LESSWRONG
LW

by nigerweiss
3 min read
132

-14

Politics ahead!  Read at your own risk, mind killers, etc.  Let all caveats be well and thoroughly emptored.

It seems reasonably clear to me that, from a computational perspective, functional central planning is not practically possible.  Resource allocation among many agents looks an awful lot like an exponential time problem, and the world market is quite an efficient approximation.  In the real world, markets, regulated to preclude blackmail, theft, and slavery, will tend to provide a better approximation of "correct" resource allocation between free agents than a central resource allocation algorithm could plausibly achieve without a tremendous, invasive amount of information about the desires of every market participant, and quite a lot of computing power (within a few orders of magnitude of the combined computational budget of the human species).  

It would be naive to say that we'd need exactly the computational power of the human species in order to achieve it: we can imagine how we might optimize the resource allocation scheme by quite a lot.  Populations are (at least somewhat) compressible, in that there are a number of groups of individual people who optimize for similar things, allowing you to save on simulating all of them.  Additionally, a decent chunk of human neurological and intellectual activity is not dedicated to economic optimization of any kind, which saves you some computing time there as well.  And, of course, humans are not rational, and the homunculi representing them in the optimized market simulation could be, giving them substantially more bang for their cognitive buck - we can imagine, for instance, that this market simulation would not sink billions of dollars into lotteries each year!  It may also be that the behavior of the market itself, on some level, is lawful, and a sufficiently intelligent agent could find general-case solutions that are less expensive than market simulation.    

Still, though, the amount of information and raw processing power needed to pull off central planning competitive with the market approximation seems to be out of our reach for the time being.  As a result of this, and a few other factors, my own politics tend to lean Libertarian / minarchist, and I'm aware that there is some of this sentiment in circulation on this site, though generally not explicitly.  I'm trying to refine my beliefs surrounding some of the sticky issues in Libertarian philosophy (mostly related to children and extreme policy cases), and I thought I'd ask LW what they thought about one issue in particular.  

I have been wondering whether or not there are any interventions in the economy that can have a positive expected benefit.  I honestly don't know if this is the case: put another way, the question is really asking if there are any characteristic behaviors of markets that are undesirable in some sense, and can be corrected by the application of an external law.  Furthermore, such things cannot be profitable to correct for any participant or plausibly-sized collection of participants in the market, but must be good for the market as a whole, or must be something that requires regulatory power to fix.  

An obvious example of this sort of thing is the tragedy of the commons and negative externalities.  The most pressing case study would be climate change: the science suggests, fairly firmly, that human CO2 emissions are causing long-term shifts in global climate.  How disastrous these shifts will actually be is less well settled, but there is at least a reasonable probability that it will be fairly unpleasant, in the long term.  Personally, I feel that we are likely to run into much bigger problems much sooner than the 50-200 year timescales these disasters seem to expected on.  However, were this not the case, I find that I'm not quite sure how my ideal government, run by a few thousand much smarter and better informed copies of me, ought to respond to the issue.  I don't know what I think the ideal policy for dealing with these sorts of externalities is, and I thought I'd ask for LessWrong's thoughts on the matter.

In my own mind, I think that as light a touch as possible is probably desirable.  Law is a very blunt instrument, and crude legislation like a carbon tax could easily have its own serious negative implications (driving industry to countries that simply don't care about CO2 emissions, for example).  However, actions like subsidizing and partially deregulating nuclear power plants could help a lot by making coal-fired power plants noncompetitive.  We could also declare a policy of slowly withdrawing any government involvement in overseas oil acquisition, which would drive up the price of petroleum products and make electric cars a more appealing alternative.  However, I don't know if there would be horrifying consequences to any of these actions: this is the underlying problem - I am not as smart as the market, and guessing its moods is not something that I, or any human is going to be very good at.  However, it seems clear that some intervention is necessary in this sort of case.  Rock, hard place, you are here.  

Thoughts?  

Personal Blog

-14

How should negative externalities be handled? (Warning: politics)
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[-]ChristianKl230

Your core argument is ironic: "The world is really complex, so we can't effectively model it. Therefore we should just use the simply model where there only one approach to solving problems."

One clear example of positive government regulation are rules against mercury pollution. The EPA did a clear cost analysis calculation and found that the lost IQ of children is worth more than the benefit that the company get for polluting the enviroment with mercury.

Lead poisiong is another example. Rules to cut it back might even have reduced crime by a large margin.

It's very hard to argue that allowing companies to pollute as much as their wish leads to optimal results.

Reply
[-]OrphanWilde220

Fellow libertarian here, addressing your fundamental question as best I can: As a general rule of thumb, a good place to look for market failures are places where the market ends.

It's important to remember that, as our society is structured, the market is -defined by the government-. Capitalism, in our society, is in fact a form of regulation.

Quoting from my blog:

"Suppose we lived in a society in which land couldn't be owned, and you want to start a farm. However, every time you grow a crop, somebody else comes along and picks and eats it. How can the free market solve this problem?

...well, supposing a government does in fact exist, it can't. It would be illegal to punish somebody for picking crops. How utterly silly of you to even suggest such a thing.

The free market never gets to act on the problem, because the problem isn't part of its domain. Crop ownership? What? When somebody picks a fruit, it is theirs, that's the law. They can pick mushrooms and sell them, they just can't sprinkle mushroom spores around and claim the future produce as their own. And it would be criminal to sit over a field and bully people who try to pick vegetables and fruit that are theirs ... (read more)

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1buybuydandavis
Yes. Property is theft. And while I'm a big fan of private property, I also think it's often really is theft. Negative externalities are theory dependent, like property. What counts as 0 externality? If the girl you want prefers me, is that a negative externality? I wouldn't think so, because my rules of justice distinguishes between what I consider best and what I'll try to require by force from people. First activity - determine what you think is 0 before you try to figure out what to do about negatives.
4Luke_A_Somers
Externalities can be measured on a per-transaction basis. So take the difference to everyone not involved with and without the transaction. That yields a natural zero.
-5buybuydandavis
-3OrphanWilde
My ideal tax system taxes people based on land ownership (not property ownership - you can only be taxed for the land your house sits on, not the house itself, for complex reasons which basically come down to "the land was there before people, the house wasn't"), and distributes all post-spending taxes evenly across the population (and there's your welfare system). So I more or less agree with you that (certain kinds of) property (are)/is problematic. I'm less certain what you mean by "determining what I think is 0" - I understand the concept you're conveying, I am clueless as to why you're conveying it, which means I'm missing something you're trying to communicate.
[-]TsviBT130

My go to examples of "characteristic behaviors of markets that are undesirable in some sense, and can be corrected by the application of an external law" are markets that would naturally become monopolies. E.g. water and electricity. I'm not an economist and haven't done much/any research on this, but I imagine that without regulation, you'd get big private monopolies, which would then be able to charge way more than would be socially efficient. The free market fails here because the barriers to entry are way higher than in other markets.

