Wrong economics in action

In yesterday's post, I pointed to a piece by Arnold Kling where he wonders why people are so bad at economics. I encourage you to read the comments under that post, as well as the comments on JaneGalt on the same topic. The two most salient details are, I think, 1) people get very emotional and 2) no one changes their mind. It's difficult to get someone to change the way they see themselves, but it's pretty easy to get them to act in their own best interest. A staunch environmentalist will buy a Jetta because it's shiny. (Also, to be quite clear, I think that people acting in their own best interests is a tremendous feature, not a bug. It's much better than ideology at getting people to do the sensible thing).

Here's a Slate article that has more bad economics on display. Today's object of scorn: CEOs with salaries of $1. It must be very tough to be a CEO -- you're criticized for making too much money AND criticized if you make only a buck. Clearly the crime here is being a CEO at all.

The argument says that low CEO salaries are phony because most of the compensation package is in options, which can get really big. This is true, but isn't a rising stock price a good thing -- so good in fact that we want our CEOs to be focused on nothing else? Anybody who criticized Bush's tax plan as being not stimulative enough must certainly think so because the real economy is OK (not great, just OK), only the stock market is in the doldrums, and therefore the only thing that needs stimulating. I'd wager that the 50% of Americans who own equities want CEOs to focus on raising the stock price, not buying ivory backscratchers.

Now there are lots of good arguments about expensing options, repricing options, fraud, corporate governance etc., particularly in the wake of recent corporate scandals, and I agree that figuring out how best to fix the agency problem in public companies is important, tricky, and far from perfected. But saying that CEO compensation should be less tied to how a company does is bad for employees, CEOs, and shareholders (well, maybe not CEOs who like ivory backscratchers more than increasing the worth of companies they are in charge of). The only way you can think it's a good idea is if you think wages should be determined by Communal Sharing (everyone gets whatever they want) or Equality Matching (everyone gets the same). And why would someone think that?

Getting Economics Wrong

Here is a fantastic article by Arnold Kling on something that's been occupying my mind a lot these days: why are people so bad at economics?.

A peculiar wrinkle that Kling does not mention is that in people's actions, they behave pretty much like the classical forward-looking rational economic actors, but in people's words they become, well, all sorts of other things. While it's reasonable to divide up interpersonal transactions into "communal sharing, authority ranking, equality matching, and market pricing" in reality we don't see people buying food at a supermarket and then sharing it equally with passers-by. People tend to act selfishly and in their own best interests (which includes things like altruism and being nice to your family) but their speech seems to be more about signaling which group they belong to and jostling within that group for status. So people's lack of economic intuition does little to hinder their day-to-day actions, but means their policy prescriptions are usually wrong.

Alas, I also share Kling's pessimism that education will do little to rectify the situation. Krugman, DeLong, and a bunch of my fellow Chicago MBAs have excellent economic training, but when it comes to some abstract point with ideological (and thus, identity based) overtones, all of that gets tossed out the window.

Reality TV

Most scripted TV shows make the bulk of their money from syndication (i.e. reruns). In fact, TV shows are a tough business because, when they are new, the networks (distributors) hold all the power and can negotiate a low price and when/if they become popular, the star actors hold all the power and walk away with all the profit. Ensemble shows, like "Homicide", tackle this by not having any one actor be particularly important and hiring good writers (writers are very substitutable, and are a dime a dozen, so they stay cheap).

Reality TV shows are very cheap to produce, and so don't need syndication to make a profit. This Times article (yada yada) talks about how this is changing studio buying patterns but also quotes network managers saying that it will slow the audience defection to cable, which has been going on now for about 30 years. I don't see why cable channels cannot have reality TV shows of their own.

P2P networks for open content

The Open Content Network is the sort of thing I expect to see replace large segments of the existing media market in the future. Currently it has 3 snags: 1) there is no editorial or programming to help me find content, 2) Napster clones are still around for "free" content, and 3) lack of "invasive and pervasive" DRM technologies makes all content act the same whatever license it's under.

