Potential Problems With a Surplus Co-op

There are several potential problems that could make a surplus co-op not work very well. I don’t think any of these are showstoppers, but they are issues that will have to be addressed.

First, I feel like some people are still going to say, “What you propose is theoretically impossible, human wants are infinite.” For basic necessities I don’t think so. All you can eat restaurants are an example of that. Also, the hierarchy of needs theory says that once you have your lower levels of the hierarchy satisfied you move on to higher levels. For emotionally healthy people who don’t try to satisfy love and esteem needs by accumulating material goods, their desire for the basic necessities is finite.

But there is is the danger that the co-op will turn into something like a college dorm. Everyone is forced to accept an identical apartment with low quality furnishings that get trashed all the time because nobody cares about taking care of anything because there’s no individual ownership. That could happen, but a lot of the problems of college dorms are due to the emotional maturity level of the residents. It’s ridiculous to think that in a community of a few hundred people they wouldn’t be able to work things out and agree not to act that way knowing if everyone acted that way they’d all be worse off. Game theory might say people will always be selfish and short-sighted, but people often don’t behave how game theory says they should.

And their are other ways to deal with the problem. You could have free housing, but still make people individually liable for damage. You could have “housing” be an empty apartment and people have to provide their own furnishings.

As far as forcing everyone to have the same you could have different size apartments. The basic level is free and you pay for upgrades. If there are several different communities to choose from and members of a community have a say in the community design then the available choice shouldn’t be any worse that the current system where you have to pick from what’s available in your price range.

There’s also a problem where certain community members may contribute less or create more costs than average. For the most part I don’t think this will be a widespread problem. People in these kinds of communities won’t be the type to count pennies and get upset if someone else gets 3% more benefit than them for the same cost. The whole point of the community is to avoid the cost and hassle of keeping track of those kind of details. Everyone pays a non-onerous price, and everyone gets their needs met. If you get upset if the cake isn’t sliced exactly equally then you won’t want to live there.

But there will still be the possibility of a few problem residents who are just irresponsible an uncooperative. I do think the community will need a way to kick people out after reasonable attempts to solve the problems. There may even come a time when the community is torn by issues that can’t be resolved, and there should be a previously agreed upon process for dissolving the community.

Even if some communities don’t work out it doesn’t mean the surplus co-op model isn’t useful. Every year many small businesses go broke and go out of business. Libertarians would never accept that as evidence that small businesses are an infeasible form of organization because many small businesses do succeed, and even when a business fails the participants often try again with a different business and succeed. So it will be with surplus co-ops.

There’s a final problem that a co-op could turn into a cult. I get a sense from libertarians that they feel it is inevitable that any system based on cooperation will always become a totalitarianism where a leader or ruling class oppresses everyone else. I don’t think it is inevitable, but it is a possibility. Awareness and openness are probably the best defense against this problem.

A surplus co-op would probably only work for a self-selected group of people who want to live in that sort of community. It would need procedures for kicking out bad apples, or even dissolving the community entirely. The process of planning economic production would require time and effort and probably some social norms. But I think it’s entirely feasible.

Such a community could provide a welcome alternative for those who don’t want to live in an every-man-for-himself libertarian world while removing moral objections for a more libertarian system outside those communities for those who want that.

The Agent Problem

It’s been a long time since I’ve last blogged, and I know I still owe a continuation of the surplus co-op post, but I’m going to take a sidetrack to talk about the agent problem

http://en.wikipedia.org/wiki/Principal-agent_problem

It’s one of the oft heard mantras of capitalist apologists that in capitalism you are spending your own money on something for yourself so you are motivated to spend your money wisely, while the government is spending someone else’s money on someone else so there’s no motivation to spend it wisely.

But most of the time you aren’t actually directly doing something for yourself, instead you are paying someone else to do something for you. This gives rise to the agent problem where the person you are paying is not really motivated to do what’s best for you.

If you remember my post from a long time ago about a problem I had with an electrician doing a bad job. The electrician wasn’t motivated to do a good job. He was just motivated to get paid. He was perfectly happy to do a quick and sloppy job and still get paid because I didn’t have the knowledge to tell whether he did a good job. I spent my money on something for myself and didn’t get what was best for me because of the agent problem.

