Monday, August 31, 2009


An important issue is how are people informed. Paul Krugman writes eloquently about horse race reporting. Media spend more time reporting on which policy proposal is up and which policy proposal is down than what is in them.

I believe the problem is partially a symptom that we don't vote on the proposals; thus, we are sheep who just have to know how we are to be done to. If we were to vote, there would be more information on what it was on which we were to vote.

Richard Serling in a comment asked for a solution--what about my proposal

Retirement planning and the Share Economy

Financial Planning articles are all similar; either how much to save based upon some assumptions. Or once you have saved and are ready to retire, how much one can sell from one's assets. The assumptions vary slightly so we can get slightly different percentages (from four to six percent of one's assets). on Lieber just wrote an excellent, but typical article.

In a share economy, one doesn't sell assets, there is no stock market, stocks or shares don't have a value. Investments return their real returns. If one owned a share of a pistaccio farm, one would look at the revenue and if one wanted to procrastinate, one would talk to a agricultural economist who would go over assumptions based upon the expected prices for pistaccio, water, fertilizer, etc. And, perhaps one might throw in some assumptions for climate change and how that would effect yield.

If one owned a share of an airline, one would make estimates and predictions of the demand for air travel and the cost of fuel, because one's income is a share of that ticket revenue minus the second. (The employees are also on a share economy so they make the same predictions as to their "wages.")

This is because one's pistaccio income is the gross price for the pistaccio's that one sells minus obvious immediate inputs such as the fertilizer, water rights, etc. Obviously, there might be long term investments for either, such as new airplanes, maintenance on the farm shed, etc. These are separate investments which would reduce the share. Of course, many owners of the airline would be familiar with it and plow their income back in increasing their share while those who needed income, or just simply did not think the long term prospects for the airline industry were that goood, would take their share of the gross profit. The difference might be made up by new investors earning cash, assuming indivduals thought the long term prospects for the airline were better than for other possible investments. (That is how capital gets reallocated.) If individuals did not think the long term prospects were good, they would not play income back in or invest, and the buildings on the pistaccio farm would eventually fall down and the planes would be declared not skyworthy by the FAA. That is the market reallocating capital to more productive uses.

But one's decisions, assumptions are based on the real world, not the "market."

Lockerbie Compassionate Release Decision by Sortition or Plebiscite

I viewed last night on Cspan, the Scottish Parliament grilling Kenny MacAskill over the release of Mr. al Megrahi. As I suspect all my readers know, Mr. Ali was serving a life sentence for bombing Pan am Flight 103. He had terminal prostate cancer. He returned to his native Libya and received a "hero's welcome."

I heard Mr. MacAskill said it is "was his decision alone." The Members of Parliament grilled him, did he consult with the family members of those who lost their lives, why would a minister talk individually to a single prisoner--would any prisoner get the right to talk one-on-one in their cell with a Minister of Justice, was there a quid pro quo for dropping his appeal or for the Libyan government investing in the UK, would any person, "no matter how heinous their crime" be released at the end of their life if their condition was terminal?

I heard Mr. MacAskill point out the role of compassion in the Scottish government and character and the opinion of church leaders on this issue. I heard about his discussion with the chief of police about the possibility of moving Mr. Ali to a hospice or other facility. And an estimate that it would take fourty-eight police to deal with that situation, even without other "problems." And Mr. MacAskill was concerned about the needs of other patients who were at any hospice facility that might be used.

It is not the role of this blog to second-guess the decision. I am sure that is being done on many blogs in Scotland and around the world. It is this blog's role to discuss how that decision was made.

How would things be made if the decision was sent or better yet, "punted" to a sortition randomly-chosen jury? And that jury heard all the concerns and even considered any investment that Libya might make in Scotland. And that jury voted yea or neigh. Would the the people working in the hospice that might have been used, the police officers who might have been asked to guard him had he be kept in Scotland or if the decision was made to release Mr. Ali would the family members and the Scottish public have been able to accept that decision.

Is that better than having a single minister, albeit with advisors, or even a panel of jurists make such decisions?

An entire population cannot vote on every single speeding ticket, research grant, asylum application, or even every treaty with a foreign government. But what if each such decision was decided by a randomly-selected jury that had the power by a certain percentage of its members to kick the decision to the whole population. Thus, Scotland's population as a whole would have voted on what to do about Mr. Ali, our entire population might vote on any petition for compassionate release for Mr. Madoff at the end of his life, and the entire population of Iraq would have voted on the disposition of Mr Hussein after his capture.