Techvision wrap up

Chicago GSB's 1st annual technology conference went really well. It was a fun and educational experience, and I got to meet many interesting, smart people. Very nice :)

I was most involved with the DRM panel, and here are some of the things I learned:

1) Programming matters. Gary Curtis, for FullAudio said that their server stats showed an initial flurry of downloading when a new subscriber signed up, which then petered out after a few weeks. It turns out that having to know what content you want is a drawback of P2P networks. This certainly matches my experience filesharing -- I initially download lots of stuff, but then run out of inspiration.

2) Programming really matters. Gary also said that, although their service has over 300,000 songs, 80% of their volume comes from the 50 songs on their playlist. That's an amazing number.

Both of these points suggest to me that there is a lot of value in programming, whether it be from a web-radio DJ or a slashdot-style moderation system. Right now, I rely on my brother for music suggestions.

3) Content companies and the technology companies that support them want DRM to be "invasive and pervasive", and want to leave actual rights up to the content owners. Caroline Sheu from Adobe, and Jim Kreyenhagen from RealNetworks, both said that they take no stance on what users should or should not be allowed to do with media, they want to provide a flexible platform and let the content owners and customers work out what makes sense.

4) Content companies seriously overrate their products. Caroline asserted that content companies "won't supply their content" unless they knew it would be protected, but, as Tim O'Reilly mentioned in a recent speech, the fact is that most writers never get read, most songs never get heard, and most movies never get seen. The supply of content far outstrips the amount people can absorb, and in a competitive market this will drive the price down to 0.

I asked the panel why they thought people would pay for DRM content given there is so much non-DRM content available, and they said that sites like GarageBand.com and mp3.com, which supported unknown artists, had failed so the labels were the only source of valuable content. What they did not understand was that Napster killed GarageBand.com and mp3.com more than it hurt the labels.

If someone has to pick between downloading an mp3 of a known song from a known band, and an mp3 from some unknown band, they'll pick the known band every time. But if you start to lock the known band's music up with DRM technology, well, the unknown guy's starting to look a little better. And if there's a reliable system to help you find good free music, so much the better. The point is that for any of this alternative channel to work, free music has to start looking different from closed music -- and that means DRM.

I think that as labels make some progress towards implementing DRM technology, they'll start to see the content equivalent of open source software start to become more popular. Ultimately, they'll be relegated to a small, uninteresting corner of the content market.

BTW -- Special thanks to the moderator, Randall Picker (U Chicago Law Prof.). He did a great job leading the panel in his own inimitable style.

Maria Callas

My good friend CD wrote in asking:

There was an article in the NYTimes recently on Maria Callas copyrights expiring in Europe that had me wondering - any chance that as music filesharing becomes more and more widespread, and people start looking for free files, that more people will listen to older copyright-free (in Europe anyway) music? Sure you can go online and find tons of free music from new bands looking for exposure, and sample mp3s from groups plugging their albums, but if there's an 'ornithologist' in France that has everything Bird ever recorded available for free on his server, with a guide to what's the best stuff, and no one can shut him down, do people flock to it? Probably not, but curious as to what your thoughts are on this area over the next few years.

Right now, on P2P networks, copyright is not enforced and therefore, de facto, does not exist. Ironically, therefore, Charlie Parker does not benefit from entering the public domain in Europe because he's already in essence under public domain in the US, along with Michael Jackson, Madonna, and the Back Street Boys. "Open" music does not benefit from its "openness" until "closed" music is somehow meaningfully closed.

The success of DRM technologies will be a tremendous boost to copyleft and public domain music, so long as DRM allows a public domain to exist.

Verizon v the DMCA

ISPs were at the table when Congress hammered out the DMCA. Their main goal was to avoid liability for what people used their networks for, and to avoid the cost of monitoring network usage, and they largely got this through the act's "safe harbor" provisions. The RIAA's success in getting a lower court to subpoana Verizon for a file traders identity imposes the cost of policing on the ISP, something they don't want to carry. Sarah Deutsch, vice president and associate general counsel for Verizon. is right to resist the law suit.

