Monday, June 29, 2015

democratic communism: interlude

I want to take a break from all the concrete policy suggestions for democratic communism to make some general points.

Democratic communism is not really communism, at least not the "higher phase" of communism Marx talks about in Gotha. Democratic communism is much closer to Lenin's concept of socialism: to each according to his or her labor. I could just call it "socialism", but I don't like what most people who call themselves "socialist" propose. "Socialist" Bernie Sanders, for example, is a lot less bad than Clinton, and if I were still registered as a Democrat, I might vote for him in the primaries, but he's still just a welfare state capitalist. He does not want to resolve what I consider to be the underlying contradiction: the private ownership of the means of production. He wants to regulate the capitalists, but the capitalists are the rulers, by definition beyond ordinary regulation.

My goal in thinking about democratic communism is to think about political and economic institutions that try to undermine the hold on political and economic power enjoyed by the capitalist class, and to think about institutions that will facilitate and maintain the workers' hold on political and economic power.

I want to avoid "technocracy", the hold on political power by the professional-managerial class, which I'm convinced actually happened in the United States from 1929 to 1980, and which I'm convinced decisively failed due to its own internal contradictions. I strongly suspect that the various failures of communism in the Soviet Union (devolving into Russian authoritarian kleptocracy) and China (devolving into state capitalism) are also due to the contradictions of technocracy. (What is a Communist Party besides a technocratic elite?)

I also want to avoid having a large number of people die from starvation and exposure.

If there ever is some kind of revolution, velvet or violent, the new society will inherit, if not the institutions themselves, many of which should and must be simply smashed, the institutional underpinnings, especially in the political psychology of the population. So I'm trying to think about about how new institutions will serve as a transition between a republican capitalist political psychology and a lower phase communist (Leninist socialist) regime.

I also want to avoid "utopianism", in both the philosophical and Marxist senses.

I arbitrarily label philosophical utopianism as the specification of a completely morally ordered society. I basically mean More's Utopia, Butler's Erewhon, and perhaps Bellamy's Looking Backward. Similarly, although Engels takes a different tack (see below), I think the authors that Engels discusses in Socialism: Utopian and Scientific, Saint-Simon, Fourier, and Owen, are also philosophical utopians.

To a certain extent, it's hard to judge works of fiction. Not every moral tenet described in a fictional society must necessarily constitute what the author thinks of as a good society. Some tenets may simply be the author's speculation on how, given the structure of a good society, people might choose to behave. An author of fiction must be specific, even when he or she must be specific about a matter of arbitrary choice. For example, in Ecotopia, Ernest Callenbach writes about a kind of a war game with spears; his protagonist is seriously injured in one such game. Does Callenbach include the game because that's an integral part of his ecological utopia, or from reasons of fictional verisimilitude?

In any case, my work here admits more vagueness than does a work of fiction. All choices are moral, and I can simply leave a lot of the choices to the individuals and the people. I'm imposing only a few moral choices on my hypothetical institutions. First, when in doubt, let the people decide in a democratic way. Second, no private absentee ownership over the means of production, either directly or indirectly by private ownership of the financial system. Third, no one deserves to live in misery or poverty. The only other norms I'm embedding are well-accepted norms of modern bourgeois society that are not worth smashing, for the sake of transition, for example the 40 hour week and non-discrimination on race, sex, etc.

The Marxist sense of utopianism is more subtle and harder to avoid. Engels' critique of utopian socialism is not that these societies specify a complete moral order, but that they do not emerge dialectically from existing capitalist society. The entire thrust of both Marx's and Engels' work is to try to scientifically predict what sort of society will emerge from the contradictions of capitalism, not to specify an abstract, free-floating moral order to which they believe society "should" comply.

To a certain extent, then, this exercise is completely utopian in the Marxist sense. Nothing in my work is actually emerging dialectically from the contradictions in 21st century capitalism, and I'm not even trying to analyze contradictions and scientifically establish how they will be resolved, nor am I trying (or advocate that others try) to actually implement my suggestions to empirically test whether or not they really do resolve existing contradictions.

But my project is not, perhaps, so grandiose. I'm not even saying how society should be organized. My project is more modest. I'm responding to the naive and superficial criticisms that communism and socialism cannot possibly work, that they must necessarily devolve to tyranny and/or abject poverty. Capitalist apologists claim that, as bad as capitalism might be (and it's really not that bad), There Is No Alternative that is not far worse.

This criticism comes in two broad threads: deontic and pragmatic. The deontic thread is that only capitalism fulfills liberty, that a system that cuts off the freedom to exploit others necessarily cuts off all freedom. Slavery is inevitable; the only choice we have is who are the slave-owners, and capitalists are the best slave owners we can possibly have, much better than kings, feudal lords, egghead academics, tyrannical demagogues, or any other possible alternative.

There's not much I can do about the moral argument. I reject the central premise: I do not believe that slavery is inevitable. There's nothing more to say. Hence, I address the second thread: communism would be nice, but it cannot work out in practice. And so I reply: here's one possible way it really could work in practice. It could still fail — anything can fail, with enough bad luck or active opposition — but I think my ideas are solid enough so that failure is not, as the critics claim, absolutely guaranteed just by how everything is set up.

Sunday, June 28, 2015

Regulating sex

Ugh... what a terrible article. In Regulating Sex, Judith Shulevitz argues that affirmive consent laws could lead to a host of unintended problems. I think her concerns are way overblown.

Shulevitz introduces a hypothetical proposed by 70 of the 4,000+ members of elite American Law Institute:
Person A and Person B are on a date and walking down the street. Person A, feeling romantically and sexually attracted, timidly reaches out to hold B’s hand and feels a thrill as their hands touch. Person B does nothing, but six months later files a criminal complaint. Person A is guilty of ‘Criminal Sexual Contact’ under proposed Section 213.6(3)(a).

I'm not a lawyer, but this doesn't seem like a big issue. The authors simply take for granted that the "thrill" constitutes "sexual gratification," but does it really? Would person B actually complain? Would a prosecutor prosecute? Would a judge or jury find that holding hands constituted sexual gratification?

