Could stupidity taxes be said to be Pigovian?
I
remember, when I was just a kid, seeing some (Finnish) guy on TV who
was grinning and wearing cowboy boots. He explained to the viewers that
he is a professional gambler, and a real professional gambler like him
won't leave the table until he has either won enough or lost enough.
Even though I was maybe only ten years old or so, I was already
suspicious of the possibility of being able to beat the slot machines,
roulette or any other casino game that is based just on luck. (I was
not familiar with the game of poker at that age.) I actually remember
being happy about thinking how that guy will eventually be getting his
just desserts. Later, in high school and in university, some other guys
said that they were certain that they can always win in video poker,
but I was also rather skeptical about this. As it often turned out to
be, if you dug a bit deeper about how much they had won or lost.
Video poker machines had back then started to become common in side with the older "pajatso" machines that Finns loved. Come to think of it, I have never read or heard any other country having these "pajatso" machine, and I don't even know if the game has an English language name. If somebody knows the answer, please enlighten me. Pajatso (the name obviously comes from the Italian word "pagliaccio") is somewhat like Japanese pachinko, but the game is a vertical box mounted on the wall (see the image at SPEL), and instead of a ball, the player shoots a coin from near the top of the machine, trying to make it enter one of the slots that then pay out more coins. Since the coin is shot with a flick of the finger, the game gives an alluring illusion of being completely based on skill.
Professor Greg Mankiw's blog contains two interesting posts about gambling, "Why I hate gambling" and its follow-up "The (In)justice of Gambling". The essential question here is whether being a professional poker player is a moral thing to do. In my opinion, nope, since engaging in negative sum games is perhaps the simplest operational definition of "evil" that I have come up with.
Since poker is a negative-sum game (or at most zero-sum, if there is no house to collect its rake), there is no way that anybody could support himself by playing poker except by creating an equal number of losers. Yeah, I know, nobody is forced to sit on the table and it's all voluntary, just like voluntarily giving your money to a barber or a grocer. But the essential difference is that with all real professions, voluntary transactions turn out to be a net benefit both parties, so that neither party loses because even the party that gives money to the other gets in return something that is more valuable to him. All moral professions are positive sum in nature, so that they can create winners without necessarily creating losers by design. They produce things and value, instead of just shuffling it around.
Granted, the issue gets more complicated if we include the entertainment value. This can make a small-stakes poker game among friends a positive-sum activity. But at the level where one can actually make a living as a poker player, I don't see how this argument would even get off the ground. Losing your house because you have no money to pay the mortgage sounds like a heavy price to pay for such entertainment. (And take a wild guess whose job it will then be in our society to clean up after these people. I know, as we all know from the past few days that libertarians can't even acknowledge that negative externalities can exist.) On the other hand, I guess that at the very top level, the players do generate genuine entertainment value for the TV audience. Which I guess is why none of these players ever seems to actually lose money but always gets to walk away with a price of hundreds of thousands of dollars, even when they are the first player to leave the table.
To sum up: If being a poker player is a moral thing to do, then so is launching or participating in a multi-level marketing pyramid scheme, which is a perfectly equivalent zero-sum activity that doesn't produce anything but only moves the pre-existing wealth around, and can thus generate net winners only by creating an equal number of net losers. Poker is not an MLM scheme, but in all relevant aspects these two are equivalent, so if you accept one as moral, you must also accept the other one. (By the way: what is the libertarian position on MLM schemes? I don't recall seeing this topic ever addressed in libertarian blogs or other material.)
Although what do you know, both poker and pyramid schemes are also equally mum about the logically inevitable existence of a large number losers for each winner, instead choosing to radiate the public impression that anybody can be a winner if they just believe it and want it hard enough, just like Jiminy Cricket says! I seriously wonder what would happen if some poker table was full of people so that all of them believed and wanted it hard enough. Would the whole table vanish in a puff of logic?
To end this post, let me quote Patri