But I do like the fact that the RIAA is finally going after individuals and not trying to ban technology. But going after individuals is very expensive, which is presumably why they've waited so long before resorting to it.

Real open sources server code

Under its Helix initiative, Real has released its server (but not codecs) under an open source license. Since the clients were open sourced a few months ago, this means the only thing Real can license is its codecs. I have no clue what this company is doing -- I'll ask Jim Kreyenhagen, their VP of Marketing, on Friday.

Hilary Rosen is out

Looks like Rosen is ditching the RIAA -- I guess there's just so much abuse a person can take and she got tired of being the most hated person in the Internet. Maybe Valenti will be next.

Invitation to Chicago-based winterspeak readers!

I'm shamelessly plugging the University of Chicago GSB's High Tech Conference, which is on this Friday at the Gleacher Center downtown from 8.30am to 4pm.

You can check out the schedule here and, if you're interested, register here ($25, breakfast, lunch, and soft drinks included). Originally, this was only open to U Chicago students, but since I helped organize the thing I convinced folks to let me open it to winterspeak readers as well. I have no idea if any of you willbe able to make it but I hope a few people do. The three software panels in particular--DRM, EAI, & wireless--promise to be very good, and some of my classmates have also gathered a group of experts together to discussion area nanotechnology.

If you are there, be sure to stop by and say hello!

The middle of the music business

Arnold Kling argues that most content companies make their money by acting as agents for quality, not by "owning content", and so is skeptical that the Creative Commons will have much effect, one way or the other.

Clay Shirky notes that the digital age has changed the production and distribution ends of the music spectrum, but has yet to alter the quality selection portion in the middle, which is where the recording industry sits. He anticipates this changing in the future, and while noting that the "editor" pool can be quite small, wisely refrains from predicting exactly how this will end up happening.

If the widget that people use to "moderate" music looks for open licenses (because people want music unencumbered by DRM), then the machine readable Creative Commons system will neatly shunt closed content to one side, separating the two markets. Fundamentally, as long as Congress does not outlaw the general purpose operating system, and ability to download a raw mp3 file over TCP/IP, people will listen to music for marginal cost even if the RIAA creates unbreakable DRM and removes its entire library for the Internet. I predict that Clay's "moderation system" will start catching on as soon as unauthorized mp3s are taken off the Net. It's just not needed presently because the Napster clones let people have their cake and eat it too. Mmmmm...cake.

What comes next in Macro?

I'm taking Macroeconomics this winter, and hope to take Advanced Macro in the spring. My big takeaway so far is that no one understands how macro works because no one knows what the elasticity is between, say, demand for government borrowing (deficits) and supply of money. All the differences between monetarists, neo-classicist, Keynesians etc. boils down to different assumptions about underlying elasticities.

This article on U Chicago's Robert Lucas does a great job of pointing out the strides made in monetary policy and outlines the next research agenda: fiscal policy.

Milton Friedman, who's kinda like the Yoda of Economics, says deficits are the only thing to control spending. Given how deep the financial hole US states have found themselves in, he could well be right, but deficits are also a blunt and messy instrument and it would be nice to find better ways to control government spending.

Back in Chicago

I had a great time in Boston catching up with old friends, but I was a little disappointed with Cyberposium this year. The tech industry is in the middle of tackling some difficult questions, but "what's the next big thing" isn't one of them, and that kind of seemed to be what the conference was angling for. Chicago is putting together a (much smaller) technology conference this coming Friday, and as one of the organizers I tried to focus it around some of the major work the tech industry will embark on over the next 3 years. I hope we'll get some good discussions.

Going to Boston

I'm heading back to Cyberposium. Last year, Red Hat had a huge presence and I really enjoyed the conference. We'll see what happens this year.

