Why the Election Winner Through Plurality Votes Is Not the Preferred Candidate

Elections function as an outlet for regime change through peaceful means. 

Yet democratic elections are supposed to "represent" people's choice. This would be true under a majoritarian vote. But under a plurality vote setting, this would hardly be the case. Reason? The outcome would most likely be different under a two way runoff elections.

Using the Kenneth Arrow's impossiblity theorem as previously posted here, Professor Don Boudreaux at the Cafe Hayek writes to the expound on the theory

(bold mine)

It’s a common (and understandable) mistake to read a vote cast for candidate A as being only a vote for candidate A. But a vote cast for candidate A might well be – and in practice certainly often is – motivated more by opposition to candidate B than one motivated by enthusiasm for candidate A. If candidate A wins an outright majority, this reality creates no problem under the rules of majoritarian democracy, for even if all votes cast for candidates B, C, … N are motivated exclusively by utter hatred of candidate A rather than as enthusiasm or support for the candidates who received those votes, the fact remains that a majority of the voters prefer candidate A over all other available candidates. But if candidate A wins only a plurality and not a majority of the votes, then – as students of collective decision-making have long known – there is no good reason to declare the plurality vote-getter as the winner. Again, the reason is that the chances are high enough that those who voted for the other candidates did so more to keep A out of office than to install in office one of the candidates B, C, … N. And given Trump’s huge negatives, this possibility is even more likely with him than with more quotidian candidates who win only pluralities.

Put more succinctly (and ignoring the countless other flaws that infect all collective-decision-making processes), a candidate who wins a majority of the votes can at least be said to be preferred over any of the other candidates by most of the voters. The same cannot be said of a candidate who wins only a plurality. Most of the voters might well prefer above all to keep that candidate (A) out of office even if most of the voters have no clear preference for which of the other candidates (B, C, … N) is the best option in place of A.

Here’s an example of ten voters and four candidates (A, B, C, & D). The example follows the rules of the method that many U.S. states use to choose governors. That method is the “general election, runoff election.” The rules are simple. If a candidate wins a majority of votes in the general election, that candidate wins the election. But if no candidate wins a majority of the votes, the plurality winner is pitted in a runoff election against the candidate who got the second-highest percentage of the votes in the general election.

Each voter’s preference is shown below in descending order. For example, voter 1 prefers candidate A above all, and she prefers D to C and C to B.

In the general election, candidate A will win 40 percent of the votes; candidate B will win 30 percent; candidate C will win 20 percent; and candidate D – seemingly a fringe candidate – will win only 10 percent.

So in the runoff election candidate A is pitted against candidate B. (Candidates C and D are ousted from the race.) Below is the very same preference ordering, but with candidates C and D excluded.

B wins the runoff with 60 percent of the votes.

But, just for kicks, let’s see what happens if that fringe candidate D were to be pitted in a runoff election against B. Surely D would get trounced, right? Wrong. If you look at the first preference table above (the one with all the candidates included), you’ll find that 60 percent of the voters prefer candidate D over candidate B! You’ll find also that 60 percent of the voters prefer candidate D over candidate A. (And, to continue a bit further with the exercise: 70 percent of the voters prefer candidate D over candidate C; 60 percent of the voters prefer candidate C over candidate B – the ultimate winner of the election; and 60 percent of the voters prefer candidate C over candidate A – the plurality winner in the general election.)

The main point of the above exercise – which involves a perfectly reasonable representative example of reality – is to reveal that a candidate who wins a plurality of the votes but who does not win a majority of the votes in fact is not at all clearly the most preferred candidate of all the voters. Trump very well might be the real-world equivalent of candidate A in this example.

What more if the number of NON-voters have even been LARGER than the winning vote, like in the Philippines elections of 2010,  and most likely will be the same scenario for the 2016 national elections? 

And the supposed 'angry votes' have been reinforcement signs that the popular sentiment have been more about the 'opposition to candidate B' (for Philippines, the incumbent) than about motivation by enthusiasm for candidate A!

