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I’ve been thinking a lot about the fundamental flaws in economic metrics — there is just absolutely something missing in the current concept of actuarial efficiency — which is I think the only kind of efficiency that economists are equipped to talk about.

There is 0 value given to the experience of visiting a natural space or to forests which take thousands of years to grow which quite literally could not be reconstructed for any amount of money (for example) ... we need something more at a philosophical level from economics than we are getting. I’ve been pondering a two dimensional monetary system — dollar amount representing how much you want something and another number for representing how much it costs the world for you to have it ... the one dimensional notion of value claims to merge these things but it clearly does not — investment which produces growth by satisfying ever more wants _should_ hit a point of diminishing return far sooner than our current metrics are able to represent ... if we had a 2d monetary system where pricing models were segregated, actuarial efficiency could be arranged to mean something entirely more meaningful than the current optimization paradigms can ever hope for ...

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Economics has overdeveloped tools for reasoning based on price information in a "free" market of "rational" agents, and underdeveloped tools for actually valuing resources from first principles (because predicting the future, of a system involving agents, is really really hard). The former corresponds to your first axis ("how much you want it") and the latter to the second axis ("how much it costs the world to let you have it"). That's why, when facing any hard problem, the economics solution is to assume that markets will figure it out i.e. the two axis are equivalent, or that the first axis is the one we ought to work with, when making decisions (Further, whether the two should be conflated is actually a political decision, which is ignored in this sly exchange!)

The challenge is that real interactions are very different from a free market, and human agents are far from rational (for any operational meaning of rational that isn't tautological), unless in very narrow settings.

Economics doesn't have an answer to that, which is understandable, because it is a hard problem. The annoying things is when people pretend that there is nothing missing, and that everything is fine and dandy with economic metrics and tools. (EDIT: Economics is nowhere close to the physical sciences in its level of empirical rigor. Comments implicitly comparing economics to the sciences only serve as proofs illustrating my previous sentence.)

> Economics has overdeveloped tools for reasoning based on price information in a "free" market of "rational" agents, and underdeveloped tools for actually valuing resources from first principles. The former corresponds to your first axis ("how much you want it") and the latter to the second axis ("how much it costs the world to let you have it"). That's why, when facing any hard problem, the economics solution is to assume that markets will figure it out i.e. the two axis are equivalent. (Further, whether the two should be conflated is actually a political decision, which is ignored in this sly exchange!)

This is not true at all. There is no conflation between "how much you want it" and "how much it costs the world to let you have it". Even the models taught in introductory undergraduate courses on economics are capable of addressing the "problems" you're describing.

Care to elaborate for the unenlighted? Constructive discussion can actually help to educate people :)

the problem is less that we don't value the forest, but that we are absolutely horrible at valuing the future. our brains are designed to optimize for the present and near future. the value of the forest is spread out over thousands of years (just like the value of fossil fuels), and we just can't intuit that kind of value.

forests are like annuities (small payments forever), rather than lump-sums, but our brains respond vastly more to lump-sums. this bias is also why terrorist attacks lead to action, while vehicular deaths, which kill way more people, don't.

we have ways to objectively (if imperfectly) value things like forests, but we just don't intuitively believe in that number. for example, the concept of a carbon tax makes objective sense, but this kind of bias is its achilles heel.

(this subject came up in a number of my business school classes, which i found quite useful for learning how to think about such things)

an enlightening comment, thank you

There is a lot of research into this, especially among the Europeans. Broadly this falls under "standard of living vs. quality of life".

GDP only measures standard of living. Various economists have proposed scales that are more weighted towards quality of life.

The problem is when money is your only hammer, the only nails are things that can be measured in money.

Impact investors are also starting to look into "ESG investing" -- making their investments not on profits alone, but incorporating standardized Environmental, Social, and Governance metrics as well.

This is why I think we need to move to a non-commodity accounting of value. The crypto currencies are all a bit problematic in that they carry forward the same notion of commodity exchange. When the tech is so much more flexible, why not explore new (or old) metaphors.