Drugs from Canada

There was an story in the news about how Glaxo was putting its foot down on drug reimports from Canada. I ran into someone with a ton of pharma/biotech/VC experience the other day, and asked her what she thought of it. She said that the way Canadian drug reimports had traditionally worked, was that pharmas would sell them drugs at list price, and the government would then subsidies them to lower their cost to consumers (but of course, consumers also paid the subsidy through taxes). If Americans bought drugs from Canada, then Canadian tax payers were simply subsidizing American drug consumers, the pharmas did not care.

For Glaxo to put its foot down means that something in the above must have changed.

Disney wins, World loses

The Supreme Court struck down the appeal against the Sonny Bono copyright extension act. I haven't gone through the opinions yet, but my guess is that they say copyright term must ultimately be determined by Congress.

I guess ultimately this issue needs to be protected by the electorate through Congress, but I am very disappointed to hear that they also allowed Congress to make retroactive extensions. I need to read the opinions on this before commenting further.

Bits in 2002/2003

My ex-boss (and good buddy) Mark Hurst has a really nice review of his take on the big technology story of 2002: lots more bits. His experience with an iPod and digital camera have been exactly the same as mine -- you store (and listen) to lots more music and you take (and share) lots more pictures.

I don't know how many of our "life bits" we're going to end up recording ultimately, but it's certainly going to be more than we do today. For example, this weblog is a nice archive of my thoughts over the past 2 years and I think it exposes pretty well what's been on my mind and how my thinking's changed while going to school at U Chicago. And while I initially thought the little 10-second film clip feature in my digital Elph was useless, it's turned out to be a wonderful way of capturing moments with friends and family. With iPhoto, iMovies, and iDVD, I've been able to share them with people all over the world as well.

I also want to comment on Mark's following point:

Outbound music bits - creating and mixing new music - are still outside the reach of most users. This is due to the lack of ease-of-use in available publishing tools and the lack of users' compositional skills (relative to, say, photography or writing). This isn't likely to change soon.

I'm not very musical in the artistic sense, but I can play three instruments (kinda) and know a lot of theory, so would consider myself "above average" in terms of musical competency. I played around with Mod Tracker several years ago to compose music on my home computer, but grew frustrated scrounging around ftp stores for decent samples and then struggling to set tempos, pitches, and keys.

Recently, I purchased Storm 2.0 from Arturia as an easy-to-use but flexible digital audio workstation. I have been surprised both by how easy and how difficult it's been to get decent music out of thing. Many of these products really struggle with appropriate interface "metaphors" and most end up choosing to look like the same rack-mounted instruments their users are presumably used to. I've never programmed a drum machine, and many of the things the software asks me to do (like try to twiddle knobs with a mouse) are frankly, ridiculous. But I've learned how to do this stuff now and can pump out mediocre dance music with the most average of them. Yay! But I also appreciate how hard it is to create good interfaces/applications for making music. I think the organization style iTunes uses is excellent, and could see a "create mashup" feature as being welcome and popular, if you could overcome the very significant technical hurdle of stripping out vocals from instrument tracks. Hmmm... tricky.

"Buybacks as class warfare"

There was a free software mailing list I used to subscribe to, but then I unsubscribed because someone on the list kept being a damn fool. That same someone just posted a long email titled "Buybacks as class warfare" after an ongoing thread about (what else) Bush's dividend policy. I just unsubscribed again.

It's good to note how unreliable one's intuition can be when thinking about abstract or remote topics. Keeps one humble.

Lexmark and the DMCA

Lexmark has invoked the DMCA to try and stop other companies selling (cheap) toner cartridges that work with Lexmark printers and undercut Lexmark's own lucrative toner cartridge business. This is a wacky and novel use of this wacky legislation that will probably be laughed out of court, illustrating 1) the unintended consequences of centralized decision making, 2) the value of common law judgements in adding intelligence to legislative fiat, and 3) the ridiculousness of the DMCA.