Sunday, August 30, 2009

Wait until we really know what you deserve?

Many workers' success are best determined with twenty-twenty hindsight. For example, is a surge in profit due to the CEO's acumen, or just an accounting gimmick? Did the doctor really do the back surgery so it would keep a person pain-free for the rest of their life? And did the teacher do a really good job or just "teach to the test" Did the politician pander for votes, or truly achieve the status of a statesman? Does the miracle drug have undisclosed long-term side effects?

I thought one idea would be to put their money away into an account and then twenty years later or as they retire, distribute it after a retrospective of their entire lives. Well someone else came up with this idea--in a specific field. He proposed that sports figures put ten percent of their salary into an account --which will be forfeited if they are ever caught with performance-enhancing drugs steroids in their system.

But lets extend this to the general case and to the particpatory democracy case: The participatory jury would evaluate the persons performance when they try to take the money out, and perhaps evaluate their need for the money urgently. If the particpatory jury feels the use for the money and the person's performance justifies, they get the money tax free. Otherwise, the money continues in a useful investment.

This would be in lieu of taxes on that money. It is a way of resolving the problem with investment banker's bonuses.

I would express this more clearly: if a person earns or has ever earned over one million dollars in a single year, they have two options:

  1. limit their spending to the median income (about $43,000 per year in the United States)
  2. submit to a participatory democracy sortition jury. They would determine how much they can spend based upon what we know of their entire life and its accomplishments, the risk that they may have caused harm that is not clear, and lastly their needs. (Thus a person facing an illness, a terminal condition, or simply advanced chronology might be given more leeway to spend than those who would still have many more years in which to enjoy a fling).

Saturday, August 29, 2009

New York Times, Thursday, July 30th 2009, Volume CLVIII, Page A1 Mortgage servicers get fees for insurance, appraisals, etc. during foreclosure. Thus, they have an incentive against modifying a loan and working with a mortgagee to prevent foreclosure.

Financial MisSystem is Getting Worse!

The financial missystem is getting worse.

We are not handling the "Too Big to Fail problem" as per Stanley Fischer, Ben Bernanke's thesis advisor at the MIT. (He also was a vice Chairman at CitiBank and is now the governor of the Bank of Israel)

He says that the problem is worse now than before as the bink banks are bigger. Joseph Stiglitz, a Nobel Prize earning economist, is complaining too.

This is why we need the Share Economy and I talk more about and in general on Do we really need a financial system?

Thursday, August 27, 2009

Hierarchies are bad for health

Hierarchies are bad for health.

Marmot studied British workers in the government. The clerical workers had 11.67 mortality while senior administrators had 4.73, less than half as much. Profssional were in the middle at eight. All had white collar jobs--so they weren't subject to occupational hazards such as chemicals. They all had the same National Health Service Health Care and as civil service employees were not subject to the stress of job insecurity. (Medical Sociology by William C. Cockerham citing:

  1. Marmot, Michael, M. J. Shipley and Geoffrey Rose, 1984, "Inequalities in death--Specific explanations of a general pattern." Lancet 83, 1003 to 1006.
  2. Marmot M. G. George Davey Smith, Stephen Stansfeld, Chandra Patel, Fiona North, Jenny Head, Ian White, Eric Brunner and Amanda Feeney 1991, "Health inequalities among British Civil Servants: The WhiteHall II Study" Lancet 337 1387.

Participatory democracy eliminates hierarchies in two ways. People report to randomly selected sets of jurors, rather than Everyone serves as jurors. They will serve as jurors for decisions made by the government. So everyone has an opportunity to be in charge. Some of these jurors would be for the companies in which they invest or have a share.

But the biggest change will be eliminating rules in making decisions. For example, a clerk in the welfare office distributes benefits as per a very precise set of rules. A juror would hear the story of many potential beneficiaries. They would then vote how a limited fund would be distributed among them. A health insurance company determines the precise rules for how much to pay medical claims. This is to attempt to ensure that the money going out to the doctors does not exceed their revenue. A claims handler in this insurance company, thus obeys precise rules, and is at the bottom of the hierarchy.

In my proposals for participatory democracy, the individuals vote on how much to spend on health care, or each type of health care. Then each juror gets a set of claims and a budget and decides the most just way to distribute the money. The jurors decide how to organize the work and what to look at and the order in which to look at it. Marmot reports that low control negatively impacts health and recognizes "workplace democracy." The jurors discuss this and hopefully arrive at a consensus.