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1nigerweiss
This seems intuitively likely, but, on the other hand, we thought the same thing about telecommunications, and our early move to nationalize that under the Bell corporation was wholeheartedly disastrous, and continues to haunt us to this day. I... honestly don't know. I suspect that some level of intervention is optimal here, but I'm not sure exactly how much. In the case of water, if we were required to move water in tanks rather than pipes, water would be more expensive and traffic would be worse, but we'd also probably see far less wasted water and more water conservation.
7Luke_A_Somers
Nationalization is not the only possible government intervention - antitrust regulations have different down-sides but they do mainly work by preserving the market rather than destroying it.
-10Dana1969
[-]Stuart_Armstrong110

Generally economists recommend pricing these externalities into the system - I think the american proposal was called "cap and trade" (it died). The EU has a similar system running. If these are properly implemented, you get a more efficient market than you had before, because the externalities now carry a price, and consumers and producers can react to the price accordingly.

If that's impossible (because of difficulties in getting international binding targets, for instance), then subsidies, rather than regulations, seem the most efficient way. I'd personally prefer to subsidise solar rather than nuclear, but this is mainly because I believe that solar power follows a Moore's law and that the long-term costs (including decommissioning) of nuclear are unclear and probably underestimated (I'm open to being persuaded on both counts).