The economics are kinda interesting though. I'm sure many of you have heard the phrase "give away razors and sell razor blades" to describe businesses where one "half" of the product is given away and full whack is charged for the other "half". It makes sense to do this when you can use different consumption levels of the two halfs to figure out which customers value your product most, and charge them a higher price. The printer business works like this, and toner usage is a good way to price discriminate between heavy users and light users, and charge heavy users more because they're willing to pay more. If you take away the ability to price discriminate, toner prices will fall and printer prices will rise. This is an unalloyed good for heavy users, but makes life worse for light users. The net effect will be to transfer economic surplus from Lexmark to consumers, even through a few of the most marginal consumers may get squeezed out of the market.

Microsoft and Apple's new "convergence" devices

Microsoft has unveiled a host of little, networked devices, including a watch which offers "local time plus real-time information such as news, weather, sports scores and instant text messages." What I really want from a watch is a screen telling me when appointments (from my palm pilot) are coming up.

Apple, understanding the very real tradeoffs involved in mobile computing, have expanded and shrunk their popular G4 PowerBook. I know one of the reasons I went for the little iBook was battery life, internet connectivity, and portability. Had the 12' aluminum PowerBook been available, I might have bought that instead. I really want it now. I haven't felt this way about computer hardware since I was 14.

Final note on dividends (and a brief note on deficits)

The amount of mail I've received over my note on dividends has far exceeded the volume on any other topic. Why discuss the future of technology when we can rehash a tangled tax code, muddy macroeconomics, and dubious distortions?

I'm closing the book on this with this final post:

Firstly, the distortion from dividends is almost entirely on the supply side of the economy. Shareholders can get money out of their investments by either share buybacks or dividends. Buybacks are taxed as capital gains (usually a 20% tax rate) while dividends are taxed as income (about a 40% tax rate). This difference creates a distortion above and beyond the distortions we naturally get from any tax (and no, I do not support eliminating all taxes). Since firms should not be making dividend vs. buyback decisions for tax reasons, these two rates should be made the same. (I am told the plan currently calls for dividends to have a lower tax rate than capital gains, which fails to fix the problem and so is bad. I am also aware that the tax system for capital gains is complex and depends on time held etc, but we can only fix stupid laws one at a time. And finally yes, we could increase the capital gains tax to 40%, but this would quadruple the economic harm the capital gains tax creates, which would far outweigh any benefit from reducing the distortion caused by differential tax treatment).

This plan is not a gift to the rich. It will not result in a huge outflow of cash to wealthy shareholders, because companies (cough cough, Microsoft) can already do that by buying shares back and choose not to. As a matter of fact, this plan, like almost all supply side plans, will not be stimulative at all because it merely improves capital allocation and should add a few basis points to US annual productivity growth rates. That's worth $billions in 2020, and $0 now.

There are good reasons why governments should try to be fiscally stimulative -- Keynes's animal spirits and all that. There are also good reasons why governments should not try to be fiscally stimulative -- namely they've proven to be crap at it. States are crying now because they have no money and times are tough, but you did not see them building up serious rainy day funds when things were booming -- it's much funner to spend more and cut taxes. But whatever -- both sides have valid points.

This plan will also do nothing to boost the stock market. Firstly, I don't see what all the fuss over the market is about because the equity market and the real economy have been pretty unhinged now for about 7 years. Secondly, the market is not going up because stocks are still overvalued with respect to earnings (note: I am lousy at predicting markets). Thirdly, the real economy has been remarkably robust, mainly buoyed by consumer spending. This seems reasonable because the same overcapacity that's dried up business spending has also driven prices lower through more intense competition. The 6% unemployment rate is low by US historical standards, and a distant dream by international standards. While very unpleasant for those without a job, unemployment in the US is far from being in crises. We can revisit this if it hits 10%.

So long as the eventual tax rate on dividends is close to the capital gains rate, the most striking feature about this plan is how boring and sensible it is. So let's move onto something more exciting:

Deficits: Are They Bad? Firstly, there's a difference between real deficits and accounting deficits that's important to understand. I mentioned it a while ago. I'm too lazy to look up the numbers, but I know the US was still running surpluses a few months ago, and was running surpluses long before it was "officially" running surpluses. So there is less budget deficit than there appears.