In fact, the agent problem is the reason behind the corporate capitalist structure itself. When a company gets too big for the owners to personally supervise all employees they have to add layers of managers, and more layers to supervise the managers. You wind up with a bloated organization where many people are there just to look over other people’s shoulders.

The agency problem is a big efficiency problem for corporate capitalism. The reason Dilbert is so funny is because it rings so true. You really do find all kinds of crazy behavior in a corporate bureaucracy because the people there do not have a strong motivation to accomplish the organizations goals.

Incidentally, that’s why I’m not scared of government health care. Any government health care system will be a giant bloated inefficient bureaucracy. But so what, our health care system is already run by a giant bloated inefficient bureaucracy. It just happens to be a corporate bureaucracy, but that doesn’t give me any warm fuzzies. The agent problem is fundamental to any bureaucracy whether government or corporate.

A Surplus Co-op

I’d like to propose a form of economic organization that I call a surplus co-op.  It’s kind of like a combination of a food co-op and an all-you-can-eat restaurant.  A surplus co-op is an intentional community where every member “pays” a fixed amount and receives as much as they want of the basic necessities of life.  My list of what is included in basic necessities is:

  1. Food
  2. Clothing
  3. Shelter
  4. Utilities (plumbing, heating, etc.)
  5. Health Care
  6. Child Care
  7. Elder Care

I put “pays” in quotes above because it doesn’t have to be just money.  Members could contribute work instead, young children and the elderly could be exempt from paying, etc.

Sounds idealistic.  How would it work?  One objection could be that if you allow people to have as much as they want then demand would be infinite and thus unsatisfiable.  My earlier post about surplus economics talks about this.  The short answer is that for some commodities demand is not infinite, and all-you-can-eat restaurants are proof of that fact.

But even if it’s theoretically possible, how would it really work?  You still have to decide how much stuff to produce or buy and that has to be at least equal to desired consumption or there will be shortages.

Here is my vision of how it would work.  An intentional community of a few hundred people owns enough housing for all its members.  This could be an apartment building or separate houses, there are many possibilities.  Each member must contribute a certain number of hours of work each year.  Members of the community would do construction and maintenence.  The community would staff it’s own medical clinic and child care center, etc.  There are enough people to achieve economic benefits from division of labor.

It’s not necessary that the community be self-sufficient, but I think a certain amount of the community producing its own goods would provide benefits.  It would lower transaction costs and marginal costs, which would make it easier to provide goods in surplus.  It would also improve stability in the face of external economic shocks by having internal customers for internal jobs.  But it’s unlikely, and probably not desirable, that a community would be entirely self-sufficient so some members would buy down their work hours with dollars from jobs outside the community.  These dollars would be available to buy things that the community doesn’t produce.

Aggregate production would be planned by direct democracy.  The community would come together and figure out how much food will be needed, how many person-hours of maintainence work to expect, etc.  Planning could be done annually, or quarterly, or more often if it proves beneficial.  These plans would be based on past data, requests from members, and problems with previous plans.

What I am suggesting is a centrally planned economy.  Centrally planned economies have gotten a bad reputation due to certain totalitarian states that had a centrally planned economy.  Some would even suggest that centrally planned economies are doomed to fail.  But those people fail to notice that there are plenty of successful centrally planned micro-economies all around us.  Every corporation in America is internally centrally planned.  And so is every family budget.  The important thing to consider is who does the planning for whom and what checks and balances exist to make sure everyone’s interests are taken into account.  I think it would be difficult for a controlling elite or special interests to co-opt a process of direct democracy involving only a few hundred people.

The specific work assignments could be allocated in the plan as well, or a market based system could be used.  The plan lists how much stuff needs to be produced and what service jobs need to be done, and members bid for the work.  I might offer to vacuum the common area in exchange for a credit of 1.2 hours, and someone else who offers to do it for 1.1 gets the job.  But just like the planning process the market system would have to be well designed to prevent abuse like someone with a unique skill weilding monopoly power, or someone low-balling a bid and then doing a bad job.

