Profits and Ballot Boxes

In the comments of this post, commenter Wally and I discuss the business feedback of profit and government feedback of votes.

W. E. Heasley, of The Last Embassy blog, recently posted an excellent short video from Learn Liberty that helps explain why voting isn’t a very effective feedback mechanism:

 

Most of us make purchasing and voting decisions. Sometimes they are a little of both, like when you vote with your family on what’s for dinner.

The following are links to and excerpts from previous posts I’ve made quoting economists Thomas Sowell and Walter Williams, who do an excellent job of explaining why purchase decisions are a more effective feedback mechanism than voting.

1. From this post in 2010, I quoted from Thomas Sowell’s book, Intellectuals and Society.  He explains the difference in these feedbacks well:

The fundamental difference between decision-makers in the market and decision-makers in government is that the former are subject to continuous and consequential feedback which can force them to adjust to what others prefer and are willing to pay for, while those who make decisions in the political arena face no such inescapable feedback to force them to adjust to the reality of other people’s desires and preferences.

A business with red ink on the bottom line knows that this cannot continue indefinitely, and that they have no choice but to change whatever they are doing that produces that red ink, for which there is little tolerance even in the short run, and which will be fatal to the whole enterprise in the long run.  In short, financial losses are not merely informational feedback but consequential feedback which cannot be ignored, dismissed or spun rhetorically through verbal virtuosity.

In the political arena, however, only the most immediate and most attention-getting disasters — so obvious and unmistakable to the voting public that there is no problem of “connecting the dots” — are comparably consequential for the political decision-makers.  But laws and policies whose consequences take time to unfold are by no means as consequential for those who created those laws and policies, especially if the consequences emerge after the next election.  Moreover, there are few things in politics as unmistakable in its implications as red ink on the bottom line is in business.  In politics, no matter how disastrous a policy may turn out to be, if the causes of the disaster are not understood by the voting public, those officials responsible for the disaster may escape accountability, and of course, they have every incentive to deny having made mistakes, since admitting mistakes can jeopardize a whole career.

2. In three paragraphs that I quoted from Thomas Sowell’s book, Applied Economics, he explains the differences in our buying and voting decisions. Here are those three paragraphs:

Politics and the markets are both ways of getting people to respond to other people’s desires.  Consumers deciding which goods to spend their money on have often been analogized to voters deciding which candidates to elect to public office.  However the two processes are profoundly different.  Not only do individuals invest very different amounts of time and thought in making economic vs. political decisions, those are inherently different in themselves.  Voters decide whether to vote for one candidate or another but they decide how much of what kinds of food, clothing, shelter, etc. to purchase.  In short, political decisions tend to be categorical, while economic decisions tend to be incremental.

Incremental decisions can be more fine-tuned than deciding which candidate’s whole package of principles and practices comes closest to meeting your own desires.  Incremental decision-making also means that not every increment of even very desirable things is likewise necessarily desirable, given that there are other things that the money could be spent on after having acquired a given amount of a particular good or service. For example, although it might be worthwhile spending considerable money to live in a nice home, buying a second home in the country may or may not be worth spending money that could be used for sending a child to college or for recreational travel overseas.  One consequence of incremental decision-making is that increments of many desirable things remain unpurchased because they are almost–but not quite–worth the sacrifices required to get them.

From a political standpoint, this means that there are always numerous desirable things that government officials can offer to provide to voters who want them–either free of charge or at reduced, government-subsidized prices–even when the voters do not want these increments enough to sacrifice their own money to pay for them.  The real winners in this process are politicians whose apparent generosity and compassion gain them political support.

3. In his classic column, Conflict or Cooperation, which I linked to in this post, Walter Williams explains how to pit beer drinkers against wine drinkers. Here’s a taste:

Different Americans have different and often intense preferences for all kinds of goods and services. Some of us have strong preferences for beer and distaste for wine while others have the opposite preference — strong preferences for wine and distaste for beer. Some of us hate three-piece suits and love blue jeans while others love three-piece suits and hate blue jeans. When’s the last time you heard of beer drinkers in conflict with wine drinkers, or three-piece suit lovers in conflict with lovers of blue jeans? It seldom if ever happens because beer and blue jean lovers get what they want. Wine and three-piece suit lovers get what they want and they all can live in peace with one another.

