The problem of increasing returns to scale and public goods provisioning
January 2, 2019 6:14 AM Subscribe
E. Glen Weyl:[1,2,3] "I believe it is the deepest and most pernicious failure in this philosophy and the one whose solution would require the most systematic rethinking of the whole project, rather than just tweaks along the edges. That issue is the problem of what one might call public goods, but is much broader than how many economists usually think of public goods and thus I will label the issue of increasing returns."[4,5,6] (threadreader; via 'the problem of increasing returns to scale, how little it is addressed, how carefully ignored')
backstory: "Straightforward: a substantial amount of economic power and inefficiency is not eliminated by deconcentration/free entry. Not clear, lots of problems are made worse by free entry/competition. Low margins mean harder to unionize. Innovation is done by big firms. On simple efficiency grounds things can get worse in market with advantageous selection (eg loans) or with any negative ext." (via 'the most exciting Econ Twitter debate of the year')
also btw...
The Liberal Radicalism Mechanism for Producing Public Goods - "We were able to compute the optimum level of the public good because we knew each individual's utility function. In the real world each individual's utility function is private information. Thus, to reach the social optimum we must solve two problems. The information problem and the free rider problem... Naturally there are a few issues. The optimal solution is a Nash equilibrium which may not be easy to find as everyone must take into account everyone else’s actions to reach equilibrium (an iterative process may help). The mechanism is also potentially vulnerable to collusion."
Vitalik Buterin and Glen Weyl dialog - "The last couple of weeks talking to economists, sociologists and philosophers I have felt like they are hacking through a forest with pen knife and this perspective enables me to look from above (things still fuzzy) and have a crew of chainsaws at my command."
How economists became so timid - "Political economy has fragmented into a series of disparate fields, none of which has the breadth, creativity, or courage to support the reformist visions that were crucial to navigating past crises."
backstory: "Straightforward: a substantial amount of economic power and inefficiency is not eliminated by deconcentration/free entry. Not clear, lots of problems are made worse by free entry/competition. Low margins mean harder to unionize. Innovation is done by big firms. On simple efficiency grounds things can get worse in market with advantageous selection (eg loans) or with any negative ext." (via 'the most exciting Econ Twitter debate of the year')
also btw...
The Liberal Radicalism Mechanism for Producing Public Goods - "We were able to compute the optimum level of the public good because we knew each individual's utility function. In the real world each individual's utility function is private information. Thus, to reach the social optimum we must solve two problems. The information problem and the free rider problem... Naturally there are a few issues. The optimal solution is a Nash equilibrium which may not be easy to find as everyone must take into account everyone else’s actions to reach equilibrium (an iterative process may help). The mechanism is also potentially vulnerable to collusion."
Vitalik Buterin and Glen Weyl dialog - "The last couple of weeks talking to economists, sociologists and philosophers I have felt like they are hacking through a forest with pen knife and this perspective enables me to look from above (things still fuzzy) and have a crew of chainsaws at my command."
How economists became so timid - "Political economy has fragmented into a series of disparate fields, none of which has the breadth, creativity, or courage to support the reformist visions that were crucial to navigating past crises."
Self-styled American and European radicals, for example, helped end monarchy and expand the franchise. The free-labor ideology of European radicals and American Radical Republicans helped abolish serfdom and slavery and establish a new basis for industrial labor relations. The late 18th and 19th centuries also witnessed the liberal reformism of Jeremy Bentham, Smith, James and John Stuart Mill, and the Marquis de Condorcet; the socialist revolutionary ideologies of Pierre-Joseph Proudhon and Marx; the labor unionism of Beatrice and Sydney Webb; and, influential at the time but now mostly forgotten, the competitive common ownership ideology of Henry George and Léon Walras. This ideology shaped the Progressive movement in the United States, the “New Liberalism” of David Lloyd George in Britain, the radicalism of Georges Clemenceau in France, even the agenda of the Nationalist Chinese revolutionary leader Sun Yat-Sen. The Keynesian and welfare-state reforms of the early 20th century set the stage for the longest and most broadly shared period of growth in human history...An email from Glen Weyl - "The questions are then a) does the innovation have enough promise to be worth experimenting with, b) is it so risky to experiment with at small scales even that this vitiates a) and c) does it seem like these experiments will teach us something about broader scale applicability."[7]
Yet even as economists retreated from visionary social theory, the power they wielded over detailed policy decisions grew. A notable feature of this policy guidance was that it shared the narrowness of economists’ research methods. Policy reforms advocated by mainstream economists were almost always what we call “liberal technocratic” — either center-left or center-right. Economists suggested a bit higher or lower minimum wage or interest rate, a bit more or less regulation, depending on their external political orientation and evidence from their research. But they almost never proposed the sort of sweeping, creative transformations that had characterized 19th-century political economy.
