Quantifying the unquantifiable.

[hmkpoker]

Whenever we say that one thing is "better" than another, we are referring to superiority along a certain context. With most things, this is easy. The best runner is the one who reaches the finish line first. The best knife is the one that cuts meat the most easily. The best worker is the one who produces the most useful labor. The best gasoline is the one with the highest octane level. The best processor is the one that processes information the fastest, and so forth.

These examples are very clean cut. The desired objective variables used in ranking the subjects are universally understood. However, when the criteria used to rank the subjects becomes less universally understood, it becomes necessary to redefine the context in a manner that is more objective so that it can be ranked "fairly." An example of this is figure skating. Take two Olympic competitors: one is much more graceful, the other is more powerful and capable of executing tricks. To the untrained eye, objectively discerning the value of one from the other is impossible. They are just different. In order to rank them for the purposes of competition, then, it becomes necessary to implement a system of objective scoring. Each trick comes with a corresponding point value, penalty rules are implemented, points are added for aesthetics, flexibility and whatever else. Figure skating skill, then, is redefined in terms of the newly established points system.

The nature of the points system has an impact over who wins and who loses; a system that places more value on tricks will favor strong skaters while a system that places more value on grace will favor more expressive ones, yet the actual abilities of the performers have not changed.

As another example, how do we determine which is the better of the following:



How do we justly determine the context by which these two paintings are to be ranked? How do we know whether Edvard Munch's "The Scream" is better than Boris Vallejo's fantasy art? What is the worth of a piece of art? The market value? The technical precision? The level of emotional expressiveness? If so, we cannot escape the fact that the value of the art is relative to the context of the individual. Is the value to be judged by the level of appraisal by others? If so, by whom; the philistine masses, or the well-studied art history elite? Usefulness? If so, where; in an art contest or on the cover of a comic book? We could easily judge them by the size and shape of the canvas, yet these attributes speak nothing of aesthetic value.

The real attempts to rank these paintings, (art constests, auctions) then, inevitably boil down to human subjectivity. The art contest is won by the piece that the particular judge likes best, and the auction won by the individual who happens to like the art the most and has the most money. In the context of different judges or different auction participants, the results would be very different. Objectivity is impossible because beauty is in the eye of the beholder; we are trying to quantify that which has no objective quantifiable value. We are simply comparing two pieces of canvas with manually applied oil-based paint and arbitrarily making up criteria for what makes them "better."

We are in a similar predicament when it comes to the economy. Economies are, simply, the distribution of goods and services for a certain group of people. That's it. The characteristics of economies run the gamut. Some employ capitalism as a method of distribution, others employ socialism. Some use fiat currency as the exchanging medium, while others use market commodities, government credits, or reciprocal altruism. Some economies have more goods than others. Different economies place different values on different goods.

How, then, are we supposed to objectively judge the economy? Do we judge it by the total amount of goods existing in circulation? If so, how are we to judge the values of the goods? Why should a good's value be equal to the market price? How do we account for valuable things that are not accompanied with monetary transaction such as luxury time, children, "freedom," blow jobs, etc? If two economies have equal numbers of widgits, yet one likes widgits more than the other, is the first economy wealthier? Do we judge economies by the level of income equality? If so, are we to discount other variables such as overall levels of wealth and/or happiness? Or should the economy be judged by how happy the people are? If so, how do we judge what "happiness" is? Should the economy be judged by technological progress or government expansion? If so, why? Are economies judged by a combination of all of these factors? If so, how do we decide how to qualify them in light of the fact that different people place different priorities on different things?

We are faced with a task that is as difficult (and as pointless) as coming up criteria for ranking the paintings. It seems to be popular consensus that the economy can be ranked, because the economy has been redefined in terms of the GDP. What purpose this serves is yet to be explained. In theory, the GDP could be vastly increased by requiring all people to work 60 hours a week, spend all their income within a month's time (returning the receipts to the IRS as proof that they aren't destroying the economy by saving), and creating meaningless jobs for those who have trouble finding work in the private sector with the vastly increased sales tax revenues. Volunteerism should be illegal; all work must be compensated. The demands for goods would skyrocket because people would be forced to spend on more things; to what degree this would impact the real productivity increase, or merely the price increase, cannot be known. Measures taken to specifically expand the GDP as much as possible would seem unfavorable, and they are, yet they allow our President to truthfully say things like "our economy (GDP) is stronger than ever" despite a very obvious increase in the cost of living and supply restriction.

In the end, modern economics is nothing more than an attempt to, starting with arbitrary given premises (value of a good is equal to market value), elucidate plans (increase monetary velocity) without an analysis as to why we are doing these things. It is like taking several piles of junk, deciding upon criteria that makes one pile better than another, and attempting to create the best (along the arbitrary context) pile of junk of them all.

[madnak]

Conan girl > screaming man. This is not debatable.

[Darryl_P]

Good post. A stark example of this type of thing is the entire legal industry. Dollar for dollar over 90% of the world's economic activity in the legal sphere happens in the USA -- a country with less than 5% of the world's population.

But is this a good thing? Those who tie everything good to GDP have no choice but to say yes. Others (like me) who place very high values on non-economic goods like the amount of trust in the air in the society you live in would say it's a horrible thing. Lawyers' livelihoods are built on mistrust. They spend a great amount of time and effort making people suspicious of the other guy so they will see a need for their services.

When a society endorses such practices, I can only conclude that there are very, very deep problems that don't appear anywhere in GDP figures. If anything, there is a negative correlation between these problems and GDP. After all, engaging in economic activity is a good way to evade real problems, pretend they're not there and sweep them under the rug.

So how do you build something like "feeling of mutual trust in the air" into an economic theory? Well, the simple (and correct) answer is...you can't. Why? Because "trust" is not an economic good. It isn't scarce, people don't need to compete for it, and there is no market for it, nor could there ever be.