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8sixes_and_sevens
There is a principle in economics called Theory of the Second Best, whereby if a market failure cannot be corrected, it may be better from a welfare and systemic hazard perspective to substitute it for a satisficing but suboptimal mechanism. Examples would include ham-fisted government intervention, which are strictly worse than an idealised market solution, but generally better than what a realistic market solution will actually provide.
3Stuart_Armstrong
Do you think this is a good case for that kind of interventions? Or are we thinking "second best" just because the first best options are not politically viable?
2sixes_and_sevens
I am not remotely qualified to say whether or not it's a good case, but it is an extremely unusual situation which deviates from micro market assumptions along numerous dimensions. When it comes to things like civil ordinance and domestic tomato produce, standard micro analysis is pretty good at capturing the salient characteristics of the situation and proposing remedial policy. In the case of high-profile issues, you're selecting for aberrant situations with unusual characteristics. In those cases, it's worth giving more consideration to ugly and distasteful interventions as well as smart and elegant ones.
4DanielLC
I think taxes works better. Cap and trade is good if there's a specific amount that's perfectly fine, but anything beyond that is horrible. In practice, it's generally going to be that the costs are fairly linear. If you increase CO2 emissions by x, it will cause a cost of kx, for some k. Just tax people by kx. In order for cap and trade to work, you'd have to know in advance how much CO2 emmissions is ideal. Also, from what I understand, they are giving people a certain amount of CO2 emissions or whatever it is they are trading, rather than just auctioning it off to begin with. This causes people to try and fight over who gets them to begin with, since you're essentially just giving them money for no good reason.
7pragmatist
With cap and trade you're directly controlling the quantity of emissions and allowing the market to price emissions subject to that constraint. With a carbon tax you're directly controlling the price and allowing the market to determine quantity subject to that constraint. In both cases you need to make some advance determination about the "ideal" level -- of emission quantity in one case and emission price in the other -- so I don't see any obvious disadvantage to cap and trade in this respect. In fact, the disadvantage may go the other way. After all, the direct aim of both cap and trade and a carbon tax is to control the quantity of emissions. We are only interested in controlling the price in so far as that effects the quantity demanded. If it turned out that the price elasticity of carbon emissions was effectively zero, for instance, so that changes in the price had no effect on the quantity of emissions, then I'm assuming you would regard a carbon tax as pointless. But if your interest is controlling quantity, why not control it directly rather than via control of another variable whose relationship to quantity you're uncertain about? Incidentally, there is some evidence that the price elasticity of oil is quite low (not zero, of course), even over the long term. This is especially true in some developing countries, where any effect of realistic increases in oil prices on demand is swamped by the effect of rapidly rising incomes. I do agree, though, that any actually implemented cap and trade system will fall prey to all kinds of jiggery-pokery due to corporate influence on the government, and will be far from the idealized system that many economists envision. Perhaps a carbon tax will be better in this regard. In any case, either policy would be a significant improvement over the status quo (in America).
-1DanielLC
Ideal emission quantity is a function of cost. Since cost is itself a function of quantity, it all gets very complicated. Ideal price, so long as the cost is an approximately linear function of quantity, which it will tend to be, is much simpler. You basically have to know the ideal price and the demand curve to figure out how to cap it, but you only need to know the price to find the the tax rate. If it was something where giving off more than X emissions would cause a runaway greenhouse effect and anything less than that is okay, then you'd cap and trade. But it's generally not like that. True, but that would also mean that anything that does work would have a cost far higher than we are willing to pay. The beauty of taxing it is that it makes us decrease CO2 emissions conditional on it being worth while. I never said that. As it is, we're giving away emissions for no good reason, but we don't have to. We can let the government have them to begin with, then sell them. Of course, these kinds of jiggery-poker are a large part of why we used this system. If lobbyists can change who you're giving emission rights to, they can also convince you it's a good idea to give people emission rights in the first place.
3pragmatist
The situation is entirely symmetric. If quantity is a linear function of cost, then cost is a linear function of quantity. I could easily flip your claim around and say, "You have to know the ideal quantity and the demand curve to figure out the optimal tax rate, but you only need to know the ideal quantity in order to determine the optimal cap." So I don't see how this is an argument for the claim that determining ideal price is simpler. The question is, which is more appropriately regarded as the dependent variable, ideal price or ideal quantity? Of course, neither is completely independent of the other. This is not an acyclic graph, unfortunately. Still, it does seem to me that our notion of the ideal price of emissions is (or at least should be) largely determined by a prior estimation of the quantity of sustainable emissions. It does not seem to me that our notion of ideal quantity should be fixed by some prior estimation of what the ideal price of emissions would be. How would we even come up with such an estimate? My understanding is that climate change does involve tipping points. Of course, it doesn't follow that "anything less than that is okay", but I don't see why cap and trade advocates would have to be committed to that claim. When individuals make decisions about carbon emissions in either the tax or the cap systems, I don't see their incentives as being significantly different. After all, if an individual (or individual firm) does not use up all of its credits, it could sell them. So in so far as you think taxes will disincentivize individual emissions linearly down to zero, cap and trade would have the same effect. The difference arises in the aggregate. A capping system allows you to be sensitive to tipping points in a way that a tax does not, at least not without performing the extremely complex task of figuring out what tax rate will ensure that we do not cross the point while at the same time avoiding unnecessary inefficiencies. I should als
0DanielLC
But how sure are you of where they are? How sure are you of how much others will pollute? If you're not very sure, you're looking at a linearly increasing probability of hitting a tipping point as the amount of emissions increase. They do interface a bit strangely. You'd end up with a linear cost (the taxes) until you run into the cap, then the trading will take off and nothing more will be emitted. I thought about this a bit more and came up with another idea. You could sell the emission rights, and change the price as you go. This would allow you to match it to the actual costs. You will have to be careful to make it so you're not practically giving money to the first people that come. You could offer someone a fraction of the revenue to try to maximize the revenue minus the cost curve, so they'd guess the final value and sell it at that uniformly. You would have to be careful about bribery and such. You could also probably use some kind of prediction market. There are opportunity costs. If you can only get a 3% return on investment by reducing emissions, but you can get a 5% return on investments somewhere else, you'd be a fool to reduce emissions. This does bring up the question of how to best encourage investment. The obvious method is to subsidize it. The government could also take a more direct approach, and get rid of the deficit. Once they pay back all their loans, they could actually start investing. This does have a problem though. Once the US has significant investments, whoever controls where they're invested will be very, very powerful. We could also legalize long-term investments. Just let a few people set up trusts, wait a few generations, and they will have lots of money they're investing. Also, while I personally disagree with the idea of time discounting, it's not strictly irrational. Caring less about the future is a perfectly valid utility function. Even hyperbolic discounting is. It's just not the same utility function at every moment i
0pragmatist
Hyperbolic discounting leads to preference reversal, which makes the discounter vulnerable to money-pumping. That's usually taken as a symptom of irrationality around here. Synchronic inconsistency is not necessary for irrationality, diachronic inconsistency works too.
0DanielLC
Two different agents can hold two different utility functions. It's not irrational for me to value different things than you, and it's similarly not irrational for past!me to value different things than future!me.
0pragmatist
I think it's a mistake to always treat distinct temporal slices of the same person as different agents, since agency is tied up with decision making and decision making is a temporally extended process. I presume you regard intransitive preferences as irrational, but why? The usual rationale is that it turns you into a money pump, but since any realistic money pumping scenario will be temporally extended, it's unclear why this is evidence for irrationality on your view. If an arbitrageur can make money by engaging in a sequence of trades, each with a different agent, why should any one of those agents be convicted of irrationality? Anyway, the problem with hyperbolic discounting is not just that the agent's utility function changes with time. The preference switches are implicit in the agent's current utility function; they are predictable. As a self-aware hyperbolic discounter, I know right now that I will be willing to make deals in the future that will undo deals I make now and cost me some additional money, and that this condition will persist unless I self-modify, allowing my adversary to pump an arbitrarily large amount of money out of me (or out of my future selves, if you prefer). I will sign a contract right now pledging to pay you $55 next Friday in return for $100 the following Saturday, even though I know right now that when Friday comes around I will be willing to sign a contract paying you $105 on Saturday in exchange for $50 immediately.