Obviously, by following a set of rules, one achieves an efficiency, in terms of less time per case. In a sortition-based system, each decision is made from first principles each time. Each decision requires a large number of people, say twenty people per decision. In a system where rules are specified, one person can apply them. It is an empirical question, is the unpleasantness of having individuals apply rules greater than the unpleasantnwss of individuals discussing things from first principles.

The Wikipedia article for the study and one by Marmot himself. He provides his full paper on how to prevent job related disorders, none of which look at the issues herein.

Wednesday, August 12, 2009

Obama said No Meddling by government or insurance company executives

Obama said, Quote: "I don't think government bureaucrats should be meddling. But I also don't think insurance company bureaucrats should be meddling,"

I agree. That is why we should have sortition juries determining health care reimbursements, not government rules or insurance company bureaucracy. This is the last two steps of my four step plan for participatory democracy.

Sunday, August 2, 2009

Public Goods without Taxes

Public Goods without Taxes

I propose two types of money. Type A allocates scarcity; one has to pay Type A money to get scarce goods: food, a ticket on a crowded train or a full concert. One gives Type B money to indicate that one likes an item, is satisfied with it and to reward good service.

Businesses charge Type A money; it disappears when a person pays it. Individuals receive Type A money proportional to the amount of Type B Money assigned to them. That is, one's ability to purchase the limited resources of society is proportional to the amount of satisfaction they provide to the rest of society. Every person gets a fixed stock of Type B money and can allocate it to those businesses, organizations and governmental bodies they likes.

There are two necessities to make this system work.

  1. This vote is secret! This is for exactly the same reason that we have a secret ballot. Otherwise, ones employer and government office holders would find way to reward those who voted for them. Or bluntly, we would have vote-buying.

    If the allocation of type B money was public, then hospitals, web sites, airlines would insist that users allocate type B money in order to have service, and the system would degenerate into a market economy like we have now

  2. A business or individual that distributes type B money to any party such that amount is a significant percentage of what they get, must get permission for that rate.

    Otherwise, firms would have an incentive to give more Type B money to their employees than from large services from which they benefit. Thus, a trucking company would have to have approval of the rate they give their employees as opposed to the agencies that build roads, the companies that produce the software they use and the equivalent of Consumer's Report that evaluates the quality of trucks they may purchase (or more precisley on which they expend type A money).

    Or more dramatically, person Q might allocate 30% of their Type B money to their aunt. Perhaps, their aunt is helping taking care of their kid who has autism. Then the permission would be reasonable once they show (perhaps with randomly taken outtakes of a videocamera in their home). This is analagous to a health insurance company not paying for care given by a doctor who is the patient/insuree's father, son, etc.

Note that a business would have the right to distribute the funds in the two categories as they choose. Thus the hypothetical trucking business could decide to give more or less type B money to (the road agencies, the software provider, etc.) as they feel appropriate. They also could allocate the type B money to their employers and business with which they do a lot of business as they choose. Someone else would have to determine the percentage of money to go to each class or set of recipients. I think that "someone else" could be a sortition jury.

Consumers now express social choice in their purchases, for example by buying "Fair Trade Coffee" or by joining Consumer-Supported-Agriculture groups to buy their food locally. However, an individual doing this is acting against their own pecuniary interest. A thorough discussion of this is found in PatriceCasteran, Herbert and Cailleba, Patrice,A Quantitative Study on the Fair Trade Coffee Consumer(September 29, 2008). Available at SSRN:

But under this system, consumers can act to promote fair trade at no cost to themselves. They can distribute the Type B Dollars among all the factors of production as they see fit. That is when we buy food, we could give more or less money to the farmer or farm worker. When we buy a record, we could distribute money to the artist or the checkout person at the distribution point (retail store).

Those who believed the free market best allocated these, would simply make no decision in this regard. Thus a business only has to make agreements regarding distributing the funds of those who believe in the free market and who did not make a "social choice" purchase. Thus, this the system allows both pro-market and anti-market to coexist side by side and one would choose which "side" to be on without being at a personal disadvantage like those who pay more for "fare trade" coffee.

