A Stitch in Haste

Via Fark comes word of a individual who likes to rage against the machine — literally:

After we collect $430 in donations, we will take that money to a local unspecified retailer, which opens at 12am on the launch date. We will purchase the Xbox 360, and destroy it in front of the other Xbox fanboys who are already waiting in line.

Apparently the purpose of this "SmashMyXbox" exercise (which constitutes a sort of "Episode II" — the sequel to "SmashMyiPod" but the prelude to "SmashMyPS3") is simply to satisfy an interest in harmless destruction rather than to inflict misery on those unable to obtain the device (or, more correctly, to obtain what I call "first on the block" status -- see this post).

Either way, the initial response that many would have to such a project would be something akin to either befuddlement (i.e., "Why?") or indignation (i.e., "How wasteful!").

But is either response legitimate?

Since all tastes and preferences are subjective, all material value is by corollary also subjective. One can only speak of "value to whom, and in what context?" Just as one cannot say that it is always "irrational" to prefer chocolate ice cream over strawberry, or a McMansion over a big back yard, or dogs over cats, so too is it incorrect to say that it is somehow "irrational" to prefer smashing an Xbox 360 over playing one, or to spend money purchasing an Xbox 360 over donating that money to charity.

Indeed, one might be able to go so far as to say that however a person spends his own money must, by definition, be rational (or at least "boundedly rational"). So long as you are making conscious, sober decisions about what you want to do with your money, then you are, by definition, maximizing (or at least trying to maximize) your own utility.

Furthermore, since interpersonal utility comparisons are impossible, it is illegitimate to say that the smashed Xbox 360 would have been "more useful" or "more valuable" to someone who would play it rather than smash it, or that the money to buy it would have been "more useful" had it been deployed to some other purpose. The opportunity cost of an alternative use (i.e., the lost satisfaction of the smasher) will, again by definition, always exceed the satisfaction of the alternative, since the smasher's preferences are being frustrated.

This may seem a straightforward if bizarre example of utility analysis, but it does extend to major public policy debates. One of the fundamental premises of paternalism is that some preferences are fundamentally superior to others, that some strictly private choices are objectively "right" and some are objectively "wrong."

One quick example: Just as you might be tempted to (incorrectly) say that smashing Xbox 360s is an "inferior" or "wrong" preference, so too do many nanny staters declare that enjoying junk food is an "inferior" or "wrong" preference compared to being healthy. Next step: restricting junk food, taxing it or even banning it outright. Another example: Massachusetts' "blue law" that forces residents to elevate the utility of staying home on Thanksgiving over the utility of being able to shop on a holiday. The McMansion debate in Part One of this chain is the same phenomenon -- opponents of the large homes are trying to justify their opposition largely on the premise that their owners "shouldn't want" them -- that their preferences are "inferior" or just "wrong." And so on...

We may not be at the point where people would suggest that it should be illegal to smash one's own Xbox 360, but the slippery slope is omnipresent in our increasingly presumptive and arrogant nanny state.

Instead, the premise should always be that a private person spending his private money in a private way is never "wrong." It may be bizarre, it may be offensive, it may even be obscene. But it is never "wrong."

Related posts on the presumptuousness of paternalism at Fly Bottle and Marginal Revolution.

"They say the price is ... not too high ... on Broadway ..."

A trade association representing Broadway theaters and producers is doing an about-face and now wants state officials to dismantle the laws that limit the resale of tickets to musicals, plays, concerts and other events.
...
In comments submitted to the New York State Consumer Protection Board, Gerald Schoenfeld, chairman of the League of American Theaters and Producers, said that ticket prices "would probably not skyrocket" if the limits were lifted and that Internet sales had helped make it almost impossible to enforce the current law.
...
Under a law that expires in June, licensed ticket resellers may charge up to 45 percent above the face value of tickets for events at large arenas. But for places with fewer than 6,000 seats, including most Broadway theaters, those brokers are limited to no more than 20 percent, or $5 over face value, whichever is greater.