And, maybe, it really might be a bad idea to hold someone's hand without their express permission.

Shulevitz also worries about disproportionate penalties. Even per the above, if Person B complains, a prosecutor prosecutes, and a judge or jury actually finds Person A guilty, should Person A above be imprisoned for years and be publicly registered as a sex offender?

Well, duh, no. We can create degrees of "Criminal Sexual Contact," for which inappropriate hand-holding could be only an infraction. Our present definition of criminal sexual contact only prohibits the most extreme behavior, and thus warrants a proportionate penalty; if we're going to radically broaden the definition, then we can just as easily make the penalties proportionate.

All these sorts of weird edge cases are important, and the best minds of law should think about them carefully and write the statutes appropriately. But we have hundreds of years of experience fine tuning laws like this. This kind of minutia is appropriate for expert legal debate, but not to challenge the political concept of affirmative consent.

Essentially, Shulevitz asks what might happen if "victims", politicians, prosecutors, judges, and juries all act in extraordinarily moronic ways or with unaccountably bad faith. But the law is not set up as algorithms to regulate the behavior of morons. The law applies to, and is administered by, human beings, not sphex wasps.

It is very important to remember that affirmative consent is being discussed to solve a real problem: women, often young and vulnerable, getting pressured or intoxicated and not actively protesting completely unwanted sexual activity. I'm willing to be a little extra careful about holding hands to decisively prosecute these real cases.

Marriage

The Supreme Court has mandated that states must permit gay people to get married. One argument against the value of this ruling is that marriage itself is a bad institution: patriarchal, oppressive, confining, dyadic-normative, whatever. I disagree: even if marriage is really is bad, I think the ruling is valuable: gay people now can refuse to get married; before, they could not refuse because they were not first permitted. This is an advance.

(I have the same kind of attitude towards women in the military: even though I think the military overall is mostly a giant waste of time, money, productivity, and innocent lives, I want women to have the ability to refuse to serve, rather than be barred.)

The economics of democratic communism: the firm

Like capitalism, the heart of economic productivity under democratic communism is the firm.

Note that this is a broad overview; the specifics will depend on legal decisions of the people and the judiciary.

Rather than imposing a specific kind of organization on firms, democratic communism empowers workers to exert their own control on the internal organization and operation of firms. The first empowerment is employment of last resort: anyone can get a job paying 1 SVU per hour for up to 40 hours per week, with 24 SVU per week (12 paid in taxes) being the minimum living wage. So no firm can keep its workers if they exploit or mistreat them worse than the government does.

Charters

A firm must have a charter, which specifies the details of how the firm is actually operated. Charters can specify a range of operating paradigms, from a typical hierarchical modern corporation, where managers can arbitrarily hire and fire workers, to a horizontal democratic organization that decides everything by consensus, or any other organizational paradigm.

Regardless of the specific character of a charter, every charter must include the following provisions:

Every firm must have financial transparency: at any time, all workers can see all financial information about the firm, including individual wages. (In general, an individual's income is public information; his or her spending is strongly private.) Hiding or misrepresenting financial information, or acting as an accessory before or after the fact, is a serious individual property crime, for which "I was just following orders" is no defense. Any worker may, without criminal penalty, disclose its firms financial information to the government; such disclosure cannot be grounds for malfeasance.

Communicating with other workers regarding pay, working conditions, or the character of the charter, including proposed changes, cannot be grounds to prove malfeasance or incompetence so long as the act of communication itself (irrespective of content) does not directly, materially, and substantially interfere with the productivity of the firm. If the charter permits dismissal without grounds, workers can be dismissed for such communication, but they are permitted to attend and vote in the next assembly.

Every three months, the firm must assemble all workers eligible to vote, for at least two working days. Workers must attend, and the firm must pay the workers at least 16 SVU to attend. Any worker involuntarily* dismissed in the three months prior to the assembly for any reason other than proven malfeasance, proven incompetence, an uncoerced majority vote of all the workers, or during his or her probationary period (not to exceed one year), is eligible to attend, speak, and vote at the assembly. One worker, one vote.

*What constitutes "voluntary" or "involuntary" dismissal is a matter of public policy, decided by the people. The people can determine, for example, whether dismissal with severance pay constitutes voluntary or involuntary dismissal; they might determine, for example, that the dismissal is involuntary, regardless of statements made at the time of dismissal, if the individual later returns the severance pay.

During the assembly, every worker may freely speak, lobby, and attempt to persuade others using any reasonable medium. The assembled workers may amend the existing charter by majority vote. The workers must put affirmation of the (possibly amended) charter to a vote by the end of the meeting; if the charter fails to gain a majority, appropriate emergency procedures are introduced until a majority of workers can affirm a new charter. If, after a reasonable period of time, a majority of the workers are unable to agree on a new charter, the firm is placed into receivership.

Wages

Firms must pay every full time worker at least 24 SVU per week, and every part-time worker at least 1 SVU per hour actually worked. How much a worker actually works during that week and how much compensation he or she is entitled to for that work is a matter of negotiation between the worker and the firm. If a firm cannot pay all workers the minimum wages every week, the firm is immediately and automatically placed into receivership.

For example, a worker might negotiate a pay package that includes 24 SVU for 40 hours per week for a year, then 40 SVU for 40 hours for the second year, then 80 SVU per week for the third year, after which the contract is renegotiated. In the first year, the firm must pay this worker 24 SVU each week. In the second year, the firm may, without fear of receivership, pay only 24 SVU per week, but incurs an obligation of 16 SVU per week, which is superior to any claims by creditors or the government. In the third year, the firm may still pay only 24 SVU per week, but incurs an obligation of 56 SVU per week. If at any time, the firm is unable to pay the worker 24 SVU, the firm is forced into receivership. Firms must always pay unpaid wages in the order they were incurred, before paying any creditor, its capital tax (see below), or any current or former worker an amount greater than 24 SVU per week.