How to explain this timidity? As with many professions endowed with power (like the military), economics developed strict codes of internal discipline and conformity to ensure that this power was wielded consistent with community standards.
The upshot is that economics has played virtually no role in all the major political movements of the past half-century, including civil rights, feminism, anticolonialism, the rights of sexual minorities, gun rights, antiabortion politics, and “family values” debates.
In the real world each individual's utility function is private information. Thus, to reach the social optimum we must solve two problems. The information problem and the free rider problem...
This sounds to my non-economist/internet-bloviator ear like "we need to eradicate privacy in order to use an algorithm to compel everyone to work optimally hard, thereby achieving equilibrium" which in turn sounds like a way to turn people into some sort of economic slurry. Boo.
posted by grumpybear69 at 7:19 AM on January 2, 2019 [5 favorites]
This sounds to my non-economist/internet-bloviator ear like "we need to eradicate privacy in order to use an algorithm to compel everyone to work optimally hard, thereby achieving equilibrium" which in turn sounds like a way to turn people into some sort of economic slurry. Boo.
posted by grumpybear69 at 7:19 AM on January 2, 2019 [5 favorites]
I read the twitter thread and only dimly grasp it. From a Marxist political economy perspective, which is really the only one I know, is he basically saying something along the lines of this:
1. digital automation intensifies the process of value extraction and alters the composition of labour and
2. we're at the point where the unequal (upward) distribution of surplus value can only accelerate from now on
?
ELI5 but have a Ph.D. in the humanities.
posted by Morpeth at 7:34 AM on January 2, 2019 [2 favorites]
1. digital automation intensifies the process of value extraction and alters the composition of labour and
2. we're at the point where the unequal (upward) distribution of surplus value can only accelerate from now on
?
ELI5 but have a Ph.D. in the humanities.
posted by Morpeth at 7:34 AM on January 2, 2019 [2 favorites]
"we need to eradicate privacy in order to use an algorithm to compel everyone to work optimally hard, thereby achieving equilibrium"
New York Times, Firm Led by Google Veterans Uses A.I. to ‘Nudge’ Workers Toward Happiness
If we have to use AI, I'd rather we use it to allow everyone to be optimally lazy, but I think I'm falling more and more on the "Butlerian Jihad" side of things every day.
posted by ragtag at 7:35 AM on January 2, 2019 [6 favorites]
New York Times, Firm Led by Google Veterans Uses A.I. to ‘Nudge’ Workers Toward Happiness
If we have to use AI, I'd rather we use it to allow everyone to be optimally lazy, but I think I'm falling more and more on the "Butlerian Jihad" side of things every day.
posted by ragtag at 7:35 AM on January 2, 2019 [6 favorites]
Grumpybear, it's not quite so bad as that.
The utility function is the complex interaction of an individual's wants and needs, and it varies person by person. One person might prefer 2 donuts to 1 bagel, the other might prefer 1 bagel, and a third might be doing keto in the new year and prefer $1 to either option. It's that in the absence of a good way to measure these, economics assumes that people (at least en masse) prefer whatever is most valuable (dollar-wise), and that the free market determines that market rate.
But of course, basing policy on the average want of the average person isn't actually nearly as good as a flexible policy that allows more people to live happily.