I have a project which map the gift economy onto web-of-trust style key distribution. Moving the value from a numerical token, to relations between people, seems like a step in the right direction. https://www.wired.com/2014/07/document-coin/

> There is 0 value given to the experience of visiting a natural space or to forests which take thousands of years to grow which quite literally could not be reconstructed for any amount of money (for example) ... we need something more at a philosophical level from economics than we are getting.

This is a different kind of problem than you think. It's not that we don't value it, it's that the value is diffuse. Every person in the area values the forest an average of $100, there are a million people in the area, therefore the value of the forest "should" be a hundred million dollars.

The problem is that the government has to fill a budget hole and there is a logging company that would pay ten million dollars to log the forest. The government could also get the same money by reducing the defense budget, or replacing some government employees with less expensive contractors, or replacing corporate income tax with VAT so international corporations have to pay their taxes, but all of those groups have better lobbyists than the public at large. So the public (and the forest) loses.

But the problem wasn't that we couldn't calculate the value, it was that knowingly destroying ninety million dollars in value in order to have ten million somewhere else is a thing that happens when you have a collective action problem like that, because the value destroyed is spread across a million people and none of them have enough incentive or power as an individual to stand up and stop it.

So the problem isn't the valuation, it's how do we solve the collective action problem?

You allow that there exists some metric capable of capturing the diffuse value — so — why not bake that diffuse value into the monetary system and ensure that it must be paid for the transaction to legally occur? That’s why I’m proposing a second dimension in the pricing model. To tear down the forest — you have to compensate the collective for the externality you are 'taking' from the diffusely benefiting party ... that “payment” to the collective is a real-world transaction that has to happen as part of the rules for legal transactions and the payment has to be tendered in units of this second dimension of the pricing model which approximates the 'diffuse value' of the resource. This 2nd dimension of price is distinct from the value realizable by some possible private owner and is conceptually proportional to that which is being “taken away” from the commons by the removal of the forest ...

I’m not sure exactly what the rules for this shared resource currency would look like but I think there is room in the design space to integrate the shared resources available to humanity into a pricing model that would be more explicit and coherent than what we have now. I'm imagining a monetary system which includes a diffuse resource value for all resources -- with transaction rules updated so that trade/consumption became a two dimensional exchange involving two private parties, and the diffuse account. For the transaction to be legal, it must preserve the 'value' of the world's 'diffusely owned resources' either by not consuming anything or by the issuance of a 'debit' from the defuse balance of one of the parties (no creditor for that -- it just disappears, but the point is that the party has to have sufficient diffuse value credit to be able to destroy the required amount of diffuse value) ... I think the design space of rules governing production/inflation/transactions of diffuse value units could yield a lot of flexibility for helping to encourage that actuarial optimization over the transaction space be likely to efficiently produce broadly meaningful uses for resources -- perhaps more so than the setup we have now ...

The greedy could still act in their own self interest but would by design be more constrained in how they harm the rest of us and the relative amounts of harm of different practices would be more easily discernible as part of the public record and understanding ...

The issue is there isn't really a second dimension there -- it's all value that can be measured in money. There is a number of dollars at which it actually does make sense to log the forest. The problem is that the government allows it happen for much less than that amount.

Setting explicit prices may help in theory, but there are two major problems. The first is that the price is inherently subjective. There are no market transactions to look at to see what "forest continues to exist" is currently trading for. It's the existing state and self-perpetuates without anybody having to do or pay anything until such time as someone actively expends resources to change it. So at best you're speculating, and choosing the wrong value -- whether too low or too high -- is costly. Too low and we haven't solved the existing problem, too high and we can't have a transportation system because no one can mine steel to build trains or cars or ships. So accuracy matters, but accuracy is expensive. Getting the valuation right is a detail-oriented labor-intensive process.

And in theory we already have this. It's supposed to be the job of our representatives in the legislature to do this. Which brings us to the second problem, which is that because the value is subjective, we still have the collective action problem. The logging company lobbies to have the value of the forest set low, the diffuse general public doesn't strongly object, and we're back to square one.

One of the strong options to solve at least some of this is to require all budgetary issues to be put up for public referendum. Not just "entire government budget, yea or nay" but at the line item level. The government proposes to sell the forest to the logging company for ten million dollars, yea or nay? Then the public votes nay and the legislature has to come up with the money some other way.