All wages, including unpaid wage obligations, are always denominated in SVU. When they are paid in currency, the exchange rate between currency and SVU at the time of payment obtains.

Firms are prohibited from discriminating in hiring, firing, or internal operation on the grounds of race, sex, gender identification, religion, national origin, or sexual orientation; any private conduct that does not directly, materially, and substantially affect the productivity of the firm; or any specific category that the people or the judiciary declares protected. The burden of proof is on the firm to disprove discrimination.

Receivership and Liquidation

The people must make legal provisions for receivership, where the operation of a firm unable to meet its financial obligations to its workers becomes subject to direct public policy. If a firm is placed into receivership, the receiver may, with due process of law, decide to liquidate the firm.

When a firm is liquidated, the firm ceases operation and all its financial and physical assets revert to the government. Physical assets are valued at current market rates. The government is required to use these assets to pay the following claims, in order: First, unpaid minimum wages, denominated in SVU; if the assets are insufficient, the government pays the difference. Second, all other unpaid wages, denominated in SVU, per individual contract; if the remaining assets are insufficient for full payment, payment is made proportional to claims. Third, any debts owed to individuals or entities other than the government, denominated as per the original contract, again proportional to claims. Next, the government keeps the nominal value in current dollars of any previous government investment not previously repaid. (If the government provided \$1,000 of investment, it receives \$1,000, regardless of when the original investment was made; in other words, the government's claim to financial assets is eroded by inflation). The value of any remaining assets are distributed to assembly-eligible workers in proportion to their total time of employment.

Other than as specified above, no individual or entity other than named above may have a claim to the assets of the firm. Thus, firms are always owned by their current workers.

Investment

The ordinary means of capitalization is from autonomous government investment. A firm may, at any time, request capitalization from the local, regional, or national government. These requests are approved by the civil service if they meet the guidelines established by the people, or can be approved directly by a vote of the appropriate delegates.

The level of autonomous investment is determined by the national government. The national government must allocated this investment to regions and localities on a per capita basis. Allocated investment must be actually invested by each body in a timely manner, to firms not operated by the government. (Government-operated firms have a different funding mechanism.)

Firms pay a proportional tax on the amount of investment received from the government, set by specific negotiation. A firm must pay this tax at the appropriate time, set by the people; if it cannot do so, the firm is immediately placed into receivership and may be liquidated. The government can never require that a firm repay the principal amount of its investment, but firms may choose to do so, reducing its tax.

The civil service is forbidden from discriminating in the allocation of or tax on capital on the grounds of anything but the type of business and the character of the charter. The people have broad discretion to allocate and tax capital, but if a judge or by the regional or national government has a reasonable basis to find that the local or regional delegates intentionally or in effect discriminate on race, etc., then the regional or national government must directly administer all or part of the locality's or region's per capita investment necessary to correct the discrimination.

All investment is valued in currency, not SVU. Thus, if a firm receives \$1,000 in investment with a capital tax of 8 percent per year, then the firm must pay \$80 per year in capital tax. At any time, it may repay all or part of the \$1,000 to the government, reducing or eliminating the capital tax. By design, as time goes on, inflation will reduce the real value of investment and capital taxes.

Firms may also borrow from individuals, other firms, or international entities (e.g. sovereign foreign governments, international governmental organizations, international non-governmental organizations, citizens of foreign countries). These loans may be freely denominated and structured by negotiation.

A firm's creditors may have, per specific negotiation, a subordinate claim on the income of the firm and a subordinate claim on assets if the firm is liquidated, but they may have no other enforceable claims on either the operation or assets of the firm. (Of course, if the firm believes it is in its best interests to solicit and act on the advice of its creditors, it is free to do so.) What happens if a firm is temporarily or permanently unable or unwilling to pay its creditors is a matter for the people to decide, but in contrast to workers, creditors cannot force a firm into receivership or liquidation if the people decide, either by law or by specific vote, that receivership is undesirable or contrary to the public interest. Caveat emptor.

Saturday, June 27, 2015

On evidence

What is evidence?

There are several definitions. One appealing definition is an event is evidence for another event if observing the first event increases the prior probability of the second, unobservable, event: $B$ is evidence for $A$ if $P(A|B)>P(A)$. However, while this is not a terrible definition of evidence, it has some deficiencies.

The first deficiency is that in common language, saying that $B$ is evidence for $A$ is to imply that $B$ is a good reason to believe $A$. However, if $P(A) = 1×10^{-6}$, and $P(A|B) = 2×10^{-6}$, then observing $B$ has doubled the probability of $A$, but we still don't have a good reason to believe $A$. If we're careful, we can avoid this equivocation, but we do have to be careful. However, translating from math to common language is always fraught with peril, so by itself, the possibility of equivocation is not dispositive. Still, a definition of evidence that is less easily equivocated would be better.

A more mathematical deficiency is that using evidence in the above manner absolutely requires that $A$ be constructed before observing $B$. The problem is that all individual events have very low probability; if we assume a continuous distribution, then all individual events have zero probability. If I observe $B$, and then construct $A$ in terms of $B$, it's always possible to construct $A$ such that $P(A|B)≫P(A)$. I have to at least be able to construct $A$ without knowing $B$ beforehand; ideally I want to construct $A$ before actually knowing $B$.

This problem is especially relevant when we are looking at evidence for intention or planning. Suppose you hand me a deck of cards, and I want to determine if you shuffled them or stacked the deck. I observe the order of the deck, $B$, and note that the probability of getting that specific order is $1/52!=1.24×10^{-68}$. I therefore construct $A$ to be that you intentionally arranged the cards in order $B$. Therefore $P(B|A)=1$ and $P(A|B)={P(B|A)P(A)}/{P(B)}={P(A)}/{P(B)}≫P(A)$: Whatever the prior probability of $A$ is, I've raised the posterior probability by 68 orders of magnitude. Because I am constructing $A$ knowing $B$, any observation $B$ at all "raises" the probability of $A$ by as many orders of magnitude as there are in the sample space of $B$.