Right now, society is pretty well-equipped to reward someone who decides working 80 hours/week for a high, high salary is what they want. Society misses when someone decides they'd rather work 20-30 hours/week and live off that salary, because (for example) they need the health insurance that requires 40 hours/week.
When he talks about the "free rider" problem, he's actually calling the capitalists the "free riders." They're getting all the benefit of the increasing returns for no reason except that we've decided that they're entitled to it via capitalism.
posted by explosion at 7:37 AM on January 2, 2019 [7 favorites]
The utility function is the complex interaction of an individual's wants and needs, and it varies person by person. One person might prefer 2 donuts to 1 bagel, the other might prefer 1 bagel, and a third might be doing keto in the new year and prefer $1 to either option. It's that in the absence of a good way to measure these, economics assumes that people (at least en masse) prefer whatever is most valuable (dollar-wise), and that the free market determines that market rate.
But of course, basing policy on the average want of the average person isn't actually nearly as good as a flexible policy that allows more people to live happily.
Right now, society is pretty well-equipped to reward someone who decides working 80 hours/week for a high, high salary is what they want. Society misses when someone decides they'd rather work 20-30 hours/week and live off that salary, because (for example) they need the health insurance that requires 40 hours/week.
When he talks about the "free rider" problem, he's actually calling the capitalists the "free riders." They're getting all the benefit of the increasing returns for no reason except that we've decided that they're entitled to it via capitalism.
posted by explosion at 7:37 AM on January 2, 2019 [7 favorites]
There is no way that you could look at any of the above honestly and come to the conclusion that economics played no role.
I take him to be speaking of economics-the-actually-existing-academic-field-composed-of-departments-and-faculty, in which case I think it's a less risible statement, though probably still false especially in as much as the relevant actors were informed by economic analyses by academics even if they were not themselves academics.
posted by PMdixon at 7:37 AM on January 2, 2019 [6 favorites]
I take him to be speaking of economics-the-actually-existing-academic-field-composed-of-departments-and-faculty, in which case I think it's a less risible statement, though probably still false especially in as much as the relevant actors were informed by economic analyses by academics even if they were not themselves academics.
posted by PMdixon at 7:37 AM on January 2, 2019 [6 favorites]
Firm Led by Google Veterans Uses A.I. to ‘Nudge’ Workers Toward Happiness
Well better googles algorithms than amazons or facebooks algorithms....
posted by sammyo at 7:41 AM on January 2, 2019
Well better googles algorithms than amazons or facebooks algorithms....
posted by sammyo at 7:41 AM on January 2, 2019
I had an idea for an SF story (stolen in a bad way by a bad wanabe blockbuster) where the phone call wakes you and it's a voice saying "good morning, this is the AI, you're going to do "this" and "this" and "this" today. And it turns out that you just not only want to do those things it makes stuff in your life and those around you better. And everyone lived happily ever after.
posted by sammyo at 7:48 AM on January 2, 2019 [2 favorites]
posted by sammyo at 7:48 AM on January 2, 2019 [2 favorites]
(pretty sure 'AI' is just a fancy acronym for utility function)
posted by sammyo at 8:00 AM on January 2, 2019 [1 favorite]
posted by sammyo at 8:00 AM on January 2, 2019 [1 favorite]
Following PMDixon, we know that psychology, as a discipline, was an important participant in the civil rights era because we can see the citations to psychology papers in _Brown_. I'm not going to go looking, but IIRC at least some of the decisions introducing same-sex marriage cited psych or sociology work on child-rearing outcomes. If econ was important in these movements, then it should be easy to find the articles in economics journals that were making these arguments.
Contrary to PMDixon, I don't think the-generic-you would be able to find much.
posted by GCU Sweet and Full of Grace at 8:08 AM on January 2, 2019 [2 favorites]
Contrary to PMDixon, I don't think the-generic-you would be able to find much.
posted by GCU Sweet and Full of Grace at 8:08 AM on January 2, 2019 [2 favorites]
If econ was important in these movements, then it should be easy to find the articles in economics journals that were making these arguments.
