Markets vs. command economies

I suppose this is obvious, but it recently struck me that a nice way to explain the advantage of markets is in terms of their distributed intelligence.

Two underlying premises are (a) that the world will undergo continual and in many ways unpredictable change and (b) that success is defined at least in part as the ability to adapt to and exploit those changes.

A market-based system consists of agents that spend much of their time looking for exploitable anomalies: inefficiencies, niches, arbitrage opportunities, and newly created needs. Those anomalies come into existence as a result of change. One can't predict where or when they will appear. The better a society/economy is at seeing and filling them, the more successful it will be.

Because a market-based system has eyes and intelligence everywhere looking for these opportunities it is likely to see them as quickly as possible. A centrally planned and controlled system simply cannot be that omniscient.

And in fact, one of the effects of the web and our increased interconnectedness is to amplify the property of being all-seeing and all-knowing. Increasingly, intelligence and perception are being connected in such a way that make it possible to see and exploit changes and opportunities even better and faster.

Newseum | Today's Front Pages

See front pages from today's newspapers from all over the world at Today's Front Pages (Try the Bing Hybrid view.)

Put the mouse over a city to see the front page. Click to see an enlarged version. For a more readable PDF version click "Readable PDF." Click "Web Site" to go to the newspaper's web site.

George F. Will

likes to think of himself as a clear thinker. But, I was looking at the book-jacket blurb he wrote for Michael Sandel's Justice, the book that accompanies the course. Will wrote as follows.

Michael J. Sandel, political philosopher and public intellectual, is a liberal, but not the annoying sort. His aim is not to boss people around but to bring them around to the pleasures of thinking clearly about large questions of social policy.

Think about that. Will is saying that some liberal like to boss people around but that others, like Sandel, don't. So why did Will bother to mention his belief that some liberals like to boss people around? It certainly didn't add to his praise of Sandel's book. Will could just as well have written that Sandel doesn't like to boss people around, that he likes to bring them around to thinking clearly … .

But even that seems like a distraction. When praising someone one doesn't normally do it by mentioning a negative attribute the person doesn't have. If I wanted to write a sentence in praise of Will, I wouldn't write, "George F. Will is quite prolific—and he isn't one of those people who molest children."

Apparently Will is simply using the platform that Sandel's publisher gave him to take a gratuitous swipe at liberals. Not only that, he is doing it in a way that makes a response difficult. He isn't making a direct statement and then backing it up with an argument. He is burying his charge in another context, pretending to talk about Sandel while underhandedly attacking liberals. For a person who likes to present himself as a clear and forthright person, that's very intellectually dishonest.

But at least he isn't one of those conservatives who molests children—at least as far as I know.

And yes, I'm just as sure that some child molesters are conservative as I am that some bossy people are liberal.

How we feel about health care now that it's passed.

A new Gallop Pole about the passage of Health Care. I expect that the number who think it's a good thing will increase from here as they find out that it doesn't destroy the country and that it make positive changes in the health care system.

Healthcare and the Health Care companies

From Hulbert, who monitors investment news letters.

I plugged into my PC's statistical software the trading history back to January (all that were available) for the InTrade futures contract that was tied to the passage of health-care reform. I also plugged in daily changes of the Wilshire 5000 index (representing the combined value of all publicly traded stocks in the U.S.) and of the Health Care Select Sector SPDR (XLV 32.46, +0.21, +0.65%) (representing the health-care sector).

I could find no statistically significant correlations, either with the overall market or with the health-care sector in particular. In fact, even though it was not statistically significant, the stock market more often rose along side the InTrade contract than fell. That is just the opposite of what you would have guessed by reading the commentary of the advisers I monitor.

Investors should draw several lessons from all of this. Perhaps the most important is to subject to empirical testing the assertions and beliefs on which we might otherwise base our investment decisions. This is especially crucial when it comes to matters that are ideologically charged, such as health-care reform, since it is easy in such cases for us to let our strongly-held beliefs be the substitute for objective, rigorous testing.

The "Taxpayer right to vote"

I recently received this email message from the supporters of Prop 16 in California.

Dear California Voter,

In these tough economic times, the best way to hold our elected officials accountable is to stand up for our right to vote on how our money is spent.

Right now, local politicians in California have the power to spend unlimited amounts of public dollars to enter the electricity business – starting, expanding or taking over private electric utilities – without a vote from the people who will have to pay for it.

Taxpayers Right to Vote – Proposition 16 will ensure our right to vote on these important financial decisions. Please join the campaign to advocate for your right to vote.

Proposition 16 does one simple thing: it requires voter approval before local governments can borrow or spend public money to enter the electric utility business. Like most other local special tax and bond decisions in California, this measure requires two-thirds voter approval. A two-thirds vote on electric utility takeovers could protect a generation of taxpayers from crippling financial obligations.

Sound reasonable? Not really. It is sponsored and funded primarily by utility companies that don't want competition from municipal suppliers. But do they make that argument? Of course not. They make it sound like taxpayers are being denied the right to vote on something.