A counter-objection is that in science, we construct theories based on our prior observations all the time. We observe, for example, that on the surface of the Earth, things fall when we drop them, so we construct a theory of gravity. We would never have thought about gravity had we not already observed things falling. The rebuttal is that we test (or at least try to test) scientific theories with new observations. We predict a new, as yet unobserved, event, and then observe it.

Although it's true that $P(A|B)≫P(A)$, this calculation might be completely meaningless. Because we don't know the the prior probability of $A$, just that $P(A|B)≫P(A)$ does not tell us whether $P(A)>0.5$ (i.e. the simplest mathematical expression that we have good reasons to believe $A$). But the case is actually worse: because we have narrowed the definition of $A$, we have actually reduced its prior probability, and we may have reduced it relative to the broader definition, the definition that does not include $B$, which I'll label as $A'$, by more than the probability of $B$ improves the probability of $A$. In other words, it may the be the case that even given $P(A|B)≫P(A)$ it could still be true that $P(A|B)<P(A')$.

For example, let's assume that there are a quadrillion ($10^{15}$) ways to order a deck of cards such that the ordering is "apparent": all cards in suit and rank order (A♠-2♠,A♥-2♥,...2♣), rank and suit order (A♠-A♣,K♠-K♣,...2♣), all ranks together in random order of suit, all suits together in random order of rank, all even and odd cards together, ordered such that if we played 5 card draw, you would get four of a kind or a straight flush and I would have a full house, etc. Let us assume that if you intentionally order the deck, you will order it in one of the quadrillion apparent ways. Furthermore, let us assume that the prior probability you will choose to order the deck vs. shuffling it randomly is 0.5: you flip a coin: heads, you order the deck; tails, you shuffle it.

$A': \text " you flipped heads, and ordered the deck in an 'apparently' intentional order"$
$A: \text " you flipped heads and intentionally ordered the deck in order " B$
$B: \text " the deck appears in a specific order, which might or might not be 'apparently' ordered"$
$C: \text " the deck appears in one of the 'apparently' intentional orders"$
$P(A')=0.5$
$P(B)=1.24×10^{-68}$
$P(C)=10^{15}/{52!}=1.24x10^{-53}$
$P(C|A')=1$
$P(B|A)=1$
Therefore,
$$P(A'|C)={P(C|A')P(A')}/{P(C|A')P(A')+P(C|~A')P(~A')}≈0.99...9$$

Thus, if I see the deck in an "apparent" order, I'm pretty sure you flipped heads and intentionally ordered the deck.

However, constructing $A$ in terms of $B$, we get:
$$P(A|B)={P(B|A)P(A)}/{P(B|A)P(A)+P(B|~A)P(~A)}={P(A)}/{P(A)+1.24×10^{-68}P(~A)}$$
To calculate this probability, we have to calculate some prior probability for $A$. However, we have narrowed the definition of $A$ with respect to $A'$: $A'$ says that you order the deck in an "apparent" ordering; $A$ says that you ordered the deck in order $B$, which can include apparent or non-apparent orderings, i.e. any possible ordering. Therefore, it's arguable that the prior probability of $A$ is $0.5 * 1.24×10^{-68}$ (you flip a coin; heads, you intentionally order the deck in a specific possible order that might or might not be "apparent"; tails, you shuffle the deck into a specific possible ordering that might or might not be "apparent". Therefore, $P(A|B)=0.5$ exactly: even though $P(A|B)=1≫P(A)=1.24×10^{-68}$, observing the ordering has given me zero information about whether you intentionally ordered the deck. This conclusion holds even if the deck is "apparently" ordered: the probability that had you flipped heads, you would have picked an apparent ordering is exactly equal to the probability that an apparent ordering would appear by chance.

Worse yet, if we include even a single case where if you flip heads, you might do something other than give me a deck in some order (e.g. there is a $1:1.24×10^{68}+1$ chance you might have just kept the deck if you flipped heads), then $P(A|B)<0.5$ (only slightly, but smaller nonetheless): just receiving a deck in some order means that the posterior probability that you flipped heads is (slightly) lower than the prior probability.

Therefore, simply increasing the posterior probability relative to the prior probability is not always meaningful. (It can, of course, sometimes be meaningful, but at least the principle of prior prediction, or something with the same effect, has to hold, so we can calculate the prior probability without reference to the actual observation itself.)

Thus, we can modify our definition: an event is evidence relative to a pair of mutually exclusive hypotheses if observing the event distinguishes between those hypotheses, i.e. Given $P(A|B)=P(B|A)=0$, ${P(A|C)}/{P(B|C)}>{P(A)}/{P(B)}$. It is still the case that observing $C$ might not be a good enough reason to believe $A$ or $B$, but if we calculate the priors correctly, then constructing $A$ or $B$ in terms of an already observed $C$ entails that ${P(A|C)}/{P(B|C)}≤{P(A)}/{P(B)}$.

For example, given that we have observed that life exists, we want to distinguish between the mutually exclusive hypotheses that life exists by chance, and life exists by design. If we include the prior probabilities correctly, then given
$$A: \text " the universe exists by design"$$
$$B: \text " the universe exists by chance"$$
$$C: \text " life exists"$$
Then
$${P(A|C)}/{P(B|C)}={P(A)}/{P(B)}$$
And the existence of life is just not evidence for these pairs of hypotheses. Note that even if we adjust only hypothesis $A$ to include " the universe exists by a designer who designed life" *$A'$), then even though it is true that $P(A'|C)≫P(A')$, because we have to lower the prior probability of $A'$, it is still the case that ${P(A'|C)}/{P(B|C)}≤{P(A')}/{P(B)}$.

Friday, June 26, 2015

The economics of democratic communism: money, savings, interest, and inflation

There are two units of account: the SVU and the currency. One SVU denominates an hour of commonly skilled labor of ordinary intensity under ordinary conditions. It is the basic "minimum" wage, in the sense that any individual may demand up to 40 hours work, of ordinary intensity and under ordinary conditions, per week paid at one SVU per hour. Multiplying dollars per hour of work for uncommonly skilled labor, and/or labor performed with less or more than ordinary intensity and/or under less or more than ordinary conditions, the SVU becomes a measure of the socially necessary labor time. For example, if I have to pay 5,000 SVU for 4,000 hours of labor to produce 1,000 widgets, then the socially necessary labor time for one widget is 5 SVU.