Naturally that isn't very popular with lobbyists because then the public tends to vote down the harmful but politically expedient revenue generation methods, so there is always strong lobbying pressure not to do things like that, and we're back to the collective action problem. It also has the general direct democracy problem of people not having enough time to evaluate issues carefully, but in principle there shouldn't have to be that many different or complex revenue generation methods. The existing tax code is unnecessarily complex and people could plausibly make time to understand a much simpler one -- which would also remove a large number of the existing harmful carve outs for groups with strong lobbyists.

Perhaps the problem is using money as a tool for valuation?

> Perhaps the problem is using money as a tool for valuation?

What do you propose to use instead?

There is a concept in economic theory for what you're discussing, the concept of "externalities". There are definitely ways of measuring these things. But you are right, measures of externalities aren't really considered when people in government / business / the press talk about the economy

I think that's a shame, because externalities can be measured (not perfectly, probably much less accurately than current economic measures -- but something is probably better than nothing). And people care about them -- arguably, today people are more concerned politically with externalities than traditional economic growth. But the dialogue regarding these externalities is generally driven by emotion rather than facts, because no one is really incentivized to do thorough objective research on them at a really large scale (tragedy of the commons)

I think “externalities” is close to the concept I want to capture with the second dimension, but I want to bake this concept into the pricing model in such a fundamental way that it can’t be ignored. Suppose the second dimension of price in my thought is an approximation of the “total external cost” — this metric undergoes market and actuarial optimization but the domain in which these barks are traded reflects a different set of overall constraints than are captured by the inflationary dollar monetary system. As a rough example, let’s say the inflation model for the “bark” currency is tied to the total number of tree years on the planet (I don’t think this would be the right way, but just trying it as a conceptual example). So there are roughly num_tree_years “barks” in existence growing at something approaching num_trees per year. Lets say as more trees are planted or time passes that every human is allocated a proportional share of “barks” commiserate to the “bark” growth rate (or loss rate if trees are cut down faster than they are growing). So the currency reflects an externality in a shared way that is also quantitative ... if someone wants to cut down an old growth forest to build a car park, they are gonna need to find a lot of people willing to loan them “barks” to pay for it as they will have to compensate the global balance for all the barks they remove — in addition to seeking the traditional investors who will loan them money for construction on the traditional basis of their sense of the likely desirability-profit of the parking garage ...

This “barks” toy example is definitely not the precise idea I want to capture and not at all fully fleshed out — but suppose a more developed version where there is a mechanism for estimating the externality costs of any transactions and where there are different rules that apply when paying for the “externalities cost” vs paying for its dollar price ...

I think it's an interesting concept. As I think about it, we already have a weak version of this in the form of lobbying and political organizing. If a company wants to destroy an old growth forest to build a parking lot, in many areas they need permits / zoning etc. People who would suffer if the forest were destroyed -- people who live nearby, environmentalists, etc -- can raise money and lobby, or organize politically, to make their case, as can those who would benefit -- the company building the parking lot, maybe some neighbors who value more parking more than they value the environment.

I think the issue with this system is that generally the groups imposing the externality are more organized, and often wealthier, than the groups who suffer from it (tragedy of the commons again). Getting the trees cut down may be priority #1 for the company, and opposing it might be priority #30 for a few hundred people. Priorities that low are effectively zero, since most people dont even have time to handle their important priorities

I feel like your idea could potentially tip the balance in the favor of the "commons" by imposing a higher upfront cost to the creator of negative externalities, but I can't really put my finger on whether that is true.

Very interesting! Though I wasn't watching closely I think I saw a real-world example of your concept on (I think) BBC News yesterday. Forgive me if this is not wholly accurately retold:

It was about about unsustainable fishing on a large trawler that could set out about a million fishing hooks a day, and catching everything.. large tuna, sharks, etc. They then projected globally; this is the dominant way we go about fishing, and with it halfway this century our oceans will be empty of fish.

Then they brought the example of - I believe - Irish fishermen, who some years ago and seeing hugely diminishing returns, decided on a different system whereby scientists would determine beforehand the minimum shoal size that would lead to sustainable growth of the fish population. The fishermen would then be free to catch the remainder of the population, and divide it amongst themselves based on stake in the game.