Consumption would not need to be planned, regulated, or tracked in accounting ledgers in any way.  Eliminating the work involved in tracking consumption is one of the benefits of this sytem.  Consumption could be handled in many ways.  There could be a community supermarket where you go and pick up the food you want, or there could be a community restaurant where you order what you want and it’s prepared for you with the cooking staff being part of the production plan.  The members of a community have flexibility in deciding exactly what they want to provide themselves, and thus how much work will be required of each member.

I know your head is probably brimming with potential problems this community might have, and I will eventually talk about that.  But first, let me talk about benefits.  Why would someone want to live in such a community?

First of all, let me say that not everyone would want to live in such a community.  But that’s the beauty of an intentional community.  A self-selected group can create the environment in which they want to live, even if it’s not for everyone.  The kind of person that would want to live in a surplus co-op is someone for whom money is not the primary motivation in their life.  It may be someone who wants a comfortable middle-class lifestyle, but not someone who fantasizes about being rich.  It would be someone who would take more free time over a larger paycheck.  This person would be annoyed at the antagonistic nature of a buyer beware system.  Even if they could defend themself they would ask, “Why do I have to defend myself?  Why don’t people just treat each other fairly as a matter of course?”  This person would have strong values about helping others in need and feel ashamed to live in a rich country where some people are homeless.  For such a person it would be a great benefit to live in an environment where economics is seen as a group effort to provide prosperity and fairness to everyone instead of the war of all against all.

In addition to those kinds of benefits, I think this system could be economically more efficient than our current system for several reasons:

1) Lower transaction costs

We won’t need people to stand behind a checkout counter, or stand in line to check out.  There won’t be any billing or collections.  Paperwork will be drastically reduced.  Also, transaction costs can prevent the most efficient transaction from occurring.  For example, small quantities of small items can’t be sold very easily.  If you go into a hardware store you can buy a box of a thousand screws for maybe a penny per screw, but you can’t buy one screw for a penny.  Transaction costs would overwhelm any profit.  So you have to buy a pack of at least 10, and it costs a lot more per screw than if you bought 1000, and there’s extra packaging waste to keep the small package from getting shoplifted.  But if you really only need one screw the other nine are left unused in a junk drawer in your garage.  That’s wasted production that could be avoided if there was just a bin of screws and you took only what you were going to use for free.

2) Higher capital utilization

On an average suburban street with 20 houses there are 20 washing machines that are each used maybe 5% of the time.  That street could get by with just one washing machine.  The same is true for lawnmowers, microwave ovens, etc.  A surplus co-op could achieve the same benefit with less production by getting higher utilization of the goods that are produced.  I’m not saying it could get 100% utilization.  Maybe no one wants to do their laundry at 2am.  But it could certainly improve on the current utilization of household appliances.

3) Design to eliminate need

Currently, most people have a car that they use to drive to work.  You could say that having those cars is an economic benefit, but most people consider their daily commute an annoying chore.  If you could reorganize things so that people are within walking distance of their work, that would be an even better economic benefit than having those cars even though it means less consumption of material goods.  You won’t be able to eliminate every need in this way, but I think it’s fertile soil for a significant reduction in the production required to provide a good standard of living.

4) Full employment

A surplus co-op won’t need to keep a certain percentage of people unemployed to provide liquidity in an every-man-for-himself labor market.  Instead, everyone will be required to contribute and labor allocation will be a collaborative effort to ensure that everyone is doing productive work.

I said I would address potential problems, and I will, but this post is already getting too long, so I will do it in another post.  Feel free to offer problems in the comments.

Healthcare Comments

Here’s a few quotes from Obama’s speech and his plan outline that I would like to make note of.

“To my progressive friends, I would remind you that for decades, the driving idea behind reform has been to end insurance company abuses and make coverage affordable for those without it”

“Ends discrimination against people with pre-existing conditions”

This relates to the philosophy I’ve talked about before that if people take the same risk and get different results for reasons outside their control they have a moral responsibility to even out those results.  That’s what progressives believe.  Just by living we are all taking the risk of getting sick.  When Republicans try to scare people about having to subsidize health care for others they only talk about overweight smokers, people who they can point their finger at and say “It’s their own fault.”  They don’t talk about a 6 year old with Lukemia.  I have no problem paying the average cost of treating both healthy and sick people, even though I’m healthy and could pay less if we left those sick people to fend for themselves.