It is not strictly illegal to not work, nor to work as few hours as one wishes, nor to accept a subminimum wage. However, except for very rare exceptions, every individual must pay his or her basic tax (e.g. 12 SVU per week or 600 SVU per year), and can be compelled to work to pay it.

Contracts (especially employment contracts) can be denominated in SVU, but the SVU is itself not a store of value: there is no liquid instrument that a person can hold that entitles her to 1 hour of ordinary labor or the products thereof.

There is also a currency, which I'll call a "dollar" (which is not a 2015 US dollar). Unlike the SVU, the dollar is a store of value: a person can hold liquid instruments (physical cash or checking/savings accounts) that entitle her to a dollar's worth of goods and services. The government sets the exchange rate between SVU and dollars; the government is constrained in setting this exchange rate to the extent that a person earning 12 SVU per week in disposable income must be able to pay his or her basic expenses: housing, food, clothing, utilities, and some basic luxuries. The dollar is subject to a built-in intentional inflation rate, probably between 2-4 percent per year, drt by the national government. The inflation rate is, essentially, a wealth tax.

There are two kinds of liquid bank instruments, denominated in dollars: checking accounts and savings accounts. Checking accounts accept deposits after taxes, and can be withdrawn without additional taxation. Money in checking accounts can be inherited, subject to inheritance taxes. Savings accounts accept deposits before taxes, but taxes must be paid when withdrawn. Furthermore, savings accounts cannot be transferred; to transfer the money in a savings account, the account holder must withdraw the money, pay her own taxes, and then transfer the after-tax income (which is probably subject to double taxation: the receiver must pay taxes on any amount transferred).

Neither account pays any nominal interest. The point of savings accounts is to smooth taxation for people who have large short-term increases in income. Since there's built-in dollar inflation, saved money loses value over time. For short-term smoothing, the losses from inflation should be minimal, and, because they're expected, can be built into short-term high-income labor contracts.

For example, a person who welds the Alaskan pipeline for a year, and and wishes in that year to make 5 years (including the initial year) of income at 40 hour per week. Assuming $10 per SVU in the initial year and a 4 percent expected inflation rate, she would require $108,340, or 10,834 SVU in the initial year; she spends $20,000* on taxes ($6,000) and living expenses ($14,000) the first year, and deposits $88,340 in a savings account. Over the course of five years, she would pay $32,502 in taxes (assuming 12 SVU per week in current year dollars). Even with inflation, this is a considerable savings vs. paying the higher marginal taxes on 10,800 SVU all at once.

*Remember, these are not US dollars; $20,000 should have the equivalent purchasing power to about 60,000 2015 US dollars

Savings accounts so structured make bad vehicles for people with permanently large incomes, because inflation is compounding. People with high incomes will probably use these accounts, but they will lose substantial value over time. This is by design: under democratic communism, people should depend on their labor, not their wealth, for their standard of living.

Since there are far fewer reasons for demand shocks, inflation should be very predictable: the government (central bank) should rarely need to raise inflation to offset debt overhang. (As noted earlier, debt beyond one's guaranteed ability to pay is hard to get and easy to default on.) However, the SVU makes inflation a little trickier to deal with.

We have to deal with two quantities: the price index in dollars and SVU and in dollars. The dollar price index is the dollar price of some basket of goods; the SVU price index is the dollar price divided by the current dollars/SVU exchange rate. As labor productivity increases, we should see the SVU price index decrease: things should require less socially necessary labor time to produce.

Assume in some arbitrary reference year the that the SVU price index is 10 and the dollar price index is 100, so we have a $10 to 1 SVU exchange rate. We have a two percent increase in productivity, therefore a decrease in the SVU price index: it becomes 9.8. We want a 4 percent inflation rate, therefore we set the dollar price index to 104. This therefore means that to give workers the productivity gains, we should set the dollar to SVU exchange rate to 104/9.8 = $10.62 per SVU (rounding up). This becomes the dollar minimum wage. Essentially, then, we have 6.2 percent more money chasing 2 percent more goods with a nominal (money) inflation rate of 4 percent. Note that this means the implied inflation losses in savings accounts is 6.2 percent per year. This also means that the standard nominal interest rate for loans in dollars is also 6.2 percent per year.

Although loans denominated in SVU will in some sense have a implied interest rate of 6.2 percent, wage inflation will reduce this rate. Suppose a person borrows 50 SVU ($500) in year 0, and begins to repay the loan the next year. He will have to pay 1 SVU per week, which means he will pay $10.62 per week or $531 total. Assuming he's working 40 hours per week he's still repaying 1/28th of his disposable income. Because productivity has increased, he's foregoing the consumption of 2 percent more goods than he gained the previous year. So, in dollars, he's paying 6.2 percent interest; in SVU he's paying zero interest; in real goods and services he's paying 2 percent interest.

The government always loans to individuals in SVU at zero nominal interest. Firms and individuals can loan to individuals either in SVU at zero interest or in dollars at any interest. SVU loans are enforceable: individuals can be compelled to repay their loans when so doing will not cause their disposable income to drop below the minimum (12 SVU per week). Private loan repayment is always subordinate to government loan repayment. Loans made in dollars are not enforceable: an individual can arbitrarily default on a dollar loan without a monetary or criminal penalty. Hence, one should make dollar loans only if the borrower has a good reason to pay you back, e.g. to maintain his or her reputation.

Thursday, June 25, 2015

Barefoot no more

I have officially graduated from college, with a Bachelor's degree in Economics and Political Science. w00t.