But is a larger deficit bad? It depends on how much you think the suppliers of the money you're borrowing will care. If you think suppliers will not care -- i.e. they still think you're going to pay off your debt with no problems-- then a larger deficit does not matter much. If you think suppliers of money will freak out and raise the price of borrowing (through higher interest rates) then running a larger deficit is bad as it makes investment more expensive -- this is the Rob Rubin position, and Rob Rubin is a really really smart guy. Nobody knows how sensitive the supply of money is to deficits, but Really Big deficits, that grow, with no spending control in sight, definitely freak out lenders. On the other hand, productivity growth in the US economy is still dazzling and should remain strong for years to come. Or it could not. I don't know.

Open Source? We think it's great

Urk -- Apple's new Safari browser is built on an open source rendering engine (Gecko?) They're contributing back to the codebase. The Safari benchmarks were slightly better than Chimera (the best OS X browser I've found yet). Update Adam Kalsey sets me straight: "The engine behind Safari is khtml, part of the Konqueror and KDE core from the Linux world."

Krugman froths some more

One of the things I find most perplexing about the Bush plan to cut dividend taxes is that it's raised any ire at all. The only thing I can think of that enjoys as widespread support among economists as taxing dividends and capital gains the same, is that retroactive extension of copyright duration does nothing to promote creativity.

People have written so much wrongness about this that it makes my head hurt. It is really very simple -- taxing dividend income at a higher rate than capital gains means that companies will substitute from returning money to shareholders through dividends to returning money to shareholders through share buybacks. If you look at the data, this is what indeed happened, but economists do wonder why it took so long.

Eliminating this difference in taxes eliminates this distortion -- companies will do whatever is best for them and their shareholders. This will marginally improve the efficiency of the economy, which is non-consequential in the short term, but really valuable in the long term. It will provide no real fiscal stimulus, nor will it seriously erode any tax base -- it's kinda like remembering to shut the door to the refirgerator, or squeezing toothpaste from the bottom of the tube -- it's just good sense.

More telco reg

I'd missed this earlier, but it seems that content cartel hand puppet Fritz Hollings (Senator of South Carolina, Democrat) lost his Commerce Committee chair to John McCain when the Republicans took the house and senate a month ago. It seems that this may free Powell at the FCC to trim some of the arcane and anti-competitive rules currently afflicting the media biz here in the US.

The article raises the same hoary old chestnut of content distributors both 1) raising prices and 2) restricting access, which is ludicrous (as I've said before) because restricting access would simply lower people's willingness to pay, and thus reduce the profitability of raising prices. Telco's, being average in their intelligence but limitless in their greed, have no incentive to spite themselves in this way. But since this fact seems to be only obvious to me, I'm clearly missing something important about how people process this issue. Must investigate further... (link via Tomalak)

Excellent media post

Here's a fantastic article arguing against every basic global media concern. You know the list: a few big companies are taking over the world, they're all american, they drown out local content, they kill hard hitting journalism, etc.

Do incentives matter?

Daniel wonders whether or not incentives can be harmful, citing an earlier post where I said they mattered.

Firstly, having been a consultant, I recommend taking what consultants say with a grain of salt. Secondly, incentives don't go away if you don't measure them -- people have always and will always want more money, more prestige, the world ordered according to their whims, more recognition, more love, more fun etc. etc. Rules just determine what dimensions people compete along, but they do not eliminate the human urge to compete. When the government used to set airfares, airlines simply competed by offering more amenities (non-price competition). When you eliminate differences in job compensation, employees begin competing for non-compensation perks. When you eliminate the competition to take other people's stuff, they compete by making more of their own stuff.