Surplus Economics

How do all-you-can-eat restaurants make money?

Traditional economic theory says demand is fundamentally insatiable.  People always want more of everything.  Even with the law of diminishing returns, economists still assume that getting a little more of any good will always make you a little bit happier.  This idea has even been codified into the law of scarcity – the problem of infinite human needs and wants, in a world of finite resources.

And yet, all-you-can-eat restaurants make money.  Why doesn’t the first person through the door eat everything?  Clearly, for some goods, demand is not insatiable.

According to the law of scarcity, it is an iron rule that demand will always be greater than supply, and therefore consumption must be restricted in some way.  Whether through prices or rationing, people cannot be allowed to consume as much as they want because there can never possibly be enough.

But what if scarcity doesn’t apply to some things?  The demand for food isn’t infinite.  And our current technological society is very productive.  It’s rediculous to think that we couldn’t produce enough food to make everyone in America say “No thanks, I’m stuffed.”  We could do that if our society decided to use it’s economic resources in that way.

Economics already has a concept called free goods for things like air where everyone can have as much as they want without anyone having to lift a finger to produce it.  What I’m suggesting is a different catagory.  A surplus good is something that would be scarce if we didn’t produce it, or didn’t produce enough of it, but that we have the ability to produce enough to entirely satiate a finite demand.  Whether something is a free good, a surplus good, or a scarce good may change in different times and places.  And any society will most certainly have instances of all three types.

This could lead to a new paradigm of surplus economics instead of scarcity economics.  There would still be problems to solve of how to gather information to know how much production is required to satiate demand, how to motivate productive behavior, and how to share the costs of production fairly, but gone would be the problem of how to restrict consumption.

This may sound like kind of a weird idea, and you may be wondering where am I going with this.  I didn’t want to throw too much into a single post so I’m going to elaborate on this idea in another post later.  Stay tuned.

Intentional Communities and On-Site Medical Clinics

I heard a story on the radio a while ago about a health care trend.  Employers are running on-site medical clinics for their employees.  Apparently, when serving a sufficiently large number of people (a few thousand) it is cheaper to run your own clinic than to buy health care on the open market.

http://www.insure.com/articles/healthinsurance/on-site-health-clinics.html

http://www.news-medical.net/news/2006/11/08/20920.aspx

It occurred to me that this is also something that intentional communities could do, and not just in the area of health care.  Lots of maintainence services like plumbing and auto repair could be done this way too.

The key point is that capitalist markets add overhead from transaction costs and zero-sum games like advertising.  The cost of just providing the serivce can be small compared to the non-value-added overhead.  I’ve heard that toll roads have this problem too.  The cost of manning toll booths for 30 years is more than the cost of building and maintaing the road.  They could cut the cost in half by just eliminating billing overhead.  It would create the same customer value at lower cost.  Sounds like a win to me.  But then the builder of the road woud have no way to wrangle that value into his own pocket.  In this case, capitalism cannot choose the globally optimal solution.

Intentional Communities in Outer Space

Today, July 20th, 2009, is the 40th anniversary of the first manned moon landing.  To commemorate this event, the National Space Society has suggested blogging about the topic of space settlement (http://www.nss.org/settlement/blogging.html).

Space settlement relates very closely to my previous posts about intentional communities and federalism.  I want a world where there are a wide variety of social systems that people can choose to live under.  Unfortunately, societies have a tendency to expand to fill all available area, and then become ossified and resistant to change.  This leaves no room for experimentation with new and different ways of doing things.  I don’t know if this tendency can be avoided, but there is something that can lessen it’s sting, and that is the existence of a frontier.

Why did the first modern democracy come into existence in North America instead of Europe?  Why was women’s sufferage in America first granted in Wyoming instead of some more “liberal” state like New York?  In both cases, they were far away from the existing centers of power at the time.  Being on the frontier allows much more free experimentation with new social structures.  That is the primary reason why humanity should go into outer space.  Not scientific discovery or economic profit.  Those things are important too, but most important is the sociological benefit of having a place where people fed up with the mainstream can go and try something different.