Wednesday, June 24, 2015

The economics of democratic communism: savings and credit

Democratic communism dispenses almost completely with the profit motive. By "profit motive" I mean the motive to acquire money for its own sake. There are still money-based incentives; as I noted in my previous posts, one way to construct wages and personal taxes is to have a regressive tax structure to encourage people to work an efficient number of hours. But the incentive there is slightly different: it doesn't by itself encourage people to accumulate money; I'm assuming that people working more than the minimum will spend their money.

I have come to the conclusion that one element of capitalist economics that is "intrinsically" capitalist, that must be done away with, is the strong connection between "savings" and investment. There are a couple of reasons, which I will briefly describe. (I will post more detail if asked.) Please pardon the long preamble: it's necessary to expose a delusion in some detail before an alternative becomes coherent.

First, "savings" is deeply equivocal in capitalist economics. One sense of savings is literally hoarding currency, i.e. physical dollar bills. No capitalist economist likes this sort of savings. All it does is make future consumption hard to predict, because it's difficult to know how much currency people are hoarding and impossible to know how that hoarded currency is distributed. Because the currency is hoarded, it's not used to socially privilege actual capital formation or other forward costs (i.e. investment). Obviously, we want to have some currency in our pockets: I don't want to literally spend each paycheck the moment I receive it, but it's also a bad economic idea to stuff a lot of currency in my mattress.

The more typical sense of savings foregone consumption: In a given year, Alice could have consumed, say, \$100,000 worth of goods and services, but instead she consumed only \$60,000, leaving \$40,000 to be consumed by investment. What is obviously necessary here is that Alice, either directly or through an intermediary such as a bank, actually gives that \$40,000 to firms to actually use for investment.

But what precisely is being "given"? When Alice actually has her \$100,000, the stock of existing consumer goods and services is already fixed. Spending more or less will neither increase nor decrease that stock one iota. The only choice that Alice makes is how to allocate that fixed stock. Using the extra \$40,000 to buy consumer goods will just raise the prices of existing goods for everyone else: others will consume less so Alice will consume more. But I can't see any direct, real effect on how we allocate the existing stock of consumer goods and services on the one hand, and how we choose in the future to allocate land, labor, and physical capital to the production of new physical capital or consumer goods in the future.

Even the social relationship is unclear. Assume Alice spends \$60,000 on consumer goods, and offers \$40,000 for investment. And, furthermore, assume Alice is "typical": people typically are not allocating all their stock of money for consumer goods, instead offering some for investment. One the one hand, companies see all this investment cash, which is great. On the other hand, companies also see that people are not bidding all they have on consumer goods, so why should they produce more consumer goods? Consumers are signalling that there is a surplus of consumer goods; producing more will just lower the price and lower profit. On the other hand, if Alice (and everyone else) spends everything they have on consumer goods, they're signalling that there's at least just enough (if market prices equal costs) or not enough (if market prices exceed costs) consumer goods. In the latter case, there's a signal that firms should increase production, but there's no savings to fund this investment.

Presumably, there's some sort of equilibrium mechanism operating. People can still not spend all their money, but the money they do spend exceeds the money cost of production, signalling the desire for more production. But where does this new money come from? If it exceeds the money cost of production, then by definition, it wasn't spent by firms in creating the existing stock of goods and services. In a capitalist economy, this money comes from private banks. But why should we permit private banks to create excess money, i.e. the social permission to consume or invest? And if we do give them this permission, why, in a capitalist economy, would banks create this excess money to benefit anyone other than themselves? Indeed, we can see empirically that banks do not benefit others unless they're forced to.

It is not savings but credit, the creation of new money, that drives investment. And the creation of credit is a social issue, and the fundamental principle of real democracy is that social issues are decided democratically. Note that every time we have left the creation of credit to the "free market", the "free market has completely destroyed the economy.

So...

In democratic communism, the fundamental asset is not claim on ownership rent, but on each individual's ability to provide labor, to work. We want each person to work, and we want each person to consume in proportion to their work. No one should need to "save" for retirement, because all working people have a moral obligation to provide for all their retired elders. Retirement is an entirely collective obligation.

In democratic communism, the democratic national government finances all investment. Democratic national, regional, and local governments allocate investment in a complicated way, dependent on immediate conditions. Inflation is controlled entirely by taxation, both income taxes and capital taxes. (See my earlier posts for more on this topic.) Instead of trying (poorly) Democratic communism

While it is possible to save for large, infrequent purchases (a car, a house, a college degree), it is actually much more efficient to make these purchases on credit. Assuming that an individual can live comfortably on 12 SVU per week, and she can earn up to 28 SVU per week (after taxes), every individual make a payment of 16 SVU per week, and can therefore borrow a certain amount. Assuming we set the real rate of interest (denominated in SVU) at 2 percent (the expected rate of economic growth) and a standard year of 50 weeks, the amount a person can borrow varies by term:

Term (years)SVUUS \$
1791.9023,756.89
53,805.78114,173.39
2013,185.05395,551.61

This credit is individually autonomous. Because we know (because we've designed the system this way) that every individual can come up with 16 SVU per week to pay back loans, we can loan this money with few restrictions. Furthermore, longer term loans should be backed by some physical asset: an individual can completely discharge the loan by forfeiting the asset. So the worst case scenario is that a person borrows 790 SVU (\$23,700), blows it all at Vegas, and for a year works 40 hours a week and lives on 12 SVU per week. Perhaps uncomfortable, but that's hardly a devastating catastrophe. Starting from scratch, a BA/BS and a Ph.D. from an mid-priced school might cost 3800 SVU (\$114,000), which can be paid off at worst in five years. Note that because the SVU as a unit of account is deflationary, the nominal interest rate for loans denominated in SVU does not include currency inflation, and the real interest rate is less than the nominal rate.

I expect that the most frequent use of these loans will be for purchasing the right of occupancy from existing tenants. The second most frequent use is to take vacations or leaves of absence: a person can, if she chooses, work one year and take the next year off, financed entirely by guaranteed credit.