Quote of the Day: Why Drinking Water is Not a Public Good

A public good, according to Econ 101, has two specific characteristics: it is (1) non-excludable and (2) non-rivalrous in consumption. In lay-persons’ terms, this means that (1) if the good is supplied to Smith, no one – including the supplier – can, at reasonable cost, prevent Jones and Williams from also consuming the good even if Jones and Williams refuse to pay for their use of it; and (2) Smith’s consumption of the good does not diminish (that is, does not “rival”) Jones’s or Williams’s ability to consume the good.

Safe drinking water is emphatically not a public good as defined in Econ 101, for safe drinking water is both excludable (your water supply, and yours alone, can be cut off if you don’t pay your water bill) and rivalrous in consumption (every gallon of water that you use today is a gallon that your neighbors cannot use today).

To note that safe drinking water is not a public good as economists define public goods is not to say that it should not be supplied by the state; that’s a different question. 

This is from Professor and Blogger Donald J Boudreaux at the Cafe Hayek

Quote of the Day: The Difference Between Minimum Wages and Free Markets on Unemployment

Professor Don Boudreaux at the Cafe Hayek provides an awesome explanation: (bold mine)

(1) The unemployment caused by a minimum wage is permanent, in the sense that even in theory it will always exist. Unlike the unemployment that arises when trade becomes freer, the unemployment that is caused by minimum-wage legislation is not the result of transaction costs and other frictions that prevent workers who lose their jobs from finding alternative employment immediately. Put differently, in principle if not in practice, no workers need be rendered even temporarily unemployed by freer trade. In contrast, the minimum wage necessarily (in the absence of genuine monopsony power) causes some workers to lose their jobs and causes these destroyed jobs to remain destroyed for as long as the minimum wage remains in place.

Put in yet another different way, unlike with free trade, the creation of unemployment is not a temporary or incidental consequence of minimum-wage legislation. Lasting job destruction is part of the essential logic of the minimum wage. While in principle, and over time also in practice, free trade does not lead to permanent job losses, job losses caused by the minimum wage, in addition to springing from the very logic of the minimum wage, are indeed permanent.

Second, unemployment caused by free trade is, in reality, simply a particular instance of unemployment caused by changes in the pattern of economic activities. In both principle and practice this unemployment differs not a whit from the unemployment caused by, say, consumers coming to prefer more chicken to beef, more outdoor recreation to indoor entertainment, more wine to whiskey, or living in Arizona to living in Michigan. That is, the unemployment caused by freer trade is inseparable from the very logic of a market economy driven by consumer sovereignty and competition. Far from free trade being an exception to the rules of a market economy, it is protectionism that is an exception. The minimum wage, in contrast to free trade, is emphatically not part of the logic of a market economy; like protectionism, the minimum wage is a suspension of, or an interference with, the logic and principles of a market economy and of consumer and worker freedom. If this fact means nothing else, it means that free trade (like any competition-driven change in the pattern of consumer spending) enjoys a presumption of legitimacy while the minimum wage, which is a restraint on the operation of the market and on voluntary contracting, operates under a presumption of illegitimacy.

Third, economic theory and empirical evidence strongly suggest that the ill consequences of the minimum wage are not randomly distributed. These ill consequences are suffered only by low-skilled workers and, even among low-skilled workers, disproportionately by those who are the least advantaged (for example, by inner-city blacks rather than by suburban whites). The downsides of free trade, in contrast – and in addition to being only temporary and part of the larger logic of the real-world market – are much more random. These ill consequences are not more likely to fall only on low-skilled workers, or on blacks rather than whites.

Quote of the Day: The Phrase “Consumption-Based Economy” as Commonly Interpreted is Bass-ackwards

Professor Don Boudreaux at the Cafe Hayek debunks a populist myth used to justify state interventionism: 

The phrase “consumption-based economy” as commonly interpreted is bass-ackwards. Consumption in an economy no more fuels that economy than does success at driving a car fuel that car. Just as success at driving a car is the result of a working engine that is properly fueled with gasoline and accurately steered by a driver, success at consumption is the result of a working economy properly fueled by competition and accurately steered by market prices.

