April 09, 2006

Votes are coins stamped with the Red Queen's head

In FC we know voting as a sort of constrained monetary auction. Indeed, some wit said political elections are just an advance auction of stolen goods. The spirit of democracy is an inspiring thing, and it suggests to many that we should be able to solve all our problems democractically, no? Well, no. Least of all money, but this doesn't stop some from trying.

I was recently coralled into becoming a sort of elections officer in a vote on funding applications. There was some large bickies to allocate to a needy public, and the story is worth recording, so here goes.

Grantees were encouraged to present their proposals before the body politic. Each person in the community was given a quantity of peanuts. These weren't the rooty / fruity kind, but pieces of paper saying "In Peanuts we Trust!" My job, alongside half a dozen others, was to verify the identity of people by checking their government-issued Identity docs, record the vital statistics, and hand over 70 peanuts to each person.

Standards on identity were curious. It had to have a photo. So credit cards did not count, but Manfred's above was accepted. If someone had not registered, all officers had to vote by show of hands to let them in. If they had no Id, then they had to find a mutual friend to vouch for them; someone who we knew, that knew them.

Why so serious? Because in a recent vote, several groups had cheated to push the rankings of their projects up the ladder! Why did they do that? Because they could, because it was art, because it was free like beer. So this time, the less amused among the community were taking no chances, it seemed.

At 21 hours, the bell rang and the issue of peanuts was over. (Luckily, the beer and some mighty fine broccali soup was still flowing.) Some 30 or so project groups had a brief 30 minutes to collect votes from each other. This phase exhibited one major flaw in that there was no anonymity - project marketeers running around with envelopes were able to employ a gamut of social pressures to secure their peanuts, and smaller, less marketing-savvy projects suffered.

While this was going on, we back in the issuance room were madly collating and cross-checking to validate the total issued peanuts.

Number of voters:169
Total Peanuts: 70 * 169 == 11830
Cost to Issue: (2 days * 1 for printing) + (3 hours * 6 for issuance)
Value of Peanut: 4.22

In order to make the voting serious, groups were given a limit - each group had to exceed a low watermark and not exceed a high watermark. This was to stop large projects dominating and small projects diminishing, or something.

So when the scores were announced, the obvious thing happened - projects that were below the low watermark ran around and grouped up into larger projects. Or, they sold their peanuts for promises of funds to other projects. And projects over the high watermark did the same thing! Meanwhile, over at the bar, all night there had been a ready cash market for peanuts. The first trades were observed at 7, and finally settled at 2, which is indicative of quite good estimating by the market.

Which means that the peanuts were money, but shackled with the inefficiency an imposed spirit of democracy. Quite a common suffering these days, it seems. A more ideal distribution system is then to simply give all people the peanuts as money, and instead of encouraging some notion of voting, encourage as many transactions as possible. Perhaps the rule is that there are 3 rounds, all transactions are anonymous and nobody gets to see their total at any time? When it finally settles, the hope would be that the decisions have best reflected the voice of the market.

This mirrors recent results in the economics of privatisation. In disbursing the value of communist assets such as factories, mines, etc, those newly freed countries in Eastern Europe that moved fastest benefitted more quickly. The end results indicated that speed, efficiency, and certainty paid off, even at the expense of some hypothetical losses to those who "missed out."

The vote got the whole thing over with in one evening, and I find comfortable parallel with recent results in the economics of privatisation. In disbursing the value of communist assets such as factories, mines, etc, those newly freed countries in Eastern Europe that moved fastest benefitted most, and more quickly. The end results indicated that speed, efficiency, and certainty paid off, even at the expense of some hypothetical losses to those who "missed out."

From the pov of the grantor, then, it has to be judged a fast, efficient and certain success. Now everyone knows -- a valuable thing.

Posted by iang at April 9, 2006 03:28 PM | TrackBack

Worthless currencies are often shored up with increased social activity. The stoic know the value and rangle behind the scenes always assured that the event does not dictate the value. So event risk is higher with an event currency. Get out of Tehran tickets could be a big seller in the coming nuclear inferno, but may not spark much interest today.

Posted by: Jimbo at April 9, 2006 07:35 AM

While I fullheartedly agree with the conclusions of the post, I would advice to be more cautious about drawing parralels with privatizations of state assets in Eastern Europe. That process was (and still is) marred with externalities, incomplete information, large-scale fraud, violent crime etc. Few things were farther from the textbook model of a free market.
The picture of Eastern Europe as portrayed by Western media is very inaccurate, to put it mildly. Even if you sift through the raw numbers in CIA world factbook (which are not beyond doubt either), you are in for quite a bit of surprise.
So-called pro-western liberal democracies celebrated as success stories in western media might turn out to be backwards hellholes upon a more detailed look barely scratching the surface. Some other countries regularly branded authoritarian anti-western tyrnnies are almost free-market anarchies where the principal economic problem is the western economic embargo. In land-locked countries, such as the overwhelming majority in this region, access to outside markets can make or break the economy, no matter what people do inside their countries. There is a reason why the cruelest conflicts in human history have been fought here. These countries get "freed" at leasat two or three times in each century. It would be naive to believe that the most recent liberation will be the last one.