Scalping laws are a great "gateway issue" with which to introduce basic libertarian thinking.

It's quite simple really: I have something. Something I obtained legally. You want it. We negotiate a price. You take possession.

Why should the original price I paid for the something matter one bit relative to the price we negotiate for its resale?

And, more importantly, by what moral authority does the government, or any third party, claim the prerogative to block that transaction? What objective, quantifiable negative externality is generated by reselling a show ticket from a competent adult seller to a competent adult buyer to their mutual benefit?

This, incidentally is not an acceptable answer:

Richard L. Brodsky, a Westchester assemblyman who sits on the committee that regulates tourism, said that allowing prices to skyrocket could put tickets out of reach of Broadway visitors. "If you're not on an expense account or a millionaire, it will be much harder to get tickets for hot shows," he said.

So?

There is no such thing as a "right to an affordable Broadway show ticket." In fact, it's a metaphysical impossibility. Tickets are a scarce resource, and like any scarce resource, they must be rationed. They can either be rationed by an unfettered market, or by some other mechanism such as scalping laws. But they will be rationed.

So why is a market-disrupting rationing system somehow "morally superior" to an auction or other market-based system? Not everyone who wants to see a certain show at a certain time for a certain price will be able to do so, no matter what. Scalping laws don't change that.

And even from a consequentialist perspective, scalping is still suboptimal. If theaters could price discriminate (i.e., hold ticket auctions the way brokers do, such as on eBay), then their revenue would increase, which would enable them to offer more shows, keep shows open longer, have bigger and better sets and orchestras, or even build bigger theaters. How can preventing all that -- by banning premium pricing, scalping or ticket auctions -- possibly make the theater industry -- or theatergoers -- better off? It makes no sense whatsoever.

One person stopping another from buying a good or service, for no other reason than because he himself can't afford to pay what the buyer is paying, is not "egalitarianism" or "social justice." It's schadenfreude -- "If I can't see Wicked, then neither can you!"

That is utterly discredited, Twentieth-Century thinking. New York prides itself on its history of "progressive" public policy. Let it remain progressive, by abolishing archaic laws interfering with private contracts and private property, including the scalping laws.

Consider the following simple hypothetical:

Two competent consenting adults, a seller and a buyer, meet to discuss an exchange. The seller, for reasons that are the stuff of an introductory microeconomics course, has decided that he is willing to accept any price at or above $10. The buyer, for reasons that are also the stuff of an introductory microeconomics course, has concluded that he is willing to pay any price at or below $15 for the good.

In a perfectly competitive industry, the price for the good is fixed (by the market) from the perspective of our seller and buyer. If that fixed price is between $10 and $15, then our competent consenting adults will trade at that price; any attempt by either party to obtain a more favorable price would be thwarted (by the market).

That too is introductory microeconomics, and common sense. (If the market price is above $15, then our seller will of course seek out a different buyer; if the market price is below $10, then our buyer will similarly seek out a different seller.)

If the market is not perfectly competitive, meanwhile, then our hypothetical traders would have to bargain to arrive at some price between $10 and $15 -- but what price would that be?

That is the difference between introductory microeconomics and a Nobel Prize:

The field of mechanism design theory strives to take into account the realities of economic life systematically. Adam Smith's "invisible hand" is a powerful metaphor that describes how the market, in theory, will always efficiently allocate scarce resources. Yet real-world conditions tend to complicate things. Competition is not completely free, consumers are not perfectly informed, optimizing private production and consumption may have social costs, and institutions can strongly shape economic bargaining.

The work begun by [Leonid] Hurwicz, and advanced by [Eric S.] Maskin and [Roger B.] Myerson, gave economists and policy makers new intellectual tools to address questions like those listed in the academy's citation: "How well do different such institutions, or allocation mechanisms, perform? What is the optimal mechanism to reach a certain goal, such as social welfare or private profit? Is government regulation called for, and if so, how is it best designed?"

It's been 15 years since I studied graduate level economics, and I have little to say regarding these three economists' work. I want instead to take a step back to the introductory microeconomics answer: The price will be somewhere between $10 and $15 inclusive.