Put differently, ability to consume as lavishly as we Americans consume is the result rather than the cause of our prosperity. The economy must enable and encourage us first to produce things before we can consume things. Trying to consume greater quantities simply by increasing spending does no more to create the economic wherewithal to produce these greater quantities than does trying to travel further in a car simply by pressing harder on the accelerator create the fuel necessary for the longer journey.

Yet in a very important sense our economy is – and should be – consumption-based. It is and should be consumption-based in the sense that it is geared to satisfy the demands of consumers rather than the interests of producers. As Adam Smith said, “[c]onsumption is the sole end and purpose of all production; and the interests of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”* It follows that Mr. Trump and others who would forcibly obstruct consumers’ ability to trade with foreigners are enemies of the consumption-based economy, properly understood, and, hence, enemies also of the widespread prosperity that respect for such consumer sovereignty generates. 

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776), Book IV, Chapter 8, para. 49.

Quote of the Day: Against Political Romanticism

At the Cafe Hayek, Professor Don J Boudreaux explains why he isn't a political romanticist

I’m afraid that I don’t share your enthusiasm for politics, be they democratic or not. Where you “see citizens [at the polls] selecting our leaders,” I see people voting on which power-mad person will crack the whip over those same people and brand and herd them like cattle. Where you are “inspired by candidates campaigning openly to win the election,” I am frightened to realize that one of those hubris-slathered men or women will actually come to possess such power that no man or woman is, or ever will be, fit to possess. Where you are “charged” by the “vigorous debates” among candidates, my stomach is sickened and my intelligence is insulted by the economics-free, fact-strained, and too-often-vacuous talking (and shouting) points that pass for a serious discussion of issues.

And where you say that you “trust voters” more than I trust them, that depends. You’re correct that I distrust people as voters, for in that capacity they largely express opinions on how other people’s (their fellow citizens’) money should be spent and on how other people’s lives should be led. But I trust – perhaps more than you do, and certainly more than do any of the candidates – those same voters as individuals each to spend his or her own money wisely and to lead his or her life well, each according to his or her own lights, without interference or direction from any of the officious, arrogant, and venal candidates seeking power over the lives of other people.

Quote of the Day: The Worst Environmental Calamity Is The Absence of Capitalism

Filth, hunger, short life expectancy, illiteracy, subjugation of women, sanguinary conflicts over scarce resources – these horrors are not the recent consequences of climate change. They are the ages-old consequences of persistent and widespread poverty. This poverty and its accompanying miseries were eliminated only when and only where people embraced the very economic system that so many of today’s environmentalists wish either to abolish outright or to jeopardize with unprecedented government-fashioned fetters: entrepreneurial capitalism.

This excerpt, an expose and rebuff of media's false attribution (cause and effect) of society's ills on the environment, was extracted from Prof Don Boudreaux's post at his blog Cafe Hayek.

Quote of the Day: The Economics of the Dull Cookbook Memorizer

At the Cafe Hayek, Professor Don Boudreaux splendidly differentiates 'Knowing about economics' from 'Knowing economics'. (bold mine)

There are people who know a fair amount, or even a great deal, about economics. To know a lot about economics, however, is not to know economics; it’s not to know how to think like an economist.

Someone who knows a lot about economics has learned a lot of economic jargon (e.g., “marginal cost”) and all of the textbook definitions (e.g., “Marginal cost is the addition to the producer’s total cost of producing one additional unit of output”). This person also has memorized the often-intricate rules for how to bend and shift various ‘curves’ such as supply, demand, cost, and IS-LM. And, today, this person is often also skilled at finding quantitative data and processing them in the various data-processing machines that are called econometric techniques.

Knowing how to think productively like an economist is typically assisted by knowledge of such things, but it involves far more than knowing the above. Indeed, knowing the above isn’t as essential as the typical economist today supposes it is to being a genuinely good economist. Too often, mastery of superficial stuff such as the above convinces those who have mastered these superficialities that they understand economics. The sorry result is that such people never bother to master the skills of actually doing economic analysis properly.

Imagine someone who memorizes a world-class cookbook. This person learns all the culinary jargon; all the formulae for all the soups and sauces; all the best combinations of spices; all the recommended oven temperatures for all the different baked dishes. All the recipes and information printed in the cookbook. But what this person really ‘learns’ from the cookbook is that preparing meals is an engineering feat: faithfully follow the recipes of the ‘best’ cookbooks and you can be a superb cook. Voila! Cooking is easy if one masters the recipes!