0DanielLC
You can make the decision to consider the options and let future!you make a better-informed decision. If you prefer paper to rocks, scissors to paper, and rock to scissors, that can be taken advantage of in a single step. If your preferences change, you don't have intransitive preferences. You do have to take into account that an action changes your preferences, and future!you might not do what you want, as with the murder pill. They are predictable, but they are not part of the agent's current utility function. It's no more irrational than the idea of agents caring more about themselves than each other. An adversary could take advantage of this by setting up a prisoner's dilemma, just as past! and future! you could be taken advantage of with a prisoner's dilemma. You might use a decision theory that avoids that, but that's not the same as changing the utility function.
0pragmatist
I don't get the equivocation of future selves with other agents. Rationality is about winning, but it's not about your present self winning, it's about your future selves winning. When you're engaged in rational decision-making, you're playing for your future selves. I love mangoes right now, but if I knew for sure that one-minute-in-the-future-me was going to suddenly develop a deep aversion to mangoes, it would be irrational for me to set out to acquire mangoes right now. It would be irrational for me to say "Who cares about that guy's utility function?"
0DanielLC
I don't get the equivocation of past and future selves with each other. Rationality is about winning according to some given utility function. Claiming that you have to make everyone who happens to be connected along some world line win is no less arbitrary than claiming that you have to make everyone contained in state boundaries win. Future!you tends to agree with present!you's values far more often than your closest other allies. As such, an idea of personal identity tends to be useful. It's not like it's some fundamental thing that makes you all the same person, though. Present!mangoes are instrumentally useful to make present!you happy. Future!mangoes don't make present!you or future!you happy, and are therefore not instrumentally helpful. If you thought it was intrinsically valuable that future!you has mangoes, then you would get future!you mangoes regardless of what he thought.
0pragmatist
Pretty much any sequence of outcomes can be construed as wins according to some utility function. But rationality is not that trivial. If you accuse me of irrationality, I shouldn't be able to respond by saying "Well, my actions look irrational according to my utility function, but you should be evaluating them using Steve's utility function, not mine." There are a number of physical differences between time and space, and these differences are very relevant to the way organisms have evolved. In particular, they are relevant to the evolution of agency and decision-making. Our tendency to regard all spatially separated organisms as others but certain temporally separated organisms as ourselves is not an arbitrary quirk, it is the consequence of important and fundamental differences between space and time, such as the temporal (but not spatial) asymmetry of causal connections. When we're talking about decision-making, it is not arbitrary to treat space and time differently. If everyone who happens to be connected to me-now along a world line didn't exist, I would not be an agent. There is no sense in which a momentary self (if such an entity is even coherent) would be a decision maker, if it merely appeared and then disappeared instantaneously. On the other hand, if everyone else within my state boundaries disappeared, I would still be an agent. So there is a principled distinction here. Agency (and consequently decision-making) is intimately tied up with the existence of future "selves". It is not similarly dependent on the existence of spatially separated "selves". Talking of different time slices as distinct selves is a useful heuristic for many purposes, but you're elevating it to something more fundamental, and that's a mistake. Every single mental process associated with the generation of self-hood is a temporally extended process. There is no such thing as a genuinely instantaneous self. So when you're talking about future!me and present!me, you're already t
0DanielLC
No, but you should be able to respond "Well, my actions look irrational according to Steve's utility function, but you should be evaluating them using my utility function, not his," or similarly, "Well, my actions look irrational according to future!me's utility function, but you should be evaluating them using present!me's utility function, not his," Is it future!me's or future!my? Somehow, my English classes never went into much depth about characterization tags. Your decisions aren't totally instantaneous. You depend at on at least a little of future!you and past!you before you could really be thought of as much in the way of a rational agent, but that doesn't mean that you should think of future!you from an hour later as exactly the same person. It especially doesn't mean that you after you wake up the next morning is the same as you before you go to sleep. Those two are only vaguely connected.
0A1987dM
Well, “only vaguely” is a massive understatement. There's a helluva lot of mutual information between me tomorrow and me today, much, much more than between me today and you today.
0DanielLC
Yeah, but there's no continuity.
2A1987dM
What do you mean? The differences between me now and me in epsilon seconds are of order epsilon, aren't they?
5buybuydandavis
Yes, Cap and Trade is a political fight over the vested goodies of your allocated cap. I, and I believe most free market types, believe taxes are the best solution for infringement on a commons. Some, such as me, would extend that principle to natural resources in general, particularly land, and make the taxes revenue neutral, requiring reimbursement of the taxes to the general public.
2DanielLC
In other words, let the government sell it to the public. Since they're taxing the public anyway, they could reimburse it just by letting the public pay that much less taxes. This is exactly the same as what would happen if they used it for revenue, and decreased taxes because they don't need as much revenue.
2buybuydandavis
More of a leasing scheme with respect to land. You get it as long as you pay your taxes on it. Which is largely the way it is now. The difference isn't about stopping global warming or funding government, it's about justice. If there is a commons that everyone has equal right to use, those that do use it owe compensation to those who don't, not the government. The funding mechanism is a separate issue from this basic issue of justice. The government is collecting what is owed by some parties to others; that doesn't give it a license to keep as much of it as it wants.
0DanielLC
It works out the same either way. Loans and investment act as a way to exchange present money and future money, so charging present money vs. future money makes about the same difference as charging USD vs. euros. If they're charging enough taxes to offset the value of the land, then that means that the price of buying land would be zero. You will pay the full cost with taxes. But there is no difference. The money gets passed around exactly the same in either case. Is it really more just to give someone a reimbursement then immediately take it back as taxes than to do nothing? It has the license to just take what it wants in the form of taxes. I would expect that to work as a license to keep what it wants.
-2buybuydandavis
No, the money does not get passed around the same way. The homeless guy living under a bridge has no property, Homeless guy doesn't get taxed on land, Bill does, divide Bill's taxes between Bill and homeless guy, and homeless guy ends up with a check that he doesn't get now. Homeless guy has no income and no wealth to tax for the support of government. I guess with a head tax, we could make the result the same. We could find ways to make the result the same, but we'd really have to be going out of our way to do it. Perhaps from you, but not from me. That is largely what political arguments are about in the US these days.
2DanielLC
If you're assuming that taxes are otherwise just a constant portion of your income, or really any tax system that's specified to be the same in both cases, then there is a difference. However, the two systems are the same modulo tax method. In other words, in one case the homeless guy gets money from Bull's land, and in the other he gets money from welfare. I don't understand.
-4buybuydandavis
Nope, not the same with the addition of welfare either. People on welfare often face effective tax rates in excess of 100% - if they start working and making money, they lose benefits worth more than their incremental income. Perhaps the government has such license from you, but they don't have it from me, or a great many other people.
2DanielLC
That is a problem with how welfare is currently done. It would still be welfare if they didn't do it like that. I'd just implement it as taxes going into the negatives. So, they're not allowed to collect income tax from you?
-4buybuydandavis
Yes, if it were very different than what it is, it could the same as something it currently is different from. Here's what you said originally: Here's my response: Your last question just doesn't follow at all. Where did I suggest they're not allowed to collect income tax from me?
4DanielLC
My point is, they're allowed to do taxes and welfare however they want. Unless you're suggesting limiting their power in that regard, the difference between something you consider just and something you consider unjust is something you are okay with them doing. There seems to be a misunderstanding here. The government is allowed to take income tax from you. Since they are already allowed to take money from you, it doesn't much matter if they're allowed to withhold giving something to you. Looking at the rest of the conversation, it's possible you were referring to the fact that they can only take income tax if you have an income, so your version is essentially different in that it establishes a minimum amount that the government has to do for poor people.
1Stuart_Armstrong
In this case, the problem that needs addressing is the quantity of carbon emitted. Cap and trade addresses that number directly. A carbon tax addresses it indirectly: the gov. has to figure out the right level of tax to get the right level of emission reduction in an open market, and continually play with that number to keep it well calibrated. That seems the level of skill that governments (or anyone for that matter) don't possess.
