Tuesday, March 8, 2011

Russian Dolls

Incentive structures are created within other incentive structures, and at the outermost edge is only the initial distribution of the capability for force.



Should fast food restaurants be allowed to sell food without posting calorie content? To market unhealthy food to children?

Should garbage cans be labeled "Landfill"?

Should manufacturers be allowed to sell caffeinated alcoholic beverages? To whom should alcoholic beverages be sold?

Should prostitution be legal? Drugs? Weapons? Nukes? Divorce?

What should the age of contractual capacity be? The age of sexual consent?

What should be the consequences of a breach of contract?

Are taxes the same as stealing?

A System of Incentives

The field of law & economics recognizes that a system of law is a system of incentives. We adjust human welfare by adjusting the incentive structures in which humans operate.

Any incentive structure, including but not limited to a legal system, helps people predict how they will be treated, and thus how to plan their actions. Any incentive structure will do, more or less, for this purpose. But some individuals will always be treated sub-optimally by any incentive structure. The only certainty is that some will live in misery - there is always plenty of misery to go around. But who should be miserable, and how miserable, and why?

By creating or adjusting incentive structures, planners assume that they know what is best for human flourishing. Creating and adjusting incentive structures is an inherently epistemically ungenerous activity. This, I think, is the main problem with Bryan Caplan's take on behavioral economics, which I've previously summarized thus:
Bryan Caplan thinks that the solution [to the problem of men not wanting to work] is to not have soup kitchens. That is, to make everybody so miserable that they HAVE to work, or else.

Caplan (and his coauthor) "know" that it's better for people to live as close to a "productive," middle-class existence as possible; so they argue we should adjust the incentive structure to give the poor fewer choices so that they are forced to make the "right" choice.

The search for a just, ethically defensible incentive structure requires an attempt to get outside of any single individual or group's notion of what is best - to do what's best for everyone, not just the would-be incentivizer and his cronies.

The Russian Doll Problem

In some sense, incentive structures compete with each other (e.g., capitalism v. communism). But even competing incentive structures exist within a wider incentive structure. The governments of countries may be seen as competing incentive structures, existing within the wider incentive structure of the world. Organized crime and government are competing systems of incentive, and operate within the wider incentive structure of the natural world. This is true even if the background incentive structure is merely "might makes right" - which is probably the only possible top-level, ultimate incentive structure.

Creating and adjusting incentive structures is at best hubris, at worst tyranny.

Some (libertarians, the religious, and advocates of democracy, for example) ignore this problem by assuming a privileged status for some kind of incentive structure.

Privileged Incentive Structure: God Said So

Some of the most successful religions worldwide have a built-in legal system and/or incentive structure. For this reason, some religions function very well as technologies that promote trade. Sharia in Islam, Gemora in Judaism, and Canon law in Christianity are the most well-known examples.

Religions are not written texts. The written text (e.g. Mishnah) is like a constitution - but a government is not its constitution. The United States has a tiny little constitution, but the system of incentives is largely given by the enormous system of courts and police that interpret and enforce the written text.

Adherents of these religions get around the Russian dolls problem of incentive structures by assuming a privileged status for their enshrined incentive structure on the basis that this incentive structure was ordained by God.

Privileged Incentive Structure: The Market Said So

Libertarians attribute a privileged status to the "free market." However, a market exists within a context of a wider incentive structure (the initial distribution, human nature, scarcity). Markets are not ever really "free" - there must be a wider incentive structure to contain the market, even if this incentive structure is merely "might makes right."

Privileged Incentive Structure: The People Said So

A novel solution to the Russian Dolls problem of incentive structures is: let the participants choose their own incentive structure. Various forms of democracy claim to embody this solution.

Ultimately, this is no more than creating a market to determine the rules for the market. "One person-one vote" is, ultimately, as arbitrary as "one dollar, one vote" (or "one bullet, one vote," for that matter). Why is a person the proper unit of democracy? Why adults and not children? Why present people and not future people? What about the rights of those in the minority position on anything? Why is it fair for a majority to impose its will on a minority? Democracy is, at best, a caricature of consent.