This 'share' determines their yearly quota. If next year the total shoal population had grown, their 'share values' had increased. This modern fishing method apparently worked perfectly, and every year they have bigger returns, catching almost as much as in 'old times'.

An important example would be a family with children where both parents could work but do not have to. From the GDP POV, it is a huge boost to have a second parent earning an income, even if most of the additional monies end up dedicated to the costs of outsourcing some parental duties. A stay at home parent might be producing as much or more value to the family, while not contributing to the GDP at all.

It is with considering what the GDP would be if you eliminated most rent-seeking businesses and there was a much broader spread of technical know-how across society (gardening, electrical repairs, plumbing, workshop experience, cooking and other home skills).

If we wasted less and took better care of the environment around us, the costs to society would be less, this could be measured as a decrease in spending and a shrinkage of the GDP. You wouldn’t buy new clothes as often if you could maintain your existing wardrobe, and you wouldn’t buy electronics or appliances as often if you could extend the lifespan of your current electronics. Basically there wouldn’t be as big a drive for consumerist spending patterns and this could be measured, by a decrease in the GDP which would of course cause financial markets to panic.

My thoughts on this are far from complete, but that said, I don’t think our market system is really all that efficient from a tangible resource allocation perspective. It might be highly effective from the perspective of the financial and insurance industries, but the assets they hold are intangible, and the market is probably over-optimized for allocation of intangible resources simply because there is more money to be made there. That is still an optimized market for the allocation of resources with the highest rate of return, but maybe it is time to ask ourselves if that is still to our benefit?

But I like not having to cook, garden, repair electrical equipment, or otherwise waste time doing things I don’t enjoy.

I am meaningfully richer and have a more fulfilling life because I don’t have to do those things. Why don’t you think it makes sense to incorporate them into measures of societal wealth?

What this breaks down to is that not everything that is valued can be expressed in hard currency.

The idea that hard currency is a universal lingua franca is deeply flawed and you've hit on a very good example of one area that is starkly apparent.

One thought is that we can value a wide range of social and environmental qualities using quantitative monetary models. It's imperfect, but our system doesn't even go as far as explicitly attempting to do that on a systematic basis.

There are a lot of people doing work in this area under all sorts of different terms, but trying to tie in those missing qualities. Terms that might yield interesting reading are: loop economy, circular economy, doughnut economics, sustainable economics (though that seems to be slowly fading as a term..)

https://evonomics.com/ is not a bad place to read to at least start getting some introductions to some of the people trying to push a rebuilding of our basic economic suppositions.

Yes! I like Doughnut Economics by Kate Raworth. She is also doing real well inspiring government officials with her ideas and visions.

These are interesting terms and ideas that I have never encountered before. Thank you!

In purely economic terms it's easy to appraise natural spaces and forests. Some of that real estate is privately owned, and is occasionally purchased by wealthy individuals and foundations who intend to keep it undeveloped. So we have a history of comparable sales which can be used to estimate the value of other parcels, including government owned parks.

I know some people are uncomfortable with placing a monetary value on nature. But it's a useful exercise because it forces us to be explicit about what we consider important rather than discussing vague platitudes.

> I know some people are uncomfortable with placing a monetary value on nature. But it's a useful exercise because it forces us to be explicit about what we consider important rather than discussing vague platitudes.

Read this article for insight into what's wrong with exactly that approach: https://www.ribbonfarm.com/2010/07/26/a-big-little-idea-call...

More broadly, the problem with trying to be explicit about what we value is that any specification will almost always be broken, due to the "fragility" of value: https://www.lesswrong.com/posts/GNnHHmm8EzePmKzPk/value-is-f...

Sorry for the throwaway comment — but I have to say the lesswrong link above is the most interesting internet rabbit hole I’ve come across in a long time! Wow - thank you!!

Those are interesting articles, however they don't directly address my point nor do they provide practical alternatives.

Markets should be kept out of certain spheres. E.g. Justice, Healthcare and protecting the planet are three of them.

