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Capitalism vs. Socialism

November 7, 2016, 12:37 pm

This is a good video about various voting mechanisms for handling voting between more than 2 choices.

VotingParadoxes from Paul stepahin on Vimeo.  Via Alex Tabarrok

The video is about voting, but to make things simple it discusses voting among people for a single ice cream flavor they all have to share.   I don't think this video was meant to have any broader application beyond just highlighting basic paradoxes and strategies well-known in voting theory.   To me, though, this video highlights the strong advantages of capitalism over socialism in at least three ways

  1. Forcing one-size-fits-all socialist and authoritarian solutions sucks vs. allowing individuals to make choices based on their personal preferences regardless of other preferences in the group.  While the video discusses a variety of voting approaches for forcing everyone into a single choice, all of these result in a lot of folks who don't get their first preference.  Obamacare is a great example, where product features have been standardized, essentially through a voting process (though indirectly) and huge numbers of people are unhappy.
  2. The video fails to discuss one shortcoming of simple yes/no voting, and that is degree of preference.  In the real world, we both may prefer vanilla over chocolate, but your preference might be pretty close whereas I might be so allergic to chocolate that eating it will kill me.  Socialist and authoritarian approaches don't have a solution for this, but market capitalism does, as prices signal not only our preference but our degree of preference as well.  The real market for ice cream is a preference expression process orders of magnitude more sophisticated than voting.
  3. It is almost impossible for even an autocrat who legitimately wants to maximize well-being to do so, because the mass of individual preferences are impossible to encompass in any one mind.  Towards the end of the video, it became harder and harder for a person to synthesize a best approach from the preference data, and this was just for 10 people.  Imagine 300 million preferences.
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Category: Economics

27 Comments

  1. Mike Powers:

    Well, the solution is to mandate that all ice-cream providers stock vanilla in addition to chocolate, even though everyone out there agreed on chocolate (and most specifically chose chocolate over vanilla).

    November 7, 2016, 1:51 pm

  2. Dan Wendlick:

    Actually, the Obamacare solution is to mandate that everyone must purchase Neapolitan, thus assuring that everybody gets some of what they want, even at the expense of having to pay for a lot of what they'd rather not pay for if they had a choice. Over time, more and more flavors get added to the bundle, and eventually the portion that you actually wanted begins to vanish in the mix of what you are required to pay for.

    November 7, 2016, 3:12 pm

  3. Sam P:

    The video directors chose a somewhat poor example, probably trying to avoid politics. You use voting (or some other less democratic technique) to choose when you must have limited choice apply to all. Markets are more appropriate when having individual choices is appropriate. For the video, they could have chosen, say, a group going out (together) to dinner. They only can go to one place, so is it Italian, Chinese, or... TGI Friday.

    November 7, 2016, 4:49 pm

  4. Hal_10000:

    I'm getting very amenable to the idea of ranked choice voting. I think it would not only keep someone like Trump away from politics, it would keep party leaders from attacking each other.

    November 7, 2016, 6:23 pm

  5. Not Sure:

    "You use voting (or some other less democratic technique) to choose when you must have limited choice apply to all. Markets are more appropriate when having individual choices is appropriate."

    Sounds like a good argument for small government, doesn't it?

    November 7, 2016, 7:01 pm

  6. Chris:

    My takeaway from this is that group choices must only be made when absolutely necessary. If at all possible leave people free to make their own choices. So one set of rules that should be dropped are those that require actions that should be good for people - people can look to their own good. The second is rules that prohibit actions that are bad for the actor with no effect on others (excluding the bad effects of the prohibition on others). People can suffer the consequences of their own bad actions. Much that is wrong with this society would be corrected by these concepts.

    November 7, 2016, 10:07 pm

  7. J_W_W:

    Too bad we live in a society where more and more central planning is being favored even though it's never ever worked....

    November 7, 2016, 10:48 pm

  8. Q46:

    What you describe is reaching a consensus through discourse, persuasion and compromise (which is pure democracy) not voting, and the option still remains for your dinner group to split, some going to Chinese, some to Italian or some just going home.

    It could involve, if we go to Italian this time, there is a promise to go to Chinese next time for others in the group for whom Italian is not their first option.

    More importantly whatever the outcome of any kind of majority decision, those who disagree are not forced to go to the restaurant and eat, or pay anyway if they chose not to go and/or not to eat.