6OrphanWilde
The idea that the government can figure out the right level of emissions to begin with assumes a level of skill that nobody possesses. Taxes have four major advantages over cap and trade schemes - first, they're less prone to crony capitalism; preexisting companies don't get a major advantage over new entries. Second, they don't disrupt the existing market; you don't hit a wall in which half the power plants in the country are simultaneously shut down. Third, they allow flexibility. Fourth, they're incremental; they -continually- encourage reduction of carbon emissions; see Europe where the market for carbon credits has effectively collapsed to see what happens when carbon drops unexpectedly; instead of a smooth reduction as possible, it's jagged and arbitrary.
1Stuart_Armstrong
Why is this a problem? If the emissions are being reduced, then the gyrations of the carbon credit market are irrelevant. If the prices have collapsed, it means that carbon reduction is turning out to be much easier/cheaper than expected. Yay!
2OrphanWilde
I calculate the cost of this carbon reduction to be $3.3 trillion per year across all of Europe. That's how much smaller their economy is as a result of the recession for which the drop in CO2 was merely an externality. I'm not sure celebrations are in order.
3Stuart_Armstrong
Some studies (which I don't have to hand immediately) suggest that the recession was only partially responsible for the reduction. But the price of carbon still remains irrelevant. As long as the reduction happened, the price could be zero for all the difference it makes. We aren't trying to punish people for emitting too much carbon, making them pay the moral price of their erroneous ways. We're simply trying to reduce carbon emissions. I don't see any drawback to the price of carbon having collapsed.
2OrphanWilde
If your goal is long-term reduction in CO2 emissions, you've introduced market volatility. The goal of any such measure is to reduce CO2 emissions, but the -mechanism- by which it does so is encouraging research into alternatives. If the market is volatile, the value of any such research is called into question; tomorrow it might be valuable, it might be worthless. A tax, by comparison, has a fairly static value. The cap-and-trade measure, through its volatility, increases the risk of investment into reducing carbon emissions; the value of your investment isn't determined by the degree to which you can reduce carbon, but by the amount of carbon emitted in the market as a whole. Unless we assume some level of carbon emission is better than no carbon emission, the tax scheme is better.
0buybuydandavis
Yeah, a quota is absolutely inelastic supply, giving wildly erratic price. Pricing incremental emissions gives incremental feedback.
0buybuydandavis
I don't think this one is hard. In either case, you have to assume an measurement by which you're accounting for emissions. Yes, you won't exactly hit your targets, but then you adjust the price and move on. We're talking about accumulations that matter over a period of decades. Consumption varies, but it's not all over the place.
0Jiro
One major problem is the practical effect of adding new taxes. Adding a tax creates a group of people who benefit from the tax, either a part of government that gets to decide how to spend the tax money, a recipient of tax money, or both, and it is in that group's interest to let the size and purpose of the tax slip beyond its original intention. A carbon tax might be a good idea if it is revenue neutral, but there's no way you can make one that is guaranteed to stay revenue neutral.
0buybuydandavis
You can't guarantee anything because of political will. But take in taxes, count total, divide by eligible recipients, electronic transfer money. It's not complicated to make it revenue neutral if you have the will to do it.
1Stuart_Armstrong
Cap and trade means the government can fix the right figure for carbon emissions (at least somewhat plausible). Carbon taxes means the government can fix the right price to get the right figure for carbon emissions (very implausible).
0DanielLC
There is no intrinsic right figure for carbon emissions. There is a cost that's incurred by carbon emissions. The more you emit, the higher the cost. The right figure is when the cost to emit more is equal to the benefit. You could find out the variables you need and solve the equations, or you can just work out the cost, charge people that much, and let the market deal with it.
1Stuart_Armstrong
Estimating the costs of carbon emissions involves estimating the temperature rises AND the effects of these on agriculture and other parts of the economy AND the likely costs of disasters AND the potential benefits AND the effects on the natural world AND how we should price these effects (which no-one would agree on). And also implement these calculations properly within a political system. If we want to stabilise temperature rises at a particular point (which would be "good enough" according to most preference systems), you only need to estimate and implement the first term. (ok, technically you need to be reasonably sure that temperature rises would be a net negative and keep an eye on carbon credits in case their prices get extraordinarily high, but these require muuuuuch less work than a proper pricing; the second thing will happen naturally within the political system anyway)
1DanielLC
If there's an approximately linear cost for carbon emissions, then estimating a good enough value will be worse than estimating the cost. You have all the original error from guessing the cost of emissions, and now you're guessing the demand curve for emissions licenses as well. If there is a point that will cause sudden problems, then capping and trading would work better, assuming you know where that point is. As you've pointed out, it's hard to tell. As such, it's better to treat it as a linearly increasing probability of hitting that point.
0Stuart_Armstrong
That doesn't seem to be a reasonable assumption at all - expected damage seems to escalate faster at the extreme end.
0DanielLC
In any particular area, the cost will be approximately linear. If all you're looking at is the emissions in one state caused by one group of things (like power plants) over the course of one year, then it's approximately linear. Also, depending on how accurately you can guess at what the market equilibrium will be, you can narrow it down further so the linear approximation is still more accurate.
3Vaniver
Subsidizing efficiency improvements sometimes leads to a net increase in pollution, and so this is more appropriate for things like subsidizing disruptive technologies than subsidizing improving existing coal plants. I'm under the impression that nuclear is one of the few where decommissioning costs are baked into the operating costs, and thus comparisons between it and other technologies are biased against nuclear.
2ThrustVectoring
But only by granting higher standards of living, which are also a goal of the government.
0Vaniver
Not necessarily; the subsidies have to come from somewhere. (I should also point out that I'm making a somewhat technical point, here, and so unless you can sketch the curves involved we may be talking about different things.)
0ThrustVectoring
Yeah, we're talking about very slightly different things - I was ignoring the opportunity cost of the subsidy in my mental model. Whether or not subsidizing an efficiency improvement benefits standard-of-living (compared to alternative uses of that money) depends entirely on the relative cost of that subsidy.
1Luke_A_Somers
This is primarily when the efficiency improvements make a previously niche technology viable over a much broader range of cases. Already-dominant technologies don't suffer from this to nearly the extent. Cases where the efficiency is not the limiting factor on usage do not suffer this effect at all. Like, if cars took a tenth the gas they do now, people wouldn't drive ten times as much. They'd drive some more, and buy more SUVs and winnebagos, but unless a colossal number of people are held back from using a winnebago by gas prices, that would only partially compensate for the efficiency increase, because people are already doing close to as much driving as they care to. Back in the 1970's this was not the case at all.
4Vaniver
This isn't just the Jevons paradox, though that does amplify this. It's also the claim that while a tax and subsidy are equivalent in the short-run, in the long-run the tax decreases the profitability of the polluting industry while a subsidy increases the profitability of the polluting industry, which may lead to increased pollution.
0Luke_A_Somers
The subsidy itself will also make the technology viable over a broader range of cases, yes... should have mentioned that part. Tried to get too clever.
3nigerweiss
That does seem like a better idea, ignoring issues of price setting. Unfortunately, nation states are extremely bad at game theory, and it's difficult to achieve international agreement on these issues, especially when it will impact one nation disproportionately (China would be much harder hit, economically, by cap-and-trade legislation than the US). I'd disagree pretty strongly with the energy issue, at least for now - but that's a discussion for another time. In politics, as in fighting couples, it is crucial to keep your peas separate from your pudding - one issue at a time.
2Stuart_Armstrong
Without wanting to start a fight, which half do you disagree with? The Moore's law or the nuclear estimate? I'm personally more confident about the first than the second.
2sixes_and_sevens
Regardless of OP's objection, there's a strong counter to the assertion of solar power following a Moore's Law trajectory. Solar irradiance at ground level has a fairly hard limit of < 1200 watts/m^2. Even in the upper atmosphere it's not much more. So solar cells may get more efficient, but their output isn't going to get exponentially greater over time. They may also become considerably cheaper, but the price of land isn't going down, and will remain a non-reducing term when calculating implementation costs. It could be that you're referring to some other feature of Moore's Law I'm not considering, but in the intuitive sense of "my phone has more computing power than the whole of the 1960s", gains of that magnitude are simply not possible.
1Stuart_Armstrong
The Moore's law seem to be in cost, not in efficiency (though efficiency is also improving): http://blogs.scientificamerican.com/guest-blog/2011/03/16/smaller-cheaper-faster-does-moores-law-apply-to-solar-cells/ And if we get to the point where land is the bottleneck, well, I'd say we'd be doing fantastically well at that point :-)
[-]gjm100