So as your post (correctly IMO) implies, one must look beyond economics to decide what's good and bad on both a personal level and on a societal level. A view that looks at economic considerations alone is somewhere between seriously deficient and completely asinine.

[hmkpoker]

[ QUOTE ]
Dollar for dollar over 90% of the world's economic activity in the legal sphere happens in the USA -- a country with less than 5% of the world's population.

[/ QUOTE ]

How so? I don't understand what you mean.

[ QUOTE ]
So how do you build something like "feeling of mutual trust in the air" into an economic theory? Well, the simple (and correct) answer is...you can't.

[/ QUOTE ]

It depends on how you define "economics." Most people define it in terms of monetary transactions. I don't; I think a good economic theory should attempt to explain the distribution of all useful things, including the feelings of mutual trust that you describe, in the context of their real, subjective value. (Rothbard, Rothbard, rah-rah-rah etc) This doesn't necessarily mean that we come up with something that can (or should) be quantified, it's just a human attempt our interactions on a massive scale.

[ QUOTE ]
So as your post (correctly IMO) implies, one must look beyond economics to decide what's good and bad on both a personal level and on a societal level.

[/ QUOTE ]

Unfortunately, I think that runs us into a similar problem. With elections up, banning gay marriage is an issue again. Regardless of the GDP considerations, how do we decide whether a social policy is best?

[Darryl_P]

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How so? I don't understand what you mean.


[/ QUOTE ]

I'm saying that if you take all the paid invoices in the world from 2005 that fall under the category of litigation services, say, and add up the value of all of them in dollars, then more than 90% of that value comes from invoices issued in the United States or by US owned entities.

Do you agree with this statement or do you require evidence/proof?

[ QUOTE ]
I think a good economic theory should attempt to explain the distribution of all useful things, including the feelings of mutual trust that you describe, in the context of their real, subjective value.

[/ QUOTE ]

I agree, but I am saying there are certain problems associated with having an economic theory for non-economic goods. Stuff like supply being infinite, demand being unmeasurable, utility values being unknown and not following rules associated with those for economic goods etc. makes it impossible to devise a theory with any practical applications.

I guess you are saying it's still worthwhile to have such a theory, while I'm saying that if it has no practical use, then how could it be?

[ QUOTE ]
With elections up, banning gay marriage is an issue again. Regardless of the GDP considerations, how do we decide whether a social policy is best?

[/ QUOTE ]

This leaps far beyond what I said. My post concerns what *you* or *I* decide is best. What *we* decide is best involves communicating our preferences and reaching a consensus, something that may require several lifetimes to do, or may even be impossible.

[Exsubmariner]

[ QUOTE ]
Because "trust" is not an economic good. It isn't scarce, people don't need to compete for it, and there is no market for it, nor could there ever be.

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I'm not so sure that this is true. Would you buy a car from a dealer that your buddy said couldn't be trusted. The other day, I went by a gas station that had a sign which said "Our attendants speak English." I think there is just about a market for everything. The problem is measuring it.

[Darryl_P]

[ QUOTE ]
I'm not so sure that this is true. Would you buy a car from a dealer that your buddy said couldn't be trusted. The other day, I went by a gas station that had a sign which said "Our attendants speak English." I think there is just about a market for everything. The problem is measuring it.


[/ QUOTE ]

I never said trust wasn't a good thing. On the contrary. I just said it wasn't an economic good (as in goods and services, not good and bad).

If there is a market for it, then please tell me how I can purchase trust...hmm? I can get trust of course, but what I have to give in return is not $$$ but other intangibles. To say there is a market for something is to say that it can be bought and sold, ie. exchanged for cash.

Love is another example of a non-economic good. If you don't believe me, just ask the Beatles [img]/images/graemlins/smile.gif[/img]

[Exsubmariner]

[ QUOTE ]
If there is a market for it, then please tell me how I can purchase trust...hmm? I can get trust of course, but what I have to give in return is not $$$ but other intangibles. To say there is a market for something is to say that it can be bought and sold, ie. exchanged for cash.

[/ QUOTE ]

No, sometimes, I think trust does cost money. Let's imagine that you sold a Crysler car to Micheal Moore back in the eighties. If you were his car dealer and decided that the battle wasn't worth fighting, exchanged the car and then spent the time getting another like car from the factory because the one they gave you was a lemon, then you wouldn't be featured in Micheal's movie about "Roger and Me." You would have traded your time & money in exchange for reputation. This is why companies employ PR firms. You spend money on them. In exchange you recieve the intangibles of an organized PR campaign.

[Darryl_P]

[ QUOTE ]
No, sometimes, I think trust does cost money. Let's imagine that you sold a Crysler car to Micheal Moore ...

[/ QUOTE ]

I agree with your example but you're not buying trust here. Instead, you're buying something that could be acquired for free if trust were there. It's a semantic difference only, but an important one IMO.

Think of childhood friends you would trust with your life. Could anyone pay any amount to either of you to take that away? They might be able to get you to do something negative to the guy, but the trust you feel deep down is still there, right?

How about some mofo you couldn't trust as far as you can throw him? He may accept a bribe or an extortion payment to leave you alone, but will you trust him any more the next time? Have you really bought trust or something else?

That's all I'm saying.

[Riddick]

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I don't; I think a good economic theory should attempt to explain the distribution of all useful things, including the feelings of mutual trust that you describe, in the context of their real, subjective value.

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This is off. Economics in a broad sense is the distribution, or more accurately the allocation (the process of assessing, assigning, designating, making choices), of scarce resources given unlimited wants.

Trust is not a scarce resource to be allocated. Trust, while certainly a factor in economic choices, is more of a pyschological phenomenon, not an economic one.