Try finding students who plan for staying in Latvia after they graduate... (and that's just one example that doesn't quite fit the image that the Ministry of Truth broadcasts)

Posted by: Daniel A. Nagy at April 9, 2006 10:32 AM

LOL... The CIA factbook is aptly named as far as Washington DC's standards go ;-)

Actually I don't draw my impressions from the media but from a couple of units I did at London which looked at this back in 1995 or so. One was economics of emerging eastern european countries which I took because I liked Prof Saul Estrin's presentations; he was a specialist in this area and I liked the cutting edge practicality of economies in turmoil. The other was even more practical in scope and placed us into businesses in the area with a remit to export. I spent a week in Doprava trying to export coal.

The fact that the process was and is flawed is part of the point - it starts from the disaster of central planning, and we need a very open analysis to measure and appreciate a reduction in disaster. Any transfer of assets of that nature is likely to be a mess of national proportions, but some messes are less messy than others.

The point is quite intiutive - it's a disaster so whatever you do, don't do it slowly. Fix it fast and shorten the pain. As an extreme example, consider the $2000 given to victims of Katrina. Instead of handing everyone cashcards at the recovery placem they should have sent in the choppers and just bailed out wads of cash as they were flying over the stranded victims. (That's a thought experiment, though, don't take it too literally!)

Like many things in economics, those who have to bear the pain have a different perspective though!

Posted by: Iang at April 9, 2006 10:55 AM

What is this "Transnational Republic" and who issues its ID?
(the question is not rethorical; I *am* curious))

I, for one, prefer the name "Distributed Empire" for the society spanned by a WoT across borders and languages.

Posted by: Daniel A. Nagy at April 9, 2006 11:21 AM

I remember reading some study about GNP can be severely under estimated in some economies ... since GNP tends to be very money oriented. below a certain level, production for self-use and barter is supposedly more efficient. above some threshold, organizational distribution may have some efficiencies ... as long as the economy of scale is such that it offsets the costs and overhead of the middlemen and other intermediary costs. The money construct helps improve that efficiency and helps offset the intermediary costs.

as an aside ... as an exercise in the past, I took the online CIA world factbook files and loaded the extracted information into a database, merging it with information from the online Worldbank economic files and the online UN demographic files. Trivial exercise was that they didn't use a completely consisted country naming nomenclature ... so I also loaded the ISO standards file of country names and used it to resolve the descrepancies (and normalize all the information to common country names).

A fundamental issue underlying the Boyd OODA-loop construct is the time element ... if you can cycle your OODA-loop faster than a competitor, you will have the advantage.
Lots of my past posting on Boyd
misc. Boyd and/or OODA-loop references from around the web

There is something of a secondary question with OODA-loops ... is the advantage strictly because of time ... or are you faster because of superior skill and experience, which then also a contributing factor in having an advantage. "Getting there first" can convey a lot of tactical advantage ... but skill and experience can also contribute to "getting there first".

Many of Boyd's historical examples of the time element were drawn from military history ... recent topic drift about Boyd's example of Guderian and the blitzkrieg
http://www.garlic.com/~lynn/2006f.html#14 The Pankian Metaphor

The above also mentions Boyd's comments about massive, heavy, top-down bueracracies not being very agile and/or adaptable.

Posted by: Lynn Wheeler at April 9, 2006 11:35 AM

oh, for other drift ... indirect reference to EBRD somewhat attempting to emulate the old "Marshall Plan"
http://www.garlic.com/~lynn/2006f.html#9 The Pankian Metaphor
http://www.garlic.com/~lynn/2006f.html#10 The Pankian Metaphor

Posted by: Lynn Wheeler at April 9, 2006 12:00 PM

I like Boyd's approach, too. In that framework, the failure of self-fooling organizations that believe their own tactical lies and turn them into cornerstones of strategy can be very deftly explained: their OODA loop is short-circuited.
Cold warriors on the winning side (today's Thatcherites and Reaganites) are exhibiting similar symptoms. The world is constantly proving them wrong and they fail to notice.

Posted by: Daniel A. Nagy at April 9, 2006 12:02 PM

GNP is misleading not only in subsistence-economies. So-called shadow economies, which are popularly associated with all sorts of sinister activities can actually make up a sizable chunk of the economy, given the right conditions and it may involve perfectly legitimate business that for some reason feels threatened.
In Eastern Europe (the further east, the more so), people have accumulated vast experience of living under the thumb of whoever happens to have big enough guns, be it a foreign invader, their own government or simple thugs who do not bother to invent shiny titles for themselves. It's been like that for centuries. The social networks that evolved in such conditions, with the aid of today's technology are capable of running efficient businesses partly or completely out of sight. It's not necessarily self-use or barter either. It is an elaborate shadow financial system built on an eclectic mix of recorded credit, cash and even digital currencies.
Most of this activity never enters official statistics. In Russia, in the mid-nineties a hydroelectric powerplant was built and operated without the government knowing about it; it was eventually discovered on satellite images.

Posted by: Daniel A. Nagy at April 9, 2006 01:56 PM
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