What this cookbook student never learns, though, is that being a superb cook ultimately requires individual judgment, wisdom, and creativity in knowing when to stick with a recipe and when sticking with a recipe will produce a meal unfit for tonight’s dinner guests. What this cookbook student never learns is how to create delicious meals for which there is no already-printed recipe. This cookbook student, in short, masters, at best, only that which a skilled chef can explicitly commit to paper; this cookbook student – being in fact quite dull – never masters the creative art of cooking.

Lots of economists, in my view, are like this dull cookbook memorizer. They sling the jargon freely; they know, and can recite flawlessly, all the latest recipes (that is, models). They can name those recipes’ creators (that is, today’s in-vogue economic theorists). They know a lot about economics.

But when they actually attempt to do economics, it quickly becomes clear that they don’t know what they’re doing. They’re not really economists. They consistently fail to ask that most important of all questions that economists ask: “As compared to what?” They forget that monetary costs and monetary benefits are only a subset (and sometimes a small subset) of full costs and benefits: They mistakenly suppose that monetary costs and benefits are all of the relevant costs and benefits. They, in the most wooden of ways, take the recipes they know literally: Any observed real-world variations from the cookbook (that is, textbook) recipes are, for such economists, solid evidence that the real-world is flawed.

The fact that reality is far richer in details – the fact that competition operates on many more margins than are included in economists’ formal models – the fact that people, as consumers and as producers, are indescribably more creative and clever and intrepid and diverse than are the ‘agents’ who populate economic models – the fact that maximizing the collective monetary incomes of some arbitrarily defined group of people (for example, “low-skilled workers” or “blue-eyed people whose last names start with the letter Z”) is likely to be both positively meaningless and normatively dubious – these facts are invisible to too many modern economists. This blindness to the most important features of economic reality is promoted by the failure of modern economic training to teach young economists to ask, always to ask, why.

Oh, this wisdom is ever so relevant today particularly when applied to domestic mainstream economics--where economics has been mistaken as about shouting economic terminologies or jargon and their numbers or selectively picking data--ironically, without really understanding its economic essence.  

And that's the reason why I learned economics: to protect myself from "economists" (of the cookbook memorizers or the Sadako type variants)

Quote of the Day: The Difference between Marketists and Statists

At the Cafe Hayek, Professor Don Boudreaux differentiates free marketers "marketists" and collectivists "statists"

Here’s one difference between marketists and statists: We marketists understand (or think we understand) that the margins are many on which private people can adjust their actions in response to changes in constraints and in opportunities – be these changes caused by the market or by the state. And not only is the number of possible margins of adjustment large, many of these margins are so small in size or fleeting in their existence that they are undetectable by outside observers.

Statists, in contrast, seem me to suppose both that the number of margins on which private people can adjust their actions is relatively small, and that these margins are mostly detectable by outside observers.

This difference between marketists and statists results in marketists – compared to statists – being less pessimistic about markets and more pessimistic about state action.

Why more optimistic about markets? Because with many margins on which to adjust, private market actors have great scope to find or to craft market outcomes that are closely tailored to each actor’s individual preferences.

Why the pessimism about state action? Well, the large number of such margins and the invisibility of their details to everyone who is not ‘on the spot’ combine with the subjectivity of each person’s preferences to make it practically impossible for government officials to assess how well or how poorly markets are working. Too much is unseen – indeed, too much is unseeable – to render imposed collective decisions likely to improve the general welfare.

So my thesis is this: marketists understand, appreciate, and respect the enormous complexity of reality; statists do not. Statists believe reality to be far simpler than it is.

Perhaps statists are misled into such a misconception of reality by their theorizing. For example, the variables conventionally used in economic models to express economic relationships and connections are easy to mistake for being realistic and exhaustive representatives of real-world entities.

Or perhaps such people just do not think deeply. Perhaps they are misled by words used to describe collections of people – for example, “low-skilled workers”; “the steel industry”; “retailers”; “college students”; “smokers” – to miss the multitudinous differences that often separate the individual entities within any one of these categories from others within the same category.