A long running battle cry of feminism has been that equality issues are economic issues - and there has been use of economic studies to show the financial impact of gender inequality. The infamous Moynihan Report was an economic based rebuttal to the Civil Rights Movement. And so on.
And as the aforementioned report shows, the actual problem with economics as a discipline was not that it was uninvolved - but rather that it was often on the wrong side of history.
posted by NoxAeternum at 8:25 AM on January 2, 2019 [5 favorites]
A long running battle cry of feminism has been that equality issues are economic issues - and there has been use of economic studies to show the financial impact of gender inequality. The infamous Moynihan Report was an economic based rebuttal to the Civil Rights Movement. And so on.
And as the aforementioned report shows, the actual problem with economics as a discipline was not that it was uninvolved - but rather that it was often on the wrong side of history.
posted by NoxAeternum at 8:25 AM on January 2, 2019 [5 favorites]
"And it turns out that you just not only want to do those things it makes stuff in your life and those around you better. "
I used to claim that my ultimate goal was to have a skyscraper filled with people employed to figure out what I should do next. My life would pass in a blur of personalised and delightful events orchestrated solely for me.
Obviously I never achieved this, but I offer it as a possible life path for younger and more energetic Mefites.
posted by thatwhichfalls at 8:32 AM on January 2, 2019 [8 favorites]
I used to claim that my ultimate goal was to have a skyscraper filled with people employed to figure out what I should do next. My life would pass in a blur of personalised and delightful events orchestrated solely for me.
Obviously I never achieved this, but I offer it as a possible life path for younger and more energetic Mefites.
posted by thatwhichfalls at 8:32 AM on January 2, 2019 [8 favorites]
I had an idea for an SF story (stolen in a bad way by a bad wanabe blockbuster) where the phone call wakes you and it's a voice saying "good morning, this is the AI, you're going to do "this" and "this" and "this" today.
If you tilt your head a bit, that's basically "Ziggy" from Quantum Leap.
posted by tobascodagama at 8:56 AM on January 2, 2019
If you tilt your head a bit, that's basically "Ziggy" from Quantum Leap.
posted by tobascodagama at 8:56 AM on January 2, 2019
Individual utility functions are not “private”. They are unknowable even to the individuals themselves. For example no one knew they needed a horseless carriage or a smartphone before such things were invented.
posted by monotreme at 9:05 AM on January 2, 2019 [4 favorites]
posted by monotreme at 9:05 AM on January 2, 2019 [4 favorites]
Individual utility functions are not “private”. They are unknowable even to the individuals themselves. For example no one knew they needed a horseless carriage or a smartphone before such things were invented.
Scope creep! Limit solution search space to work with data currently at hand!!
posted by Enturbulated at 9:46 AM on January 2, 2019 [2 favorites]
Scope creep! Limit solution search space to work with data currently at hand!!
posted by Enturbulated at 9:46 AM on January 2, 2019 [2 favorites]
"Utility function" is a term of art with a fairly rigorous definition, mostly the work of Gérard Debreu, who ended up with a Nobel Prize (in Economics)—although I don't really know if the prize was for the utility function work or mostly later work. The seminal paper was written in 1954 and is called Representation of a Preference Ordering by a Numerical Function, but I can't find it free in fulltext online at the moment. But the Debreu theorems were the outcome of his work. Some fairly gnarly math is involved if you're not into topology.
It deals only with alternatives, i.e. "would you prefer A or B" scenarios, where A and B are both available options. Stuff like, "would you prefer to go out and see a movie, or stay home and read a book?" and so on, typically producing some sort of ranked list of preferences under specific conditions. He does include a parameter for frequency of choice, allowing for situations where someone might usually prefer donuts over bagels, but sometimes bagels over donuts, giving you an idea of, on average, how much more they prefer donuts, which is sometimes useful.
The analogous concept applied to an entire population, and dealing with collective choices, is the so-called "social welfare function".