It seems reasonably clear to me that, from a computational perspective, functional central planning is not practically possible.

For a great deal on this topic, inspired (as maybe nigerweiss's remark was too?) by Francis Spufford's novel Red Plenty, see this article by Cosma Shalizi.

He doesn't happen to say anything about externalities as such. But anyone who finds this interesting might enjoy reading Shalizi's piece.

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[-][anonymous]80

Many interventions in the economy have a positive expected benefit. (I should note that libertarians can concede this point, yet argue against interventions because they infringe people's rights etc) One great example that you point out is resolving coordination problems. Another is protecting the competitive market itself: anti-trust law, laws against false advertising, corruption laws. Others protect individuals from an unregulated market: medical licenses, tort law, health and safety regulation.

Your mention of wanting to "preclude blackmail, theft,... (read more)

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9David_Gerard
Goalpost-shifting between consequences and virtues is characteristic of argument with libertarians, often in one argument with a single libertarian. It can be more infuriating than attempting to pin a Christian down on a claim. Edit: Argumentative Internet self-declared libertarians, to be fair, per SMBC.
6buybuydandavis
It really doesn't imply that in the least. Being opposed to "blackmail, theft, and slavery" does not imply that you think that we're all "genuine equals", nor that you'd have any particular wish for that state, nor that even if you had such a wish, it would inform your political opinions in this world where people are decidedly unequal in talents, ethics, drive, and execution.
3DanielLC
I have two problems with this. First, part of the idea of personal property is that you can do what you want with it. That's what makes it a good incentive. If what you want to do with it is give it to your kids, it's not the governments place to stop you and accuse you of nepotism. If you want to be nepotistic, then the economy can offer you the opportunity of giving money to your kids as incentive, and we will be better for it. The second problem is that it's hard to stop. Unless they stop you from giving money away as well, it just means that only people who don't know they're about to die get taxed. I most certainly do not think you are born with the rights to your parents money. If I did, I'd be against the use of wills. If they just gave you money, you'd still have all the opportunity, and then some because now you can do something else with the money. It's not a good use of resources for everyone to be educated, and subsidizing it wastes money just as surely as subsidizing corn. That sounds like a straight-up public good. The main problem here is that you're giving the government free reign over propaganda, and that might not be something you want to trust them with. Personally, I'm what I'm thinking of calling a quasi-libertarian. I do think you should generally try to get the government from being involved, but what's more important is that when they are involved, they use market forces to their advantage, rather than just ignoring them.
3Oceanlab
"It's not a good use of resources for everyone to be educated, and subsidizing it wastes money just as surely as subsidizing corn." Corn doesn't come with positive externalities, education does. Subsidizing education is surely one of the best uses of government revenue imaginable. The "how" of it is a different matter. I'm not a fan of public school monopolization of education subsidies. As a general rule, it is efficient and wise to tax negative externalities and subsidize positive externalities. This should be the primary function of tax policy.
0DanielLC
Why do you say education has positive externalities? From what I understand, education is used largely as costly signalling. As such, subsidizing doesn't change how much people spend or recieve. It just changes the cost. For example, the government pays for high school education, thus high school dropouts are people who aren't even willing to go to school for free. As a result, you need a high school diploma for things where the education is completely useless. If they charged for high school, not going wouldn't mean as much, and it wouldn't be necessary to go.
0nigerweiss
I'll give you the false advertising. Anti-trust laws do not seem like an obvious win in the case of natural monopolies; for example, destroying Google and giving an equal share of their resources and employees to Bing, Yahoo, and Ask.com does not seem obviously likely to improve the quality of search for consumers. As for anti-corruption laws, I'd need to see a much clearer definition before I gave you an opinion. That's true, but I suspect you're using those words in a substantially different sense than I would intend. Let's clarify: I believe that it is undesirable for someone's freedom (in a Libertarian theoretical sense of free use of their own body, autonomy, and property) to be dependent on the amount of violent physical force that other economic players are able to muster. This does not imply most of the other things you suggest. As it happens, I'm on the fence about public education. It seems like a good idea in principle, but having been through the process myself, I cannot endorse it with good conscience. Furthermore, I am uneasy granting the government a monopoly on indoctrination of youth, which is a major component of any education. As for inheritance tax, I don't think that's either enforceable or desirable. If people want to care for their children after they are dead, that doesn't harm me at all, and I wish them well. As for information campaigns, government propaganda, however much I may agree with this generation of ideals, is not something I particularly want to fund. Governments do not generally give power back once it's been given to them, and, when you give a government a power, you must trust not only the current administration, but every future one for the lifespan of the country. On the whole, it seems wiser to allow private organizations to blanket the world in propaganda as they see fit. You certainly seem to. I think I'm comfortable where I am, thank you. This specifically is actually my complaint about much political discussion. When
1[anonymous]
On my last two sentences - I intended them as somewhat of a cheeky wink, but maybe they're a bit snotty. I'm certainly not trying to convert anyone; and I'm all for being aware of doubts, inconsistencies and hard choices. Political discussion is just great fun. On the particular examples: * Anti-trust law hasn't (yet!) destroyed Google - however splitting up monopolists like Standard Oil or various cartels seems a clear win. * I guess anti-corruption laws can be taken as an extension of anti-trust (no bribing the supply manager to get the contract) or as solving problems caused by government problem-solving actions (no bribing the antitrust investigator). * Inherited wealth certainly does harm you. You and I are not on a level playing field with the son of some Saudi prince. We cannot compete fairly for jobs, or wealth. Its not 'caring for them after they're gone' its giving them an unfair advantage over the rest of us. * The education point follows from this, since purchasing better education is perhaps the primary way people inherit privelege. Education in our present society is a positional good - its distribution is zero sum. Some rich woman buys an extra qualification for her daughter, your parents can't buy it for you, she gets the job - not because shes better, but because her parents are richer than yours. Certainly hurts you. * So perhaps the type of information campaign needs the public backing of government, as this carries the legitimacy of collective action. Also, if we start from now, the 'private organisations' with disproportionate wealth and power will be able to produce more propaganda and preserve the status quo (that benefits them)
0nigerweiss
This has more to do with failure to enforce anti-trust laws in a meaningful way, though. In the case of Oil and most major cartels, these are not natural monopolies: they are monopolies built and maintained with the express help of various world states, which is a somewhat different matter. Economics is not a zero sum game. I doubt I'm going to find myself competing for a promotion with a Saudi prince. Rich people do not harm the poor with their wealth: they simply may not help (aside from, say, putting their money into banks and loaning it out to less wealthy people). Knowledge is certainly not a zero sum game! Besides, if you genuinely want everyone to have an identical education, you can't simply provide public education - you must also outlaw private schools, home schooling, and any sort of parental involvement in education: after all, why should the child of a college professor have an unfair advantage over the child of a ditch digger? That hardly seems fair. My perspective here is colored because my public school experience was more or less entirely catastrophic, and I am predominately self-educated. If we were to force everyone to be educated at only modern public school levels, it would be an economic and cultural disaster of hard-to-register proportion. Large charities also have the 'legitimacy of public action.' Also, if you think the government won't use its propagandizing power to preserve the status quo that benefits it, you've never sat through the pledge of allegiance.
6pragmatist
Significant status differences in a society are correlated with all kinds of adverse outcomes. One causal hypothesis (with quite a bit of compelling evidence backing it) is that a lot of this has to do with the neuroendocrinological stress response triggered by the perception that others are higher status than oneself. I don't know if I'd classify this as rich people harming poor people, but (if accurate) it is an example of entrenched social inequality harming poor (and other low-status) people.
0Jayson_Virissimo
Aristotle, Rhetoric, Book II, Chapter 10
0pragmatist
Change the "good" to "better" and it would be more accurate.
0[anonymous]
-- Aristotle, Rhetoric, Bk II, Chapter 10
-7Eugine_Nier
[-]peterward60