Loans that have a payment of up to 16 SVU per year will have a near-zero default rate. The only reason to default is partial or complete disability. Otherwise, people are obligated to work up to 40 hours per week, pay their taxes, live on 12 SVU per week, and pay up to the remaining 16 SVU for their loans. However, the government can make loans to people making more than 40 SVU per week, and which are payable only given this higher income, which is not guaranteed. In these cases, individuals will be required to purchase insurance, which will cover involuntary loss of income. Furthermore, there should be some mechanism to reduce moral hazard of covertly lowering one's income and relying on the insurance, such as a rebate of part of the insurance if the loan is completely repaid.

Under ordinary circumstances, there is absolutely no reason for people to save; instead, they will typically spend all their income. They can rely on credit for unusual expenses, and it's relatively easy for the government to require and facilitate repayment, while exercising very little control over how people borrow. The only real control I can see is when a person has used all their ordinary credit, and has unexpected expenses. In these unusual circumstances, the government can extend an extra amount of credit, taking more than a year to repay, so long as the person can make a reasonable justification for the expense. It seems very unlikely that a person would have more than \$23,000 of emergency expenses over two years.

There are some edge cases where savings makes some sense. There are some short-term jobs that are so arduous, inconvenient, or distasteful that we have to pay people a lot to get them to do them. For example, when I was in high school (lo, these many years ago), my friend's mother was a welder on the Alaskan pipeline. I think she made \$100,000 in a year (in 1970s dollars). Since this is a short-term job, it seems unfair to make people pay the higher marginal tax rates for the year; the higher marginal rates are intended for people with consistently high incomes. Therefore, we create tax-deferred savings accounts (TDSA), denominated in SVU. Any money deposited into a TDSA is deducted from taxable income; any money withdrawn from the account is taxable in the current period. A TDSA does not pay nominal interest; because it's denominated in SVU, it's protected from inflation, and because SVU's are deflationary (increased economic efficiency should mean that an SVU will purchase more goods and services in the future), it has an implicit real rate of interest. TDSAs are also available to high income earners in general: if you can get a job that pays 500 SVU per week, you're free to put 100 SVU per week in a TDSA, and you won't pay any taxes, much less the 95% marginal rate. You'll just have to spend it eventually, and pay taxes when you spend it. A person, of course, always has to pay the minimum tax of 12 SVU per week, and money withdrawn from a TDSA is subject to a minimum tax rate of 50%, even if it's between 24 and 40 SVU per week. (We can adjust the tax code a little such that if she withdraws more than 40 SVU per week, she pays no more taxes than if she had earned the money.) [This doesn't work. I'll have to rethink it.]

There are also some edge cases where credit should not be guaranteed. In any society, there will be "slackers", people who do not want to work at normal intensity. (People who cannot work at normal intensity are by definition disabled, and their care, like that of retired elders, is a collective moral obligation.) We allow people to trade off time for intensity: a person can work 40 hours per week at a job that requires 60% of normal intensity (basically, showing up and plausibly pretending to work), and receive 24 SVU per week (12 SVU disposable income). People can trade-off of time for intensity, but they do lose some autonomy: since these people don't have the extra capacity to pay loans, they cannot borrow. They should not have many emergency expenses; in the worst case, if they have to attend the funeral of an immediate relative (parent, grandparent, child; uncles and cousins will have to go unmourned by slackers.) funeral, the government can, subject to proof, just buy them a bus ticket and give them a few paid days off.

Wednesday, June 17, 2015

Luke Barnes' Fine Tuning Argument

Luke Barnes complained (rudely) that I did not deal with his actual argument in Terms and Conditions – A Fine-Tuned Critique of Ikeda and Jefferys (Part 1). So let's look at it.

I skimmed over Barnes' restatement of Ikeda & Jeffries argument. I didn't see anything new from the original. I'll skip to Barnes' own argument.

I'll briefly restate his variable definitions, without his digressions on evolution. One problem that Barnes' has in his argument is that he's not crystal clear in his definitions of random variables. Barnes uses the terminology "this universe" without being super-explicit that this universe was randomly selected. There are only two serious problems in his definitions, which I'll get to in a minute.
  1. $L$: A randomly selected universe contains life
  2. $X$: The physics of a randomly selected universe is sufficient for the existence of life
  3. $I$: The causes of the physics of a randomly selected universe were indifferent to whether those physics were sufficient for the existence of life. The complement, $I^C$ (Barnes' $\ov I$, which doesn't render well), is that the causes of the physics of a randomly selected intentionally created life.

The problems come in Barnes' definitions of $N$ and $F$. Barnes defines $N$ as "the natural phenomena of this universe are the causal products of the physics of this universe." It is unclear whether or not this is a random variable. However, Barnes conditions everything on $N$. Therefore, if $N$ is not a random variable, it is just a truth of all universes; if $N$ is a random variable, we can just take our sample space to be $N$.

Note that Barnes correctly states that $P(X|LN)=1$; since we're looking only at the sample space where $N$ is 1, the equivalent is $P(X|L)=1$.

The second, somewhat more serious problem, is his definition of $F$: "in the set of possible physics, the subset that permit the existence (evolution) of life is very small. In other words, the physics of a particular universe must be fine-tuned if that universe is to support the existence (evolution) of life." This does not look at all like a random variable. Instead, it looks like a scalar probability: $f=P(X|I)$. As a scalar, both advocates and critics of the FTA stipulate (arguendo) that $f<<1$. I don't think these quibbles seriously affect his argument, but clearing them up simplifies everything considerably.

(However, Barnes does assert that "IJ’s 'N' slightly misses the point. The question is whether physics is fine-tuned and what we can conclude from this, not whether there are any exceptions to the laws of nature." This is an overstatement. Ikeda and Jeffries might miss Barnes' point, but I think they directly tackle points made by others, especially the non-empty set of theists who assert the possibility of "miracles.")

I think I can skip over Barnes' restatement of Ikeda and Jeffries, and just accept that Barnes is making a different argument from the one that Ikeda and Jeffries make.