Fun trivia (for some values of "fun"): Debreu's work built on the Von Neumann–Morgenstern utility theorem, and yes, it was that von Neumann.
posted by Kadin2048 at 10:50 AM on January 2, 2019 [8 favorites]
It deals only with alternatives, i.e. "would you prefer A or B" scenarios, where A and B are both available options. Stuff like, "would you prefer to go out and see a movie, or stay home and read a book?" and so on, typically producing some sort of ranked list of preferences under specific conditions. He does include a parameter for frequency of choice, allowing for situations where someone might usually prefer donuts over bagels, but sometimes bagels over donuts, giving you an idea of, on average, how much more they prefer donuts, which is sometimes useful.
The analogous concept applied to an entire population, and dealing with collective choices, is the so-called "social welfare function".
Fun trivia (for some values of "fun"): Debreu's work built on the Von Neumann–Morgenstern utility theorem, and yes, it was that von Neumann.
posted by Kadin2048 at 10:50 AM on January 2, 2019 [8 favorites]
Scope creep! Limit solution search space to work with data currently at hand!!
We can't measure (or don't want to pay to measure) what we want to measure, so we measure what we can (cheaply, easily) measure and pretend that is what we wanted to measure.
posted by straight at 11:22 AM on January 2, 2019 [4 favorites]
We can't measure (or don't want to pay to measure) what we want to measure, so we measure what we can (cheaply, easily) measure and pretend that is what we wanted to measure.
posted by straight at 11:22 AM on January 2, 2019 [4 favorites]
my ultimate goal was to have a skyscraper filled with people employed to figure out what I should do nextAw, someone we can tell the good news about Facebook!
------
I see the social welfare function does lead right to Arrow's general impossibility theorem.
posted by clew at 12:17 PM on January 2, 2019
I had an idea for an SF story (stolen in a bad way by a bad wanabe blockbuster) where the phone call wakes you and it's a voice saying "good morning, this is the AI, you're going to do "this" and "this" and "this" today. And it turns out that you just not only want to do those things it makes stuff in your life and those around you better. And everyone lived happily ever after.
Bruce Sterling's Maneki Neko
posted by the man of twists and turns at 12:55 PM on January 2, 2019
Bruce Sterling's Maneki Neko
posted by the man of twists and turns at 12:55 PM on January 2, 2019
Explosion:
Right now, society is pretty well-equipped to reward someone who decides working 80 hours/week for a high, high salary is what they want. Society misses when someone decides they'd rather work 20-30 hours/week and live off that salary, because (for example) they need the health insurance that requires 40 hours/week. emphasis mine)
We probably agree on substance, but i want to make a fuss about the wording:
One of the ways mainstream economics makes invisible and contributes to oppressesion is by assuming this "these people choose freely their employer and employment". Your employer choose to hire and keep you, and your employer choose what to pay you, what you would do for them, and who you could speak to and how, what you could wear, when you can defecate and urinate.....
your choice was "i can submit, or i can starve, homeless and hated".
Sure, Oprah and Bloomberg and Musk can make choices for themselves. But modelling an economy based on the small fraction of willing participants who have large degrees of freedom will necessarily have low fidelity to the majority of economic participants whose participation is coerced by the threat of poverty and enforced by hundreds of thousands of trained, armed, professionally employed agents of state violence who make sure you can't sleep in empty homes, can't eat the apples that fall on the ground, and that you have to buy something to use a toilet.
So yeah, formal economics phrases things as choices and optimizations not innocently, but as a means of making invisible the barrel of the police gun that is minutes away from your head, at all times, everywhere.
/end rant
i agree. flex time and a diversity of employment terms,would be an improvement.
posted by Anchorite_of_Palgrave at 1:41 PM on January 2, 2019 [15 favorites]
Right now, society is pretty well-equipped to reward someone who decides working 80 hours/week for a high, high salary is what they want. Society misses when someone decides they'd rather work 20-30 hours/week and live off that salary, because (for example) they need the health insurance that requires 40 hours/week. emphasis mine)
We probably agree on substance, but i want to make a fuss about the wording:
One of the ways mainstream economics makes invisible and contributes to oppressesion is by assuming this "these people choose freely their employer and employment". Your employer choose to hire and keep you, and your employer choose what to pay you, what you would do for them, and who you could speak to and how, what you could wear, when you can defecate and urinate.....
your choice was "i can submit, or i can starve, homeless and hated".