With that in mind, you’ll understand when I say that the government space program is irrelevant.  What good is it to have the government send people into space if the primary goal is to allow people to go to space to get away from the current government?  Instead, we should be trying to create a world where any private citizen can live and work in space for their own purposes without being part of a grand, centrally-planned exploration program.  That is what is meant by space settlement.

Space settlement will require a lot of bootstrapping.  It will be decades at least before families routinely set out for greener pastures in the space age version of conestoga wagons.  In the short term, the thing that can make the most progress towards this goal is space tourism.  It will create a distributed network of technology providers who are not dependent on political whim for their survival, and cement in our social consciousness the idea that it’s okay to go to space just because you want to.

There is a lot of debate in the space settlement community about the right destination for space settlers.  This is kind of a silly debate since we can’t go anywhere right now.  But I suppose when a group of people finds they actually agree on something, like space settlement is good, they have to go on and start arguing over the details.  And who am I to disparage this tradition so I’ll put in my two cents.

The most important thing is to create settlements that are politically independent of Earth.  At the top level, that is what’s important and the location doesn’t matter.  However, I think that goal will be easiest to achieve on the planet Mars.  In order to be politically independent, it will help if the settlement is physically self sufficient.  If the settlers rely on some crucial export from Earth for their survival that could be used for political leverage.

Physical self-sufficiency hinges on the question of environmental closure.  Does your settlement leak any important resource, and can that resource be replenished from the environment around you?  No settlement will ever achieve 100% closure.  Something will leak.  So what environment has the greatest variety of physical elements that can be easily accessed to make up the losses?  After Earth, the second best place is Mars.  I’m not saying that we shouldn’t go other places, or that settlement would be impossible other places.  I just think that politically independent, physically self sufficient settlements will be easiest on Mars.

Intentional Communities

An intentional community (www.ic.org) is a group of people who have chosen to live together with the intention that their community will have certain attributes, values, etc. which may differ from society at large.  I think intentional communities could be a good solution to some of our society’s problems.

When people hear the phrase intentional community, if they do at all, they tend to think it must be something like a hippie commune.  Certainly, a hippie commune is an intentional community, but it’s not the only kind.  A much different type is co-housing.  In co-housing, there are a bunch of single family houses owned separately by individuals or families.  People have normal jobs outside the community.  Each household has its own finances.  People do not share their income or property with the community.  It’s pretty much a suburban neighborhood, except that the people who choose to live there want to live in a neighborhood where people know their neighbors and do things together like barbequeues and movie nights.

People who want to live in that kind of neighborhood have increasingly found that if they just buy a house in some random suburban neighborhood it will most likely not be that kind of neighborhood.  So the only way they can find what they want is to set out intentionally to create it.  This is the core meaning of intentional communities.  What the community is like can be whatever the members want.

There are countless attributes that people may want out of an intentional community.  They may want to live in a more environmentally sustainable way.  They may want their community to follow religious values.  They may want to achieve communitarian economic goals.  They may want a certain kind of social life.  The common thread is that these goals are hard for an individual to achieve all by himself, but are much easier for a community of like minded people.

This is what interested me in the idea of intentional communities.  In my day to day world I’ve often felt trapped when I wanted anything different from the mainstream.  For example, I would love to live in a place where I could walk or bike everywhere.  Unfortunately, in America modern towns are set up for the convenience of cars.  Wide streets, big parking lots and spread out zoning plans make places further away from each other than they have to be.  It’s no problem if you have a car, just step on the gas.  But if you want to walk or bike it’s a real pain.  To make it convienent to walk or bike everywhere you would lay out the whole town completely differently.  This is not something that I can choose to do all by myself.

I really feel trapped.  I can try to live in a more bike friendly town, but at the same time I’m trying to find a nice house that I can afford close to a job that I can get, in an area of the country that I like.  Most of the time I wind up stuck with what I can get.  If you want what the mainstream has to offer there’s lots of it available, but if you want something different it’s not available, or you have to go far out of your way to get it.

My idea for a solution is to have lots and lots of incredibly varied intentional communities.  These communities would be villages of a few hundred to a few thousand people within a metropolitan area.  The purpose is to increase freedom by increasing the set of available options that people have to choose from.