Prior to garnering fame as an authoritarian parenting enthusiast, law and economics scholar Amy Chua wrote a book (World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability) explaining some of the problems with "democracy-as-privileged-incentive-structure" - especially when combined with a purportedly free market. In the real world, economic advantage tends to not be spread equally among people - or randomly. Advantages, whether intellectual or material, tend to be clustered within identifiable groups of people, and these groups tend to attempt to manipulate the system of incentives to increase this clustering (that is, to promote inequality). Unfortunately, the red-in-tooth-and-claw nature of the background incentive structure is frequently revealed when "market-dominant minorities" are punished for their inequality-promoting success in often gruesome ways by the (ethnic) majority.

Is the "free market" right, in this case? Should market-dominant minorities, racial or otherwise, own and keep an ever-growing majority share of the world's property? Or is "democracy" right? Should the majority be able to punish the market-dominant few? The conflict, rarely acknowledged, demonstrates that neither is an inherently good incentive structure.

The nature of our universe prevents an ethically sound incentive structure from existing.

It's the initial distribution all the way down.



Misery, or suffering, might be defined as that of which there is negative scarcity. Not only is there an abundance, but there is an abundance and its consumption is not optional. I think it is more humane to think of economics in terms of a system for the distribution of misery, rather than the distribution of scarce, utility-promoting goods and services.

6 comments:

  1. Algonomy, the discipline concerned with the knowledge and management of suffering, allows to develop a system for the distribution of misery. Who should be miserable, and how miserable, and why? These are the very questions that a universal algonomic strategy must address (you may have a look at http://www.algosphere.org/intro/classif.htm#ccan ).

    I am following your posts, sister, because several of them involve ideas that are closely related to algonomy. Hopefully, we might collaborate someday.

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  2. You write:

    "Creating and adjusting incentive structures is at best hubris, at worst tyranny."

    I don't disagree. My question is: do you find room for qualitative distinctions within this spectrum (or dichotomy)? The question might matter because, based on your outline, it certainly seems as though the creation of incentive structures is as inevitable as human enterprise itself. Of course I think this constitutes an important and possibly essential argument for antinatalism as a preemptive "out" for those who would otherwise be conscripted, but for those who didn't dodge the draft, is there a redoubt? If we acknowledge the conceit -- or the tyranny -- that prefigures every practical move, what is to be done? I know which Pop-Tarts I prefer, and not everyone agrees.

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  3. The nature of our universe prevents an ethically sound incentive structure from existing.

    I don't think this conclusion follows from this post and the TDJM post, unless you have an all-or-nothing valuation of a system or regime or structure's ethical soundness.

    Some incentive structures produce Pareto-inferior distributions of misery than others. And there are likely incentive structures that produce Pareto-superior distributions of misery than some existing incentive structures. If your ethics includes a conception of "right" that is different from "good", then incentive structures will be variously better or worse at improving the *justice* of the distribution of misery.

    The impossible perfect structure should not be the enemy of possible better structures. The current generation of children is unlikely to be the last, so we ought to work toward improving incentive structures such that they produce a fairer and/or better distribution of misery for the sake of those who will suffer after us.

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  4. Libertarians attribute a privileged status to the "free market." However, a market exists within a context of a wider incentive structure (the initial distribution, human nature, scarcity). Markets are not ever really "free" - there must be a wider incentive structure to contain the market, even if this incentive structure is merely "might makes right."

    This is a caricature of the libertarian position. "Market incentives in everything" is not what libertarians are for, and they're only for "free markets in everything" when they define "free market" as all voluntary human interaction and exchange (like e.g. Rothbard does) or more accurately as all human action sans the state. Most libertarians are in favor of or at least okay with not just charities like soup kitchens, but also mutual aid societies, fraternal organizations, health cooperatives, voluntary syndics, communes, democratic communities, and even straight-up egalitarian communism among friends and family (i.e. the Dunbar unit). Libertarians are not trying to dictate top down an incentive structure in all levels of human life for millions of people. That's nanny statism. Libertarianism is precisely incentive structure pluralism.

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  5. I understand this (e.g., that libertarianism permits all those nice things). What I contest is that there is any difference, in terms of fairness (or outcomes, really), between libertarianism and systems with coercive states.

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  6. Sister Y, http://econfaculty.gmu.edu/bcaplan/perfinal.doc has a quote from Charles Murray (Losing Ground, p. 9) "We tried to provide more for the poor and produced more poor instead." Not "instead": both were done simultaneously.

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