Okay fine -- "something between $10 and $15." But what if we're not in the mood for Nobel-level theories and models? What is the "correct" price? What is the "proper" price"? What is the "preferable" price? What is the "moral" price? Who should "win" and who should "lose" in the negotiation process?

Trick questions all.

Go back to first principles: Both parties are better off trading at any price within the $10-15 range. If either party weren't, then he would simply go home.

The seller is better off selling at $10 than not selling at $15. The buyer is better off buying at $15 than not buying at $10. The very fact that they have traded -- freely and without any coercion, makes any and every price in the range the "correct" price from a moral perspective.

The only way to get a more refined answer than "between $10 and $15" is by changing the question. Go back to the article:

"How well do different such institutions, or allocation mechanisms, perform?"

--If the trade occurs, then they have by definition performed well. If you are unhappy about the trade, then it can only be because you care about something other than the interests of the two parties. Which catapults you outside the realm of economics altogether.

"What is the optimal mechanism to reach a certain goal, such as social welfare or private profit?"

--The goal was initially to get the trade done and in the process make both parties better off. To care about "social welfare" (defined how?) or "private profit" (to which "private" entities?) again blanks out the tautological truth that the trade was its own purpose, and to frustrate it -- or even to micromanage it -- requires the introduction of considerations apart from, and potentially at the expense, our two competent consenting adults.

Is government regulation called for, and if so, how is it best designed?

Same problem: What is the basis for presuming that a voluntary trade between two sovereign individuals could be a proper subject for government regulation in the first place?

Consider the extreme examples: If the seller is able to convince the buyer to pay $15, then you might think that the seller "exploited" the buyer. But the buyer himself, by definition, certainly does not consider himself "exploited" -- he could have refused to buy. A distaste for the $15 answer (i.e., a distaste for the seller simply because he is a seller -- a "capitalist") has no foundation in economics (or morality), but only in the subjective worldview of the anti-seller. Which, in a sane society, would certainly not entitle the seller-hater, or even a voting majority of seller-haters, from blocking the transaction (which -- never forget this -- would make the buyer worse off too).

Or perhaps you learn that the buyer negotiated the seller down to rock bottom -- $10. And then you learn that the buyer is wealthy and the seller is poor. Now who's "oppressing" whom? Again, no one -- unless you are willing to blank out the fact that the seller is by definition better off having (voluntarily) sold at a lower price than having not sold at a higher price. A subjective belief that in this case $10 is somehow a "wrong" answer makes no difference (since you are not the seller). A preference that trades should somehow be means-tested, that every buyer-seller encounter should be chaperoned to make sure than rich buyers pay $15 while poor buyers pay $10, is both anchorless and rudderless. The trade was voluntary; the parties are both better off; the bitter aftertaste in your mouth is entirely irrelevant.

("Split the difference," meanwhile, is the silliest possible answer. Why split the difference? By what criteria, other than analytical laziness, is $12.50 "superior" to either $10 or $15?)

My purpose is not to belittle this year's Nobel laureates. It is a self-apparent truth that our buyer and seller do indeed need to get beyond "something between $10 and $15." Tools for explaining -- not dictating -- the outcomes are analytically (and morally) neutral. Researching a cure for kidney disease is not the same as researching an algorithm for "optimal" government rationing of donor kidneys.

My purpose instead is to belittle those who, while presenting their own answers to the "$10-15" question, pretend that they are not doing so based on their own subjective value judgments -- those who refuse to admit that they don't really know the "optimal" solution but only feel it. The central planner wannabes who are half Paul Krugman and half Arnold Horshack. Those who, unlike these three economists, seek not to find the answer but to impose it -- sometimes even to be point where they become willing not only to dictate a price, but even to decide instead that the trade should not happen at all.

The economist asks, properly, "What price would result?" The central planner asks, improperly, "What price should result?"

Perhaps that's why there's no "Nobel Prize for Kip's Law."