Being part of a community would make it easier to achieve certain goals.  For example, let’s say you want to buy environmentally friendly products, but it’s hard to tell the true environmental cost of something by looking at the packaging, and you worry about companies greenwashing their products, marketing them as environmentally friendly when they are not.  As an individual, if you spend 1/10% of your time researching environmentally friendly products you have about 10 minutes per week, barely enough time to do a little web surfing.  If a community of 1000 people spends 1/10% that’s one full time person who can be dedicated to that job, and the information they learn can be used by all 1000.

These intentional communities could exist within a very libertarian framework  Basically, libertarianism would be the lowest common denominator that would govern interaction between communities, but within a community people could decide that they want a different vision of how people should interact.  And if a person just wanted to be an individual in a libertarian society they could not join any community.

Ironically, this is a very libertarian idea.  A libertarian framework, and voluntary personal associations.  The difference I would have with libertarians is that I would not support the libertarian lowest common denominator framework unless the intentional communities existed so that someone who doesn’t want to live in a libertarian society has some alternatives to choose from.

Freedom, Fairness, Friendship

This is the best description I’ve been able to come up with for the fundamental principle behind liberaltarianism.  A liberaltarian society should be organized to actively support the three goals of freedom, fairness, and friendship.

I kind of borrowed from the French motto “liberté, égalité, fraternité”, but I had been germinating the ideas before I realized the slogan was a good fit.  I don’t know too much about the intellectual history of the French motto, so please don’t try to associate me with some horrible events during the reign of terror.  I’m just borrowing the textual form, not the history.

Our society should support freedom.  Allowing people to do what they want is an inherent good.  But true freedom is not just the right to do something, but also the ability to do it.  We should be concerned with all of the ordinary day to day roadblocks that prevent people from actually doing what they want with their lives even though they would have the legal right to do it.  For example, how many people would like to start a small business, but don’t because they can’t get health insurance.  Economic coercion can be as powerful an enemy of freedom as political coercion.

Our society should support fairness.  I avoided saying equality because I don’t believe that giving everyone exactly the same is the only possible way to be fair.  In fact, everyone gets exactly the same is often not fair.  One person can deserve more than another based on their actions and choices.  But society and every individual has a moral responsibility to be fair to others.  Getting someone to agree to a deal that’s bad for them because you have information they don’t, or playing off a weakness you know they have is wrong.  “Anything goes as long as they sign a contract” is not the definition of fairness.  You have a responsibility to be fair to others even if you could take advantage of them and get away with it.

Our society should support friendship.  We could have a society that is perfectly free and perfectly fair, but still not be the perfect society.  Everyone could scrupulously keep to themselves, not restrict each other’s freedom, and always give others the bare minimum required by fairness, and yet I think we would want more than that.  We would want a society where people want to be nice to others.  I’m not saying the government should force people to like each other.  I’m saying that our social norms and customs should clearly communicate that caring for each other is the right way for human beings to be.  And we shouldn’t create legal and economic structures that encourage and reward people for acting like Ebeneezer Scrooge.

George Soros’ Theory of Reflexivity

I just read a speech by George Soros where he describes what he calls the theory of reflexivity.

http://www.geocities.com/ecocorner/intelarea/gs1.html

It’s a truly fascinating idea, and another counterargument to classical economics’ assertion that markets are perfect.

In the stock market, there’s supposedly fundamentals like earnings per share and earnings growth that are determined by factors outside of the markets.  These fundamentals determine the true value of a company.  Stock prices are based on investors’ beliefs about these fundamentals.  Fundamentals may change, and beliefs may be mistaken, but the classical theory is that over time they tend to an equilibrium that accurately reflects the underlying reality.

The theory of reflexivity, on the other hand, says that people’s beliefs about market fundamentals can actually change the underlying fundamentals.  This can lead to instability and disequilibrium.

The simplest way I can explain it is with the old game rock-paper-scisors.  If I know my opponent is choosing rock, I will choose paper.  But if my opponent knows I am choosing paper, he will choose scissors.  But if I know he is choosing scissors I will choose rock, and so on forever.

The information I have about what my opponent will do changes my actions, and if my opponent has correct information about my actions he will change his actions which will cause me to change my actions…

In this game, it will always be the case that either one player has incorrect information, or one player wants to change his action.  There is no equilibrium.