It always seemed to me "externality" was just a euphemism to cover up the fact that capitalist enterprise requires massive--not a hand out here or there--state support (and planning) to functional at all. The US is really kind of the odd ball in that we pretend this isn't the case, dressing up subsidy as defense spending or whatever. In Japan, e.g., they just take your money and give it strait to Toyota without all the pretense. At any rate anyone who opposes central planing and "big government" also opposes capitalism in it's extant form.

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[-]fubarobfusco260

Something to keep in mind is that different people use the word "capitalism" to mean different things. Many libertarians and Objectivists say "capitalism" to mean a free-market economy with dramatically less regulation and taxation than we have today. However, many socialists and anarchists use "capitalism" to mean the sort of economy that we do have today, dominated by big businesses and finance capital. Others use expressions such as "mixed economy" and "crony capitalism" to imply various combinations of competitive free enterprise, regulation, and favoritism for the politically well-connected.

So some readers will take your comment as meaning that free enterprise requires state support; while others will take your comment as meaning that today's mixed economy requires state support.

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[-]JoshuaZ190

always seemed to me "externality" was just a euphemism to cover up the fact that capitalist enterprise requires massive--not a hand out here or there--state support (and planning) to functional at all.

Externalities pre-date the modern capitalist system. For example, in England, well before modern capitalism, restrictions on smelting and similar industries existed to prevent them from polluting surrounding neighborhoods. These concerns are even older than that. The Talmud discusses the legality of farming flowers that make for bad tasting honey when bees use them to make honey, and when one can plant such flowers near the property of someone who owns beehives. Similar issues with water rights also date to the early Middle Ages in some respects. There's nothing inherent about "capitalism" here, merely economic activity as a whole.

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[-]Decius140

The Talmud discusses the legality of farming flowers that make for bad tasting honey when bees use them to make honey, and when one can plant such flowers near the property of someone who owns beehives.

I know it's a little off topic, but it's interesting to point out when you can almost reconstruct the situation that was patched by a specific rule by looking at the rule.

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3buybuydandavis
Most libertarians do. When the government is passing out handouts, libertarians are the ones most likely to complain. I do agree that many Americans are largely in denial about the extent of government control of the economy.
0DanielLC
I think people talk more about negative externalities, which are fought through taxes, not encouraged through state support. Much of what is encouraged through state support has nothing to do with externalities. For example, growing corn has no significant externalities, but it is heavily subsidized. In other words, if we oppose big government, we oppose the current government, because it's big? I think that's generally what people mean when they say they oppose big government, unless they're arguing with a communist that wants it even bigger.
[-]DanielLC50

It seems reasonably clear to me that, from a computational perspective, functional central planning is not practically possible.

If we have enough power to do functional distributed planning, we have enough computational power to do functional central planning. Distributing it makes it harder.

The problem with central planning is that it isn't resilient. If the central planners are incompetent or corrupt, the whole economy crumbles. With a market economy, if one person messes up, one person pays the price. The cost of this is vastly, vastly increased computational expenditure. We are performing the same calculations over and over again hundreds of millions of times.