What if we applied this principle to every legislative act? Don't let the legislature enact any statute unless it is approved by 2/3 of the voters. California already has such a provision for taxes—and look at the mess it has caused. Essentially this sort of approach eliminates the standard rule of the majority in favor of the rule of the minority for any changes in the law. It also eliminates the principle of representative democracy in which we elect representatives who have the time to study an issue and make decisions about it. (Although that hasn't worked so well either!) Is that radically conservative enough for you? Basically it means that we freeze our societal structure as it is until it is so dysfunctional that at 2/3 of the voters agree that a change is needed.

San Francisco and other municipalities have just asked the court to take the proposition off the ballot because it is worded so misleadingly.

San Francisco and a group of government-owned utilities from around California took their campaign against a Pacific Gas and Electric Co.-sponsored ballot measure to court Thursday, arguing that Proposition 16 is a power grab dressed up as an expansion of taxpayers' rights. …

In a suit filed in Sacramento County Superior Court, San Francisco and other local governments that would be affected by Prop. 16 asked a judge to remove it from the ballot, saying its text is full of falsehoods designed to mislead petition-signers and voters.

For example, the suit said, the measure is titled "The Taxpayers' Right to Vote Act," but it would affect electric rates, not taxes.

The measure's true purpose, lawyers for the local governments said, is "to lock in PG&E's monopoly over its existing service areas," but the text does not refer to that subject or even mention PG&E.

"Despite what its proponents would have us believe, Prop. 16 doesn't help taxpayers and doesn't empower voters - in fact, it does the exact opposite," said San Francisco City Attorney Dennis Herrera.

Read more.

Understanding Climate's Influence on Human Evolution

Free from the National Academies Press.

House Health Care Accountability Pledge

MoveOn is collecting pledges (not donations!) to support primary challenges to Democrats who fail to support Health Care. I joined with this message to the potential waverers.

You may think that not supporting Health Care will save your re-election chances. Far from it. If Health Care fails all Democrats are doomed. It won't help for you to say that you turned against it at the last minute. The Republicans will cite your earlier vote for it. You are in the same boat as the rest of the Democrats. If Health Care fails, all Democrats are doomed, including you. So do the right thing and support Health Care.

You can join here .

Buzz updating

An interesting feature of Google's Buzz is that it updates messages. I have it set up so that every blog post I create becomes a Buzz message. That's fine, but not all that unusual. What's especially neat is that when I edit my blog post, the Buzz message is edited at well.

So I guess this means that the Buzz messages aren't copied from the blog and sent as messages. What Buzz must send as messages to its message stream are pointers back to the blog entries so that when you look at a Buzz entry that pointer is expanded to show the current content of the blog entry. Very neat.

Very Social Science: A Review of "Connected"

This is from a review of Connected, a book that's been out for 6 months and has already received quite a bit of notice. But this new review reminded me of my previous post about altruism.

College freshmen with depressed roommates become increasingly depressed themselves over a three-month period. Diners sitting next to heavy eaters end up eating more food. Homeowners with neighbors who garden wind up with better looking lawns.

So not only does altruism breed more altruism but apparently witnessing almost anything tends to make one more likely to act that way as well.

Human Culture Plays a Role in Natural Selection

From NYTimes.com.

As with any other species, human populations are shaped by the usual forces of natural selection, like famine, disease or climate. A new force is now coming into focus. It is one with a surprising implication — that for the last 20,000 years or so, people have inadvertently been shaping their own evolution.

The force is human culture, broadly defined as any learned behavior, including technology. The evidence of its activity is the more surprising because culture has long seemed to play just the opposite role. Biologists have seen it as a shield that protects people from the full force of other selective pressures, since clothes and shelter dull the bite of cold and farming helps build surpluses to ride out famine.

Because of this buffering action, culture was thought to have blunted the rate of human evolution, or even brought it to a halt, in the distant past. Many biologists are now seeing the role of culture in a quite different light.

Although it does shield people from other forces, culture itself seems to be a powerful force of natural selection. People adapt genetically to sustained cultural changes, like new diets. And this interaction works more quickly than other selective forces, “leading some practitioners to argue that gene-culture co-evolution could be the dominant mode of human evolution,” Kevin N. Laland and colleagues wrote in the February issue of Nature Reviews Genetics. Dr. Laland is an evolutionary biologist at the University of St. Andrews in Scotland.

Altruism leads to more altruism

From The Greater Good Blog

Ever get that warm fuzzy feeling in your chest when you see someone do something nice for someone else? Scientists call that feeling “elevation,” and studies show that people experience elevation when they witness a virtuous act, especially one that helps others.

But does this good feeling actually lead to good deeds? That’s what psychologist Simone Schnall and colleagues wanted to find out in a new study published in Psychological Science, asking whether feelings of elevation lead to altruistic behavior.

[A couple of experiments are described]

The results convince Schnall and her colleagues that witnessing goodness is in fact enough to inspire kind, helpful—or “prosocial”—behavior.

“Our findings suggest that, by eliciting elevation, even brief exposure to other individuals’ prosocial behavior motivates altruism,” write the authors, “thus potentially providing an avenue for increasing the general level of prosociality in society.”

See The Greater Good Blog for details about the experiment.