Barnes then wants to investigate the ratio:
$$R≡{P(I|LXFN)}/{P(I^C|LXFN)}$$
Given that Barnes $F$ does not seem like a random variable and $N$ defines our sample space, we can simplify:
$$R≡{P(I|LX)}/{P(I^C|LX)}$$
But by Ikeda and Jeffries' extension to Bayes theorem:
$$P(I|LX)={P(X|IL)P(I|L)}/{P(X|L)}=P(I|L) \text " given that " P(X|L)=1$$
$$P(I^C|LX)={P(X|I^CL)P(I^C|L)}/{P(X|L)}=P(I^C|L)$$
By Bayes Theorem again,
$$P(I|L)={P(L|I)P(I)}/{P(L)} \text " and " P(I^C|L)={P(I^C|L)P(I^C)}/{P(L)}$$
Therefore (simplifying):
$$R={P(L|I)P(I)}/{P(L|I^C)P(I^C)}$$
Given that we stipulate $P(L|I^C)=1$,
$$R=P(L|I){P(I)}/{P(I^C)}$$
Again, even if we we stipulate $P(L|I)<P(X|I)<<1$, then $R<1$ iff $P(L|I)<{P(I^C)}/{P(I)}$, which is the point I made in my previous post.

Let's look again at his original argument. Barnes' does fine until he reaches his first problem between iii) and iv):
$$\text "iii) " P(L|IFN)<<P(L|I^CFN) \text " thus, iv) " {P(I|LXFN)}/{P(I^C|LXFN}<<{P(I|N)}/{P(I^C|N)}$$
This conclusion is more or less true, but it is poorly stated. As I noted in my previous post, it is already admitted that $P(I^C|X)>P(I^C)$ and $P(I|X)<P(I)$, regardless of the magnitude of $f=P(X|I)$, so long as $f<1$, and the smaller $f$ is, the more it "swings" the relative probabilities. However, Barnes' use of << in iv) is unwarranted; without knowing the magnitude of ${P(I)}/{P(I^C)}$, we don't know know if ${P(I|LXFN)}/{P(I^C|LXFN}$ is a lot less than ${P(I)}/{P(I^C)}$. But it is less than, again which is already admitted.

Essentially, as I wrote in my previous post, Barnes post is just an overcomplicated version of this post; he's added nothing new.

The economics of democratic communism: wage distribution

So I did a back of the envelope calculation on a possible wage distribution under democratic communism.

Assumptions:
  • US Population: 350 million
  • Working Age Population: 250 million
  • Non-Working Population: 100 million (thus 2.5 workers per non-worker)
  • Maximum 40 hours per person per week

We assume that everyone works at least 24 hours per week at a minimum wage of 1 Standard Value Unit* (SVU) per hour. We'll assume that an SVU has purchasing power equivalent to about \$30 (2015 dollars). This may seem high, but under democratic communism, everyone pays taxes. I annualize wages at 50 weeks per year. So at the minimum wage/minimum work-week, a person pays 12 SVU/week (\$18K/year) in taxes and has a disposable income of \$18K/year.

Between 24 and 40 SVU a week, there's a flat (regressive) tax: a worker keeps 100% of his income between 24 and 40 SVU per week. After 40 SVU/week, there's a 50% marginal tax rate; after 100 SVU/week, a 75% rate, after 300 SVU/week, an 85% rate, and after 400 SVU/week, a 95% rate. (I assume that the number of people making more than 400 SVU per week is negligible, given the confiscatory rate). Remember, these are all marginal rates: tax only on the amount above the bracket. The idea that a person can be even 10 times as productive as a commonly-skilled worker is dodgy; over that, a person is just collecting some kind of rent.

*The value of one hour of commonly-skilled labor under ordinary conditions. With apologies to Jack Vance

Weekly Wage (SVU) Annualized Disposable Income (US\$) Effective Tax Rate (%)
24 \$18K 50%
40 \$42K 30%
100 \$83K 44.5%
300 \$158K 64.8%
400 \$181K 69.9%

I assume that non-working people get a minimum of 12 SVU per year, or 75% of some measure of their lifetime earnings, whichever is greater.

I cobbled together a right-skewed wage/subsidy distribution. Because of artifacts of the cheesy way I modeled the distribution, I account for 91.72% of the population. I assume the working and non-working distribution are identical.

with the following statistics:
Stat Weekly (SVU) Weekly Disp. Inc. (SVU) Annual Disp. Inc. (US\$)
Mean 51.15 SVU 28.16 SVU \$42,237
Mode 36.50 24.50 \$36,750
1Q 31,89 19.90 \$29,850
Median (2Q) 36.80 24.8 \$37,200
3Q 60.10 38.10 \$57,150

This distribution makes anyone earning over 102.4 SVU/week an "outlier" (greater than 3Q+1.5(3Q-1Q)). It's a little complex to calculate (and interpret, because of the skewness) the standard deviations, so I'll leave those for later.

Total purchasing power in the model is equivalent to about \$13.75 trillion US\$, which is in line with the 2015 economy. Total actual labor hours worked is 8.1 billion hours (assuming everyone making over 40 SVU/week is working 40 hours per week), which is slightly less than my estimate of 8.3 billion in today's economy (given a generous 10% un-/under-employment rate). Although most people work fewer than 40 hours per week, the unemployment rate under this model is zero by definition, so more people work. Overall tax revenue is about 45% of total wages, again in line with most democratic socialist countries.

Because that total purchasing power and the total amount of labor is about the same as today, the overall price level should be similar, although there may be considerable adjustments to individual prices. Housing costs should be considerably lower (more on this later); food and basic "luxury" items may have higher prices.

Note that everyone works, and children are directly subsidized. Therefore, a two-parent household with two children where one parent works at the median wage and the other parent takes care of the children has a disposable income of 24.8 + 12 + 2*6 = 48.8 SVU/week = \$73.K/year.

All the numbers seem in line with a reasonable modern industrial economy. This kind of model does not seem, at least at first glance, completely crazy.

If you want to look at the spreadsheet, it's here: Excel Spreadsheet (let me know if this link doesn't work)