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4novalis
With central planning, how do you figure out how many of each product to make?
-1Manfred
Suppose we had a civilization of homo economi running programs, so that we can talk about things in terms of "computing power." Then, at the very minimum, a central planning computer can just run those same programs, using exactly as much computing power as the entire populace did before. And even this "boring" strategy is viable depending on how computers scale (can a nation afford a computer ten million times better than the computer necessary to run the decision-making program of one shop-owner?), how much the same computations are repeated, and how smart your compiler is.
5Richard_Kennaway
Where does that central planning computer get its data?
-3Manfred
Where does each shopkeeping homo economicus get their data? Brute force, you can still collect it all and then just send it to a central computer. Less brute force, you can exploit duplications and scaling to get the same information but cheaper. The situation is quite similar to the computing power one, and the obvious eonomicus -> sapiens problems remain the same.
4Richard_Kennaway
By looking around their local environment. Homo economicus does not mean someone who has perfect information about everything in the entire system. Besides that, homines economici each have their own goals to achieve. What goal is the central planning computer trying to achieve?
-5DanielLC
0buybuydandavis
The calculations that are most relevant are the valuations people put on things - I prefer this over that. No, you don't have enough artificial computing power to detect and properly simulate the choices of 6bil+ humans.
0DanielLC
Unless I'm misunderstanding what central planning is, it's still considered central planning to have the government sell you everything and figure out how much of what to make through the same methods corporations use.
[-][anonymous]40

(Commenting twice to allow seperate voting/commenting)

At some points you seem to be hinting at questions of what a post-singularity economy would look like. This is a fascinating topic, if we remember the caveat that seeing past the singularity is very hard/uncertain. Nevertheless people like Robin Hanson have written some interesting things about what it might look like.

One thing to bear in mind is that economics has always been premised on the assumption of scarce resources ('how should they be distributed?' is arguably the question of economics).The mos... (read more)

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[-]fubarobfusco140

The most interesting question for me is what do we do if, as seems likely, automation and technological development produces an abundance of goods and leisure time.

I expect quite a lot of this within ten years.

For instance, there are about 3.5 million truck drivers in the United States, and there is a shortage of new drivers. Self-driving cars will probably launch in a few years. Self-driving trucks are sure to follow. That puts the truckers out of work.

Other goods-handling jobs are already being automated; for instance, there are fully-automated warehouses using automated storage & retrieval systems. If Amazon and FedEx aren't working on universalizing this, they're fools — and they're not fools.

Meanwhile in San Francisco, hackers are delivering burritos by drone. And delivery robots have been used in closed environments such as hospitals for years and years.

There's synergy here: automated warehouses + self-driving trucks + delivery robots → the Internet of physical goods. Stick a barcode on an arbitrary object and fill out a web form, and a robot comes and gets that object delivered anywhere accessible by road anywhere in the free world. Awesome for customers, manufacturer... (read more)

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2OrphanWilde
I'd argue survival today requires -less- skill than survival, say, three hundred years ago. I know exactly one person who possesses the knowledge to create a seine, and yet every single one of my great-great uncles and aunts possessed this knowledge, in a landlocked area several hundred miles from any substantial body of water - because sometimes that was the difference between eating and starving. There's a tendency of people to underestimate the level of skill, and overestimate the level of effort, required to live without modern technology. We live in a very unusual time, where it is possible to survive without any productive skills whatsoever; it isn't even strictly necessary to be able to read and write, or do math. Society today is a lot more complex, but that doesn't necessarily mean -people- are.
7[anonymous]
I guess one needs to distinguish between 'survival' and being economically productive in one's contemporary society. Maybe a 1700s farmer would be more able to survive than me, and maybe a hunter-gatherer would be even more able to survive - that isn't the point. The point is that since the industrial revolution, one could participate in the wage economy and be rewarded quite well, even if the skills you had weren't deemed particularly valuable by that wage economy. This becomes even more clear if one looks at the 30-odd years since WWII. In Western countries, a manual worker with fairly low skills was a comfortable member of the middle class. Since the mid-70s we've seen a shift in inequality. A lot of the good jobs nowadays require college degrees. This trend seems likely to continue: take Apple. If a robot can make an iPad, they don't need low-skilled manual workers, but they still need highly-skilled designers etc. The skill level needed to be economically productive has risen and looks set to continue to rise. Btw, completely agree with fubarobfusco.
1Multiheaded
Not for the two billion people at the bottom, not really. They're just invisible to a Westerner who doesn't deliberately investigate the details of their misery. The occasional scandal over the conditions in third-world sweatshops, plantations, etc only underscores the framework of the situation; there wouldn't be sweatshops if huge masses of people had alternatives to fighting for scraps from the West's table.
4OrphanWilde
Sweatshops pay higher than average wages. There are alternatives, the alternatives are worse. Sweatshops don't represent a deviation to the worse. They represent a deviation for the better. We look at them and see how bad people have things and get upset - and completely ignore how much worse things would be without them. You say these people are invisible, but the really invisible people are the people who the West never interacts with at all, and are significantly worse off for it. People who complain about sweatshops tick me off, because they never offer a real solution; their solutions are always "fair trade", which is always about protectionist policies that ensure these people never get a fighting chance at those scraps from the West's table. Yes. My comments were addressing specifically Western concerns, because that is where fubarobfusco's comment seemed to be coming from.
5nigerweiss
I've heard this sort of thing before, and I've never been totally sold on the idea of post-scarcity economics. Mostly because I think that if you give me molecular nanotechnology, I, personally, can make good use of basically as much matter and energy (the only real resources) as I can get my hands on, with only moderately diminishing returns. If that's true for even a significant minority of the population, then there's no such thing as a post-scarcity economy, merely an extremely wealthy one. In practice, I expect us all to be dead or under the watchful eye of some kind of Friendly power singlet by then, so the point is rather moot anyway.
0DanielLC
Anything abundant, such as air, we will use freely as we do now. Anything scarce, such as front row seats to a live concert, we will either distribute using an economy as we do now, or we will distribute with central planning, because that works a lot better when you have a superintelligent AI as the planner. Also, I'm skeptical of it it so most stuff is abundant. We will simply increase the population until it's scarce again. We can just use simple wealth redistribution. Tax everyone X%, and evenly distribute the money. I would not recommend communism unless you have a superhuman AI central planner.
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