This system eliminates what my intermediate microeconomics course termed "price discrimination." (Microeconomics: Theory and Applications, Edkar K. Browning and Mark A. Zupan Version 8/e page 331) This happens when there is some monopoly power, which is measured by the Lerner index:

(Price - MC) / Price

It ranges from zero to one. where MC is the marginal cost. The owner of a copyright has zero marginal cost--it does not cost any more to let people download the song one more time. In my town of Macomb, Illinois our only transportation out of the town, is the Amtrak. I don't drive. Many times the Amtrak is not full and seats are empty. I would suspect that even if the Amtrak were free, there would be times when seats would be empty. Just not enough people who want to go to Chicago. The marginal cost to put one more passenger on the train is zero. Thus, Amtrak has the highest possible Monopoly level.

It is well known that monopolists who maximize revenue create a social dead weight. People who would have bought the product don't because the price is too high. That is why we have antitrust laws. That is only when the price must be the same for each consumer.

If the monopolist could charge a different price to each individual--hypothesize an inexpensive brain-wave reader that could tell how much the person really wants to ride the Amtrak, then there is no deadweight. Each person is charged an amount to determine what they can purchase and everyone would end up consuming the same amount of the product as they would otherwise. This is called perfect price discrimination.

But the most practical case is when the monopolist can charge different amounts to different groups of people. Airlines are a perfect example. The person who has to travel the last minute generally pays more than the one who can book ahead. Passengers don't like this. And the bureaucracy of dealing with these systems is expensive.

An example is the recent charges for checking a bag. The airlines want to show up as the cheapest in the Travelocity or Expedia search. I have found that my travel plans change. I reserved a great fare to travel for a court date (regarding my late mother). Only to find that the court date was cancelled. Similarly, I booked flights only to have my parents have an unexpected illness. The airlines do give bereavement fares for those who lose a loved one but that does not cover all the other circumstances. Those who have a monopoly or lots of fixed fares try to find a way to make those who really want the service to pay a higher fare but still get those who are price sensitive to fill up empty seats.

Alternatively, look at all the different charges for cellular telephone calling plans.

And of course, we have a problem with "public goods," both those that are privately supplied and those that are government supplied. Sometimes business come up with different business models such as "fremium" services, addware, or advertisement such as the Google Model. On NPR, July Sixth, Ted Koppel said that advertising rates for those in the magic age range are five times higher than older viewers. This biases what is shown on television and we thus see more films such as Saw II, Hostel, cheap science fiction, than quality programming that might appeal to an older generation.

This is the ultimately participatory democracy since everyone determines how much of their money should be shared with goods and services supplied by government agencies, how much should be shared with public good providers and those with high overhead costs such as the wonderful companies that make software on an Open Source model. I personally use the Sun software from Java practically every day. Sun lets people download it for free and they contribute to open source. Yet it has had several losing years recently and has finally agreed to be purchased by Oracle. (Just for the record, I have no connection to Sun or Java other than a user and having occassionally purchased a minor amount of software help from Sun.) CNET News says that "The very openness that made the technology popular also made it possible for competitors to profit from Java at Sun expense." On the other hand, the same article does say that 'Java is a key factor in ninety percent of sales.'

The dicussion of the problems with charging for software, and in my opinion all public goods, is best expressed in a version of the Gnu Manifesto, "Consider a space station where air must be manufacturered at great cost; charing each breather per liter of air may be fair, but wearing the metered gas mask all day and all night is intolerable even if everyone can afford to pay the air bill. And the TV cameras everywhere to see if you ever take the mask off are outrageous. It's better to support the air plant with a head tax and chuck the masks."

He also proposes the possibility of a "Software Tax" to support programmers, as x percent of the purchase price of a computer and that one can take a credit The rate could be decided by a vote of the payers of the tax weighted according to the amount they will be taxed on.

Extending the ideas in this article, each user of the computer could assign their tax revenue to the programmers or businesses that support them.

Remember that Type B rewards business, employees, investors, for providing goods. Type A Money controls the consumption of scarce goods. These are things like bread, coal, the space that one lives in s a private house or apartment. They are recognized by the fact that when one person consumes one of these, others cannot consume them. Those who provide more satisfaction in the society get more Type A money; they are rewarded by being able to have more of these items.

But one doesn't have to spend type A money when one uses things that don't interfere with others. That is using software, listening to music, reading the news. But it is also is a seat that otherwise be empty whether in a concert hall, a sports stadium, a plane or a train! And it is using unused capacity on a cell phone system. And it is also foreign aid, defense, police, education to the extent that one consider educating individuals benefits society, and all the things we expect government to provide.

One allocates type B money to these.