There are better ways of determining the relative value of nature than using the amount a rich man is willing to pay to save it as a proxy.

Then you're not speaking in economic terms and it's a pointless conversation. If you're trying to say how much a national park is worth, you need to speak economically. Saying a given parcel is "worth" $1 million doesn't mean you should sell it for any amount more than that. You can still think it's a bad idea in the long term to sell for ten times what it's "worth."

You can still talk in economic terms by estimating value in others ways, e.g., using scientific models based on replacement rates, etc.

I think that parent comment is spot on in saying that value determination based on what people are willing to pay for it, does often come not even close to the real/potential value of complex resource systems. Of course all estimations are still grounded in base prices of less complex resources.

/\ This thread is great for illustrating the article in real time.

Some people want to be able to put things in purely economic terms to be able to relate the current situation to the past, some want language to reflect the current crisis of natural resources, and then the conversation gets side-tracked by semantics.

The semantics are important, but lens-crafting makes conversations difficult, especially when meta-comments like this one further detract from the goal.

Important note: insulting myself, not any of the posters above.

There's a really interesting topic in sociology called "commensuration": in short, the ability and willingness to view one thing as commensurate or equal in value to another.

Sometimes we want to compare complicated but very different things, so we are motivated by need (e.g. politics) to collapse a thing with multi-dimensional values into a thing with a single-dimensional value, so it can be compared with another thing (e.g. via price).

We are willing to engage in commensuration in some areas of life (e.g. this mountain forest is worth $1.2B) but not others (my child is worth $X).

What's interesting to me is the space that is incommensurable--the values in life that we deem so important and so sacred that we are unwilling to bend or collapse the multi-dimensional value of a thing into a simplified "price". This is where economics fails to model life and value properly.

Commensuration seems like a very interesting concept. I would wager that sociologists could actually observe different sets of commensurate things by asking questions with respect to different units of value. E.G. -- asking participants if they are willing to trade a thing for dollars vs asking them if they are willing to trade a thing for, say, trips to europe. The units don't fundamentally change the relationship between the concepts but I would guess have a good chance of altering the way people respond to surveys.

This non-associativity of commensuration seems like an example of a kind of valuation phenomenon that perhaps a two-dimensional pricing system could better approximate -- even in the presence of actuarial optimization ...

>I’ve been thinking a lot about the fundamental flaws in economic metrics — there is just absolutely something missing in the current concept of actuarial efficiency — which is I think the only kind of efficiency that economists are equipped to talk about.

It's perfect for the purpose its used though: to justify policies that transfer more wealth and power to the rich, and to not give a crap about externalities...

>There is 0 value given to the experience of visiting a natural space or to forests which take thousands of years to grow which quite literally could not be reconstructed for any amount of money

If you have your own private island you don't care about some state park...

And if people fight and sue each other that adds considerably to the GDP figures but decreases human happiness. Vague though it is I think approximately tallying happiness is quite a useful way to go. That way the forests are valued and the troll lawsuits not.

This is like going from real numbers to imaginary numbers. Thus: Imaginary Money. I have $Billions of imaginary dollars...

In all seriousness: It's not surprising that it's difficult to project human values onto a single dimension. This is an interesting concept, but seems very challenging -- it would take mass cultural change to take effect.

A 2d monetary system sounds interesting. Would there be parallels with complex numbers?

complex numbers are not interesting because they are 2d; otherwise we would just use xy coordinates instead of bringing in this whole sqrt(-1) business. Complex numbers are useful because the definition of complex multiplication fundamentally says something about rotations.

If you start at 1+0i and multiply twice by 0+1i, you end up at -1+0i. If you try to imagine this in the xy plane (where we pretend x and y are currencies) then this would mean that multiplying a positive amount of one currency (1x + 0y) by a positive amount of another currency (0x + 1y^2) would put you in debt (-1x + 0y). This would be a very strange property to have in your currency!

I can't believe people in this thread are talking about denoting currency in complex numbers. I'm trying to imagine how I would explain this to my grandmother.

Yes, go into the complex plane because the phenomena somehow mirrors a circle or sphere.