Whatever the reason, the simpler one supposes reality to be, the greater are the prospects – one supposes – for outsiders to grasp reality fully enough to engineer it into a better state.

Here’s a related hypothesis: the simpler one supposes reality to be, the more readily one forgets Thomas Sowell’s observation that there are no ‘solutions,’ only trade-offs. Put differently, the simpler one supposes reality to be, the more prone one is to fall for a good-guy / bad-guy account of reality.

All problems are easily identifiable and are caused by evil-doers: deceitful business executives; hate-filled racist homophobes; stingy middle-class voters. The solution is to send in the good guys to defeat the bad guys; to exorcise the devil and undo his deeds, replacing Satan, if not with angels, with noble public servants bent on saving the day and doing what’s right.

When the economy is seen as a relatively simple mechanism – when society is viewed as one views a passion play or a Hollywood movie in which good and evil are unambiguous, and in which evil persists only because too few good people have yet to spring into action – then there seems to be a natural urge to call in a superhero to obliterate evil and misfortune.

Statists fail to appreciate the complexities of reality and, therefore, exhibit hubris when proposing public policies. Marketists, in contrast, do appreciate the complexities of reality and, therefore, are humble about prescribing government interventions.

Quote of the Day: Protectionism

Protectionism is government intimidation unleashed against consumers to oblige them to buy products that they prefer not to buy. Protectionism is force that enriches the politically powerful at the expense of the politically impotent. Protectionism is business people capturing rents from receiving special favors from the state rather earning profits from giving good service to the public. Protectionism is the myth that money belongs not to consumers who earned it peacefully but to suppliers who steal it coercively. Protectionism is the corrupting lie that absurdly and insult​ingly insists that mass flourishing results from monopoly and dearth rather than from competition and abundance. 

This is from Cafe Hayek blogger, Professor and author Donald J. Boudreaux

Video: Cafe Hayek's Don Boudreaux on The Hockey Stick of Human Prosperity

Cafe Hayek's Don Boudreaux explains the hockey stick of human progress.

(from Marginal Revolution)

Quote of the Day: Differentiating Law and Legislation

Law is emergent and undesigned.  Law isn’t created; it evolves.  Legislation is created and designed.  Legislation is not law and law is not legislation.  The distinction between legislation and law is one that deserves far greater emphasis than it gets.

The modern state has gotten enormous amounts of unjustified and dangerous power by convincing large numbers of people of the truth of three false propositions – namely, that (1) only the state can supply sound money; (2) only the state can supply and enforce law; and (3) rules promulgated by the state are necessarily or by definition law.

(italics original) 

This is from Café Hayek blogger and Professor Donald J. Boudreaux relating law and the informal arrangement contrived by professional comedians to enforce property rights.

Quote of the Day: The Difference between a Politican and a Private sector CEO

Some of the president’s most central and important claims about Obamacare are revealed now – and widely admitted – to be wrong.  If he were the CEO of a private company he would be sued, publicly lambasted by all the major media, perhaps hauled before an admittedly grandstanding Congressional committee, and possibly prosecuted, convicted, fined, or even imprisoned for fraudulent misrepresentation.  But because Obama is a politician, his misrepresentations are excused as simplifying descriptions aimed at persuading the doofus public to fall for legislation that they would not have fallen for had the president described that legislation honestly and accurately.

This is from Café Hayek Blogger and Professor Don Boudreaux on the unraveling Obamacare. 

Politicians typically use noble sounding rhetoric (e.g. "change", "equality") to push for political agendas that serves their interests. Yet they rarely have been accountable for their actions, even in the face of flagrant failures. This gambling away of society's civil liberties, financial and economic resources and social order has largely been a product of the lack of skin in the game. 

And in the face of failures, politicians would usually resort to propaganda blitz by shifting the blame elsewhere, hoping that fickle voters will forget. And for as long as politicians can get away with this, they will keep on gambling away society's treasures.