Sure, Oprah and Bloomberg and Musk can make choices for themselves. But modelling an economy based on the small fraction of willing participants who have large degrees of freedom will necessarily have low fidelity to the majority of economic participants whose participation is coerced by the threat of poverty and enforced by hundreds of thousands of trained, armed, professionally employed agents of state violence who make sure you can't sleep in empty homes, can't eat the apples that fall on the ground, and that you have to buy something to use a toilet.
So yeah, formal economics phrases things as choices and optimizations not innocently, but as a means of making invisible the barrel of the police gun that is minutes away from your head, at all times, everywhere.
/end rant
i agree. flex time and a diversity of employment terms,would be an improvement.
posted by Anchorite_of_Palgrave at 1:41 PM on January 2, 2019 [15 favorites]
The "Liberal Radicalism" mechanism is interesting in a "1 weird trick" way in that it surprisingly does work under the (typical large set of microeconomic) assumptions of the model: shove in pretty much any (decreasing marginal) utility functions, apply the trick for topping up funding, and agents acting to maximize their personal utility will indeed cause the system to converge to the aggregate-optimal level of funding. But, the whole thing relies on individuals being able to know the derivatives of their personal utility functions, which is absurd but not impossible when we're talking about the marginal utility of getting extra guacamole on your burrito, but completely strains credulity when talking about having to assign a dollar value to the personal benefit you would get from a dollar of extra funding for public schools.
Buterin himself dropped into the comments to defend the proposal, saying:
"In this mechanism, people could think something like "it seems like if I contribute nothing this public water sanitation project would get $856070, if I contribute $50 it would get $864240, it intuitively feels like one percent more work on water sanitation is worth $50 for me so I'll do it".
Which I think highlights how totally ridiculous this would be in practice.
posted by Pyry at 3:56 PM on January 2, 2019 [3 favorites]
Buterin himself dropped into the comments to defend the proposal, saying:
"In this mechanism, people could think something like "it seems like if I contribute nothing this public water sanitation project would get $856070, if I contribute $50 it would get $864240, it intuitively feels like one percent more work on water sanitation is worth $50 for me so I'll do it".
Which I think highlights how totally ridiculous this would be in practice.
posted by Pyry at 3:56 PM on January 2, 2019 [3 favorites]
We can't measure (or don't want to pay to measure) what we want to measure, so we measure what we can (cheaply, easily) measure and pretend that is what we wanted to measure.
goodhart's law: "When a measure becomes a target, it ceases to be a good measure." :P
posted by kliuless at 8:53 PM on January 2, 2019 [1 favorite]
goodhart's law: "When a measure becomes a target, it ceases to be a good measure." :P
posted by kliuless at 8:53 PM on January 2, 2019 [1 favorite]
Yeah, but some targets were never good measures in the first place. (See teacher evaluations.)
posted by straight at 9:39 PM on January 2, 2019 [1 favorite]
posted by straight at 9:39 PM on January 2, 2019 [1 favorite]
I had an idea for an SF story (stolen in a bad way by a bad wanabe blockbuster)
....
Bruce Sterling's Maneki Neko
What? He stole my idea too?? There is definitely a secret thought capture machine hidden in the underground archive lair of the science fiction writers association. Now I know that tingling sensation was not just my imagination.
posted by sammyo at 8:15 AM on January 3, 2019
....
Bruce Sterling's Maneki Neko
What? He stole my idea too?? There is definitely a secret thought capture machine hidden in the underground archive lair of the science fiction writers association. Now I know that tingling sensation was not just my imagination.
posted by sammyo at 8:15 AM on January 3, 2019
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posted by NoxAeternum at 7:18 AM on January 2, 2019 [6 favorites]