It would be easy to create conflict among these people. Instead of free choice and private decision-making, clothing and beverage decisions could be made in the political arena. In other words, have a democratic majority-rule process to decide what drinks and clothing that would be allowed. Then we would see wine lovers organized against beer lovers, and blue jean lovers organized against three-piece suit lovers. Conflict would emerge solely because the decision was made in the political arena. Why? The prime feature of political decision-making is that it’s a zero-sum game. One person’s gain is of necessity another person’s loss. That is if wine lovers won, beer lovers lose.

The differences in political and private decisions has spawned a branch of economics study called public choice economics. Here’s more.

 

Central Planning

Lack of central planning isn’t the same as lack of planning.  I thought I had this original thought recently.  Then I opened Sowell’s Intellectuals and Society to the pages I had marked for quoting on this blog and this was the first one I came to (p. 53):

Despite the often expressed dichotomy between chaos and planning, what is called “planning” is the forcible suppression of millions of people’s plans by a government-imposed plan.  What is considered to be chaos are systemic interactions whose nature, logic and consequences are seldom examined by those who simply assume that “planning” by surrogate decision-makers must be better.

It turns out, I had read it some weeks back and it must have just registered in my long-term memory.

Sowell’s point works well with this insight from Steven Landsburg, that believers in central planning have been led Continue reading

Who Made You King?

From page 291 of Sowell’s Intellectuals and Society (emphasis added):

…the intellectuals’ vision of the world — as it is and as it should be — remains the dominant vision.  Not since the days of the divine rights of kings has there been such a presumption of a right to direct others and constrain their decisions, largely through expanded powers of government.

Everything from economic central planning to environmentalism epitomizes the belief that third parties know best and should be empowered to override the decisions of others.  This includes preventing children from growing up with the values taught them by their parents if more “advanced” values are preferred by those who teach in the schools and colleges.

An effective technique is to call someone out on such presumptuousness.  Often times, they are blind to the fact that Continue reading

Sending Men to the Moon Part II

I think I’ve been reading too much Thomas Sowell.  I’ve nearly finished one of his latest books, Intellectuals and Society.  It is a must-read.  The history of public and intellectual opinion around wars is worth it alone.

Sowell likes to point out arguments that aren’t really arguments, but we allow them to pass as acceptable arguments anyway.  He calls the ability to do this verbal virtuosity.   After reading a few hundred pages of examples, I’m finding myself better at picking out such things.

I heard a radio talk show host mention last night that if you believe that we didn’t send men to the moon (which reminded me of my previous post on the subject), then you’re “just crazy.”

That might be true and most people likely agree, but that is not an argument to support whether men were indeed sent to the moon or not.  That’s name calling.  It’s an ad hominem attack or fallacy.  In other words, whether or not a person is crazy is not linked to whether men made it to the moon or not.

It’s probably not worth debating whether we sent a man to the moon, which isn’t an argument either, but may be better than an ad hominem.

Five Excellent Paragraphs from Thomas Sowell

The following paragraphs are from pages 60 through 61 of Thomas Sowell’s Intellectuals and Society.

For several years, I’ve theorized that any problem can be sourced to a problem with a feedback loop.  Supernanny knows this.  Kids aren’t bad.  The feedback the parents provide their kids is usually to blame.  Overweight people choose to ignore the feedback the scale or BMI provides.   Moral hazard is a feedback problem.  Car accidents are usually a result of a feedback problem, whether it be with a driver or with the vehicle system.

In these paragraphs, Sowell eloquently writes about feedback problems, markets and goverment.  He uses the term consequential feedback.  I wish I would have thought of that.

Continue reading