Quote of the Day: Almost all social order emerges undesigned and unplanned

Sadly, most people are apparently just incapable of understanding that almost all social order emerges undesigned and unplanned.  Most people are and seemingly will remain naive secular creationists, ignorant that the forces of natural selection and evolution are constantly at play in society, and that these force are usually only thwarted or distorted by attempts to engineer society from on high.  And (here’s an irony) this sad ignorance of the nature of society afflicts even – perhaps especially – those people who have no difficulty understanding that very complex, beautiful, and highly functional non-social orders (such as biological order and the order of the cosmos) emerge unplanned and undesigned.

This is from Professor Donald J. Boudreaux at the Café Hayek.

Unplanned and undesigned social order can be seen as spontaneous order or you even as anarchism

Quote of the Day: True Heroes

Cowards play to the roaring crowd, and give the crowd what the crowd demands.  Cowards buy their cheap glory and security by coddling what is seen and loved, and by attacking what is seen and despised, without regard to the consequences that such coddling and attacking will have in the future.  In contrast, a true economic hero is someone who, even at great personal cost, appropriately deals with the unseen future – with the unnoticed and unappreciated potentials – no less than with the noticed and looming here and now.

This is from Professor and Café Hayek Blogger Donald J. Boudreaux

Quote of the Day: Government is not to be trusted. Ever.

Repeat after me: Government is power.  Government is not to be trusted.  Ever.  Even if you believe that some government is and will always be necessary, that ‘necessary’ piece of government should always be regarded as a prudent lion tamer regards the big carnivorous cats that are ‘necessary’ for him to make a living.  To imagine that seemingly subdued purring lions can be trusted to be dealt with in any ways that do not include the use of strong cages, leashes, ceaseless and deep suspicion, and escape hatches is the height of romantic absurdity – wishful thinking of the most extreme and inexcusable sort.  Government is by its very nature a dangerous, untrustworthy, dishonest, arrogant, slippery entity – characteristics that are by no means reduced anywhere near to insignificance by a wide franchise, regular elections, and sturdy ink-on-parchment documents called “constitutions.”

Unless you are a high-ranking government official, government - no government – is ever “Us.”  It is always “Them.”  And They are not to be trusted.  Ever.

(italics original)

This is from Café Hayek’s Professor Don Boudreaux on Edward Snowden NSA spying expose

Quote of the Day: Evil fueled by Nationalism

Café Hayek’s Professor Don Boudreaux in a takedown of a book advocating immigration restrictions based on nationalism describes the “evil fueled by nationalism”:  

...the evil powered by anthropomorphizing collectives – to the evil born of the mental practice of aggregating thousands or millions of individuals into one lump, calling the imaginary lump a “nation,” and then cavalierly assuming that that lump has moral standing on par with – nay, superior to – that of flesh-and-blood men and women and children…

No concept has been responsible for more bloodshed and tyranny than has that of nationalism.  In its frightful name individuals have been restricted, restrained, regulated, subsidized, brainwashed, taxed, and sacrificed.  And let there be no mistake: nationalism that comes clothed as something more merciful or modern than Nazism is no less the evil because the garb it wears is superficially different from the garb worn in Germany 80 years ago by those who professed concern with protecting the “national identity.”

Nationalism, which indeed signifies as a feel good groupthink, has been promoted by governments and their institutional apologists to justify political control and taxation, for the purpose of preserving and expanding the privileges of the political elites, in the name of public weal.

Quote of the Day: The Ultimate Resource is the Human Mind

It bears repeating – and repeatedly repeating – that there is no such thing as a truly natural resource. All resources that have market value possess that value only because of human creativity and effort. Nothing that we today regard as valuable “natural resources” – not land, not forests, not petroleum, not iron ore, not magnesium, not fish, not New York harbor, nothing – would be a resource had not human creativity devised ways to make that thing into something so very useful to the achievement of human purposes that that thing becomes scarce. 

And one happy consequence is that, having made some raw materials scarce by discovering previously unknown and economically viable uses for these materials, human creativity – in economies that are at least reasonably free – is set to work, by the very incentives that are ‘natural’ to free markets, at the task of making these resources less and less scarce over time. 

As Julian Simon so insightfully taught, the ultimate resource is the human mind.

(italics original)

This is from Professor Donald J. Boudreaux at the Cafe Hayek.

