Optimal Policy & Technological Contingency

A person’s optimal choice depends on what they know. To consume more ice cream? Or to consume more alcohol? It depends on what we know about the expected utility across time. If a person thinks that alcohol has few calories, then it is understandable that they would choose to drink rather than eat. The person might be totally wrong, but they are acting optimally contingent on their knowledge about the world. (FWIW, 4oz of ethanol has 262 calories and 4oz of typical ice cream has 228 calories.)

The case is analogous for good government policy. The best policy is contingent on accessing the distribution of knowledge that’s inside of multiple people’s heads. It’s not sensible to assert that a policy is suboptimal if the optimal policy requires knowledge that neither a single individual nor all people together have. Even if the sum of all knowledge does exist, it may not be possible to access it.

Economists like to tell their undergraduate classes that it doesn’t matter who you tax. But that’s contingent on 1) identical compliance costs among buyers and sellers and 2) identical relevant information. If a tax comes as a surprise to the buyer or the seller, then it absolutely matters who is taxed.

When I was in 1st grade in North Carolina, my class went on a field trip to a Christmas tree farm. We learned a bunch about maintaining the farm and we got to choose a pumpkin to take home. At the end of our visit we took turns perusing the gift shop. My mother had generously given me a dollar to spend  and I was eager to spend it (I rarely had money to spend). Unfortunately, even in the early mid-90s, most of the things in the shop cost more than $1. So, I settled on purchasing some beef jerky that cost 99 cents.

Continue reading

The Internet Knows Everything

About ten years ago, movers showed up to pack up and move our worldly goods across town. Because this was a short move, we went with some local, low-priced labor, instead of name-brand professionals. From a previous move, we knew that the legs of our baby grand piano could and should be removed for transport. Unfortunately, none of the movers knew how to detach the legs, and neither did I. I squirmed underneath and looked up, and did not see how to do it. I only saw some massive screws that looked like they were not about to move.

The internet to the rescue – – a quick search led to a YouTube video showing somebody moving a piano like ours, and just reaching under and knocking something with a rubber mallet, and voila, off came the legs. I could not see exactly what they did, but when I crawled under the piano again to look for something easily knocked aside, which had to be there, it was obvious what to do.

Continue reading