to measure people’s likes, goals, desires, etc.? Should you ask people what they want, or should you ask them to spend money to convey what they want? This can be considered as a problem in survey measurement, and the best method of measurement will depend on the context. As you note, if the question is, How much are you willing to spend on a car?, it makes more sense to see what people actually spend, than to ask them what they would do? If the question is, What book do you prefer?, then the best approach I think would not be to ask them, nor would it be to ask them to spend money, but rather to see what books they actually read. If the question is, What’s a good slogan?, then I don’t see the point of asking people to spend money, as I don’t see how this relates at all to the larger goals.
2. The policy question: I’ve heard this said before, that voting is a cheap signal and so should not be taken seriously. Oddly enough, the people who make this argument often also make the argument that voting is irrational so people shouldn’t do it. But, of course, voting is only irrational to the extent that it’s not cheap. I’m not particularly sympathetic to the “voting is irrational” argument. Regarding the argument that voting is a cheap signal which we should not use to make decisions: I guess the question here is, what is the alternative? Voting by dollars has the obvious problem that people with more dollars get more votes.
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