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Thinking about the CMD

So, Dylan Matthew has a long, confusing and–I think–confused post about the political philosophy of ‘Just Deserts’.

Don’t get me wrong, I’m sure that he is accurately describing the political philosophy on the subject  and it is also true that the political philosophy he mentions–I feel confident saying–is almost certainly rigorously reasoned .   It is also the case–I would argue–that this pie-in-the-sky political philosophy debate should have absolutely no practical impact on policy choices.

Before I get to my argument, let  me say that I am not calling political philosophy useless.   I certainly don’t believe it is.   Yet is usefulness, or lack thereof, is not about practicality; rather as Keynes put it:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.  Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas…It is ideas, not vested interests, which are dangerous for good or evil.

When I hear someone talking about “Luck Egalitarians”, I don’t hear a brilliant summation of the world-as-it-is; I hear a statement about a social objective function.   When I hear someone talk about determinism and free will, I don’t hear a deep foray into the ultimate-meaning-of-life-the universe-and everything; I hear a conjecture about constraints faced by society or by individuals.

Well, we have tools for that.  In fact this is the perfect time for me to introduce a pet idea of mine–actually it’s a very old idea, but one which I don’t think informs the intuitions of many people.  I call it the CMD (the “Community Mechanism Designer”).

What is the CMD?

You’ve heard about the social planner?   The entirely fictitious, all-knowing, all-powerful and perfectly benevolent planner of the economy.   It’s not that we think the social planner can or should exist, of course, but rather that it is a helpful question to ask our selves, “What would the social planner do?”  We can compare that outcome with the likely outcome of what our chosen policy, or an unfettered market, could achieve.   The social planner’s solution, by virtue of it’s God-like status, is by definition “efficient” and “welfare maximizing”.

It is the fact that a competitive market will (under certain conditions, which rarely hold in the real world) do as well as the planner’s solution that drives much of libertarian thought.

The CMD is exactly the same idea; except that the all-knowing assumption is dropped.  In fact, the CMD has only public information available (directly) and no private information except that which was self-reported by agents.  But it wishes to maximize welfare to the best of its ability subject to the constraint  that individuals must self-report what the CMD needs to know (if it is to be successful).

In brief, the CMD represents the best that society could do given that a society must be run by laws and laws are subject to information which is public.   There is no magic telescope which could see inside your head to determine what you want to do, or mean to do or what you would be willing to do.   The entire society is viewed as a principle-agent problem.

As I say, this is not exactly a new idea (try following some links from here or here)–and yet, I claim, asking “What would the CMD do?” completely explodes the notion that society ought to care about ‘Just Deserts’, even if they exist.

What would the CMD do?

For example, if a market would be the best way of allocating widgets, the CMD would be the monosony buyer of widgets and the monopoly seller, though it chooses the prices to maximize its objective, which is not profit.   The same goes for the means of producing widgets.   There are no property rights, only (physical) capital which the CMD would deem useful for agents to have access to, or control of–knowing the best use of capital would be private information, so it may be optimal to give agents a free hand (for a price).

That’s what the CMD does:  offer agents a deal (consumption rights, which you can just call the ‘wage’) in exchange for each individual’s help running the economy.   It offers incentives; individuals optimize behavior around those incentives.   So CMD offers the best incentives to agents subject its objective of maximizing welfare.   If you are a “luck egalitarian” then the welfare the CMD should be maximizing might be the minimum certainty-equivalent consumption.   Another egalitarian (or utilitarian) might think the sum of agent’s utilities ought to be the object.  It doesn’t matter.   Pick an objective.

The CMD needs the best factory managers to come forward, the best scientists and engineers to come forward (and on down the line).   All of them have a better sense what they will be good at than the CMD.   The CMD needs some more than others.

Driving a hard bargain

Here’s the thing: the CMD drives a hard bargain for everyone.   Let me give a deliberately exaggerated example.

Consider a CEO position and a janitorial position.   There are two candidates for these two jobs, only one of which would really be a good CEO.

The former job is obviously more valuable to the CMD’s goal of maximizing welfare (the getting the right person is important) while the latter job is trivial for this goal.   Yet both jobs need doing and the CMD doesn’t know exactly who would be better at which.   What incentives would the CMD offer for the two individuals to truthfully self-report their fitness to be CEO?   The worse candidate doesn’t really want to do the janitor’s job either, so the CMD needs to;

  1. Make the CEO job less pleasant (especially for the janitor) or less well-compensated; or
  2. Make the janitor’s job more pleasant (especially for the janitor) or better-compensated.

What this means is that the janitor’s job almost certainly needs to be better compensated than the CEO’s.   This is precisely to make sure the CEO to the CEO’s job.    Fortunately, in the real world, we can tell the difference between janitors and CEO’s with public information alone, so this is not a practical issue–but it could be an issue between, say, CEO’s and middle managers.

It’s no accident that this problem has the opposite sign as the ‘Just Deserts’ view would imply: CEO’s add more so they get more… but then everyone wants to be a CEO!  It’s not practical.

Then why ‘Just Deserts’?

In the real world, there is no CMD, of course; the CMD is a tool to clear our understanding.

What is important are the implied constraints for society: and among other things, the CMD should be informing our intuition that in the best of all societies compensation will not be based on ‘Just Deserts’.    Or generally not even marginal product.

At least at times, ‘Just Deserts’ run directly against practical considerations of building a society of free and prosperous people.

If I were to guess where the idea came from, I would venture that ‘Just Deserts’ are an evolutionary hold-over from the time society was run by dominant males.   The alpha male was in charge because it was important for someone–anyone–to be in charge and the rest of us are programmed to respond.   We feel in our guts that the position is deserved by virtue of his having it.

Just think about the positive connotation of the word ‘Noble’… a noble is someone who has inherited a position of authority’; they are nobles, but not necessarily ‘noble’.   Why do we infuse the position with a moral weight?   That’s ‘Just Deserts’ and it has nothing to do with justice.

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