But there is definitely something lacking from reducing everything down to a one dimensional measure. For instance, there are many pieces of real estate improvements that ought to be torn down and replaced with new improvements (homes, commercial buildings, etc). But the economy rarely offers incentives or even the abilities to tear down and rebuild - despite the huge benefit construction is to an economy. For things like this, I conclude the economic system is not closed. It’s not creating a self sustaining relationship between all participants.

The person you're responding to wasn't arguing against this 2-dimensional currency idea. They were explaining that it would make no sense to model as complex numbers.

A lot of the confusion in this thread seems to come from people believing that the main idea of complex numbers is that they are just pairs of real numbers.

That is wrong -- pairs of real numbers are just pairs of real numbers. Complex numbers are pairs of real numbers with a particular multiplicative structure.

I made it clear I agreed.

I should have added that it only becomes circular if you add the point at infinity. Otherwise it’s more similar to a plane. But yes, it’s not simply x,y numbers when you assume y^2=-1. The geometric interpretation of the complex numbers matters, and you have to do it correctly. Gets very hard to imagine quickly.

Well, what does multiplying two values of currency mean at all?

It means nothing. That's why it doesn't make sense to model with something that was invented specifically as a way of multiplying pairs of numbers. That's the entire point of the message you're responding to.

Why should there be? Complex numbers are pairs of real numbers with a particular multiplicative structure. Do you have any reason to expect this structure to be relevant for currency?

Hey, it was just a thought that crossed my mind. I agree that it doesn't make much sense without further thought (hence the question). For one, because complex numbers don't have operator < so you can't tell whether a transaction can proceed or not. If complex numbers can be applied in a monetary system, then it will probably be in a more complicated manner than substitution of amount of money -> complex number.

We already do! Human work is the real component, currency is the imaginary component. Currency is made up book keeping that eventually cancels out once everyone has settled their exchange of labour.

One has to be careful with this line of thought. If I spend all my money on necessities or have to work 80 hours a week to sustain myself, then I can't visit that forest unless I live so close that visiting costs me almost nothing in terms of time or money.

It's possible for there to be slippage between GDP and whatever metric you imagine, but they're well connected.

There is value to be had from a forest other than visiting it. That includes the things we can learn from its ecosystem (e.g. antibiotics developed from jungle fungi that are going extinct); improved air quality; and impact on climate, erosion, etc.

I was just responding to the parents' particular example, not trying to come up with a complete theory of the value of forests.

That said sick and dead people and climate change are typically not good for GDP.

Sadly, they are. GDP is a measure on transactions. Most of the things you mention have substantial transactions coupled to them. GDP is a good indicator of opportunity for rent-seeking in an economy, which is directly linked to the opportunities of the financial class.

The argument that you are making has been a named fallacy in economics for over 150 years: https://en.wikipedia.org/wiki/Parable_of_the_broken_window.

But aside from economic theory, everyone who has ever cared for a sick relative should have the evidence to see that it doesn't raise GDP. Yes, you spend money on healthcare. That's good for the doctors you buy from. But you give up time at work, you give up vacations, you cut back elsewhere. Every cent that you spend on that healthcare isn't going to wherever else you would've spent it. This isn't a counter-intuitive finding. It's just common sense.

It’s a cost for the individual but not a cost for the corporation whose cut corners are responsible for the illness. What’s good for profits isn’t necessarily good for health, even if in the big picture and long run what’s good for health is good for the economy as a whole.

Often true. But not relevant to whether it increases or decreases GDP.

Unless it increases GDP in the short term (higher profits) but decreases it in the long term (fewer people to consume goods and drive the economy).

You assume that all money would be constantly spent. Maybe in the US, but in other parts of the world people do save money for these 'unforeseen emergencies', and that money is then 'unlocked'.

In which case, GDP in the US isn't overstated because of the costs of caring for the sick. That's a bit awkward for your point of view, since the US has the largest economy in the world, and the highest per capita income of any large country[0]. Where does the GDP is overstated line apply?

[0] 10 million or more people, by my current arbitrary definition of "large".

Maybe onto something here: https://www.wsj.com/articles/in-bhutan-gross-national-happin...

https://www.nytimes.com/2017/01/17/world/asia/bhutan-gross-n...

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