Quote of the Day: The Ethics of Speculation and Natural Calamities

Many of the same people who today publicly encourage us to speculate (“Make sure your family has ample supplies of batteries!”) are among the loudest critics of speculation at other times and in other markets.

But in fact the oil speculator who, say, buys oil today in anticipation of oil becoming more scarce tomorrow does just what a consumer does today in a supermarket in anticipation of a disruptive storm: both persons usefully transfer resources across time.  They both stock up on resources that are today relatively abundant in order to preserve these resources for consumption at a time when they are relatively more scarce (and, hence, more precious).  Both persons transfer resources from today – when the consumption of any one bottle of water or gallon of gasoline provides relatively less benefit – to tomorrow when the consumption of that same bottle of water or gallon of gasoline will provide relatively more benefit.

Anticipating the future and taking actions to allocate goods and services from times of relative abundance to times of relatively greater scarcity is an immensely useful activity. And we all perform such speculation whether or not we are popularly identified as “speculators.”

This is from Professor Donald Boudreaux at the Café Hayek exposing the populist schizophrenic ‘moralistic’ concept of “speculation”.

Peddling “morality” through emotions has been popular even if they emanate from wrong premises and self contradictory logic. The fact is that speculation is all about acting in anticipation of the future. Different circumstances (emergency or not) under which people “speculate”  hardly does justify a moral color or distinction.

This applies to the stock markets as well.

Btw, my phone line and dsl got busted since yesterday. Internet access has been on-and-off, so I might be low on posting.

Quote of the Day: The Knowledge Problem

As with Hayek’s work, central to Pennington’s book is a deep understanding of the knowledge problem.  This of course involves understanding that the relative values of alternative outputs that can be produced with the same set of inputs can be determined only in competitive, private-property-based markets.  But this understanding involves more; it also involves the realization that such knowledge is never and can never be “given” (as is assumed in economics textbooks).  That is, this knowledge is not simply revealed by decentralized, competitive decision-making; it is also produced by that process. 

No consumer comes to market with a detailed, full, and fixed scale of values that he seeks to satisfy.  That scale takes shape only as consumers confront actual alternative opportunities in the market.  Likewise, no producer comes to market with detailed, full, and fixed plans on exactly what to produce, how to produce it, and how much of it to produce.  Those plans take operational shape, and are modified, in light of actual experience in the market—a market whose details are always changing in unanticipated ways for both consumers and producers.

The knowledge problem, though, has yet another dimension beyond the economic.  It springs from the fact that different people have different scales of ethical and political values…Egalitarians of various stripes, “market-failure” theorists of various pedigrees, and environmentalists of various shades of green all typically base their social-engineering schemes not only on a presumed agreement on ends that is unlikely to exist, but also on the simplistic assumption that knowledge of the rankings of various ends is easily gathered and made known to government officials.

(bold emphasis added)

This splendid explanation of the knowledge problem is from Professor Donald Boudreaux’s book review of Mark Pennington’s Robust Political Economy at  the freemanonline.org

Quote of the Day: Hayek’s Road to Serfdom is about Resisting Change

Hayek never argued that the slightest deviation from laissez-faire capitalism launches a society on an unstoppable march toward tyranny. Instead, he reasoned that tyranny is the inevitable result of government policies aimed at preventing market competition from ever threatening anyone’s economic prospects. As long as voters demand that government protect them from all downsides of economic change, governments can oblige them only by shutting down, one after another, all avenues for economic change. Competition; entrepreneurship; innovation; consumer sovereignty; workers’ freedom to change or to quit their jobs; even changes in demographics. Government must obliterate these and all other sources of change if no one is to be exposed to the risk of losing a job or of having her wages or benefits cut.

Obviously, in reality governments cannot produce such a petrified paradise. But in the course of trying they will create hell on earth unless people come to accept the fact that widespread material prosperity is impossible without genuine change – and that change is impossible without some people suffering economic disappointment.

That’s from Professor Don Boudreaux at the Café Hayek.

This reminds me of former astronaut and engineer Frank Borman’s popular quote

capitalism without bankruptcy is like Christianity without hell