    Also in your example the group is not voting for the person among them who will make the decision.

    November 8, 2016, 6:57 am

  9. Q46:

    ... and explains why voting is a total waste of time.

    November 8, 2016, 6:58 am

  10. Q46:

    No Comrade - the solution is to have ONLY vanilla. Things run good then... no need for voting. Da.

    November 8, 2016, 7:00 am

  11. kidmugsy:

    The diagram seems to lack the necessary gibbets and guillotines.

    November 8, 2016, 7:10 am

  12. esoxlucius:

    This video is one dimensional. Ice cream doesn't volunteer to be eaten or not eaten like politicians who choose to throw their hat in the ring. The decision to run for office is just as calculated as the decision on who to vote for and I would argue it's driven by the type of election you are holding. In a straight up winner take all election, a libertarian like Rand Paul runs as a Republican, not a libertarian. The voters, who may prefer his libertarian message calculate to NOT vote for the libertarian candidate who's message they like because they are voting AGAINST Hillary. So they choose a stronger candidate who they hate to take on a candidate they loath. In the mix, the voters appear to 'like" the candidate they hate and the message they would prefer to send to their party about where the party should be headed is at best obscured and at worst completely misinterpreted.

    A better solution would be a ranked voting, instant runoff election. The voters get vote against anyone while simultaneously voting for the strongest candidate and still delivering the message that the parties need to chart a course for the future. So Hillary could win the presidency with the help of Bernie Sanders voters who hate her and her message while essentially explaining that to the world as they vote. I think that's a better way of running a country than what we are doing now.

    November 8, 2016, 8:58 am

  13. slocum:

    Yep. Tyranny of the majority is still tyranny. So why do people favor more centralization? The best explanation I've seen is Daniel Klein's 'the people's romance':

    http://www.independent.org/pdf/tir/tir_10_1_1_klein.pdf

    The idea is too many people feel that anything done collectively via a democratic vote is sanctified, whereas individual choices made in the market are just so much selfish individualism. My best example is bike share programs (which we now have in my city). It is SO dumb. Serviceable bikes (especially used ones) are really cheap -- everybody who wants one can afford one (so cheap that students commonly abandon them on the racks when they leave town and the university has to eventually cut the locks and discard them). But the bike share system is really expensive -- the bikes themselves, the stations, and -- especially -- the employees needed to run the system. Also the truck used at night to collect and reposition the bikes. It's crazy. And they're also inconvenient -- you have to walk to a station to pick up a bike (and hope there's one available), ride it to near your destination (and hope there's an open slot available -- if not, you're really screwed, since the hourly rate goes way up if you keep it more than an hour), and then walk the rest of the way. Nothing door-to-door about it. Given all that, it's no surprise that hardly anybody uses them. BUT...most people around here just *love* the idea of it. You can explain all of the above to them and it has no impact (other than to cause them to narrow their gaze and look at you suspiciously).

    November 8, 2016, 9:49 am

  14. Allen Ingling:

    Well those are all great points you make and I wish those who prefer individual liberty to socialism would, more often, explain some fundamentals of why socialism is irreparably broken, as you just have.

    A few comments.

    - "Individualism vs Collectivism" more precisely labels the distinction you make then "Capitalism vs Socialism." Capitalism need not be individualistic nor socialism collectivist. Consider, for example, income redistribution: The government takes $100.00 from you and gives it to me. That is socialist, or perhaps we say more specifically "redistributionist", but it is not collectivist, nor do the criticisms you offer of collectivism address that circumstance well.

    - Hayek makes several good corollary points in The Road To Serfdom. One is that democracy is fundamentally incompatible with socialism because with many preferences there exists no democratic consensus; Allocations can only ever satisfy a narrow minority rather than a majority. Because democracy becomes unworkable under such circumstances, democratic bodies delegate their authority to powerful autocrats. He states that only issues on which there is broad public agreement can be decided democratically.

    November 8, 2016, 11:26 am

  15. Allen Ingling:

    Also really enjoyed the embedded video. So given a model of voter preferences and rules for tabulating votes we predict election outcomes and find some surprising and pathological outcomes. But has anyone attempted the inverse? Given a pathological election outcome (e.g. tonight's) can we work backwards to a model, or to probable models, of voter preferences?

    November 8, 2016, 11:38 am