On the job, measuring human performance can be harmful. Firstly, people will perform to the measurements, which may not be optimal for the company. Secondly, measuring itself is costly, and you need to make sure the system is not being gamed. Thirdly, there might be large elements of luck in the job, meaning performance may not be closely tied to effort. Fourthly, you need to pay employees more for them to choose more variable pay (would you prefer $50,000 for sure, or a 50/50 chance of $0 or $100,000?) But if you don't measure how someone is performing, you don't reward the right people enough (so they leave), you don't get rid of the wrong people (who aren't performing), and you don't know where people are struggling with their jobs, so can't help them. These are real costs and risks too.

So in the context for measuring job performance, optimal pay structures turn out to depend a lot on the specific circumstances. But the optimal pay structure merely channels people's competitive tendencies in the right direction, it does not make those tendencies go away. People respond to incentives.

AOL and weblogs

Full disclosure: I've never used AOL, and Mark Hurst used to be my boss (he's still my friend). Here, he interviews Rick Robinson, VP of Community Products at AOL. People like to make fun of AOL, but certainly in the early days, the AOL web was the best web (it was *so* easy for people to use). AOL was focused on providing services to people online over the Web long before any uttered "web services", and then it lost its mind and became a "media company". We'll see what happens going forward.

Sash?

Sash is pretty closely connected to IBM's advanced technology program, and was basically their best thinking on what to do with the client. I had the good fortune to work next to (although not with) the brains behind Sash, and I can tell you that they're good folk who pay more close attention to the client-side user experience at IBM than anyone else. Unfortunately, their best does not seem to be good enough. IBM certainly never knew what to do with them, and Sash staggers on in this weird zombie state. (btw. They picked the name "Sash" because that's what you use to control a window. "Windows" -- geddit? If that's too opaque, try and figure out what "Eclipse" is all about).

Incentives matter

D-Squared Digest believes that all political positions boil

...square down a Left/Right axis: either you think that it is more important to provide a decent life for everyone in the world, or you think it is more important to preserve the rights of people who own property. You can hum and haw as much as you like about whether the two are necessarily incompatible, or whether the one is instrumental to the other, or what constitutes a "decent life" anyway, but when you've finished humming and hawing, I'm still gonna be asking you the question, and your answer to it will determine whether or not we're gonna have an argument.

This is a pretty typical position, not because people's actions split into one camp or another, but because it squarely ignores the question of incentives. In their actions, people follow neo-classical models with a verve that would make Friedman blush, but in their thoughts folks tend to espouse ideas quite at odds with how they actually act.

I was having dinner with a very smart physician friend of mine a few weeks ago who insisted that the environment was his number one current concern, even through he had not contributed his time, money, or anything else to any environmental causes in the past 5 years. He was baffled when I asserted that the environment could not be all that important to him since he hadn't done anything about it. There's a deep gulf between what people say and what they actually do, and I think the reasons why people find economics weird and counter-intuitive lies somewhere in that gulf.

I was chatting with another smart friend (who also happened to be a physician) who was adamantly in favor of revoking all patents on drugs so they could be given to the poor. In her mind, the tradeoff was between poor people having drugs vs. drug companies having profits, and the choice was pretty straightforward. The real tradeoff of course is between people having drugs now vs. people having (new) drugs later, since drug companies only invest in developing new drugs if they have the opportunity to profit off them. Now, I'm not saying sacrificing some benefit in the future for some benefit now can't sometimes be a good idea, but it's the sort of thing that can go either way (dare I mentioned the word "balance?") But when people talk about issues that involve tradeoffs, they are notoriously poor at identifying what the real tradeoffs are, and the benefit now vs benefit later is one of the typical things people miss.

Take dear old d-squared. Property rights may seem like a bum deal for those who don't have stuff now, but they do give people incentive to do things like work, invest, and produce in the future so they can have stuff later. He sets up "decent life for everyone in the world" and "preserve the rights of people who own property" in opposition to each other, where the real opposition is "decent life for people NOW" vs "decent life for people LATER". And it's not at all clear what the right answer to that is, but Daniel (and many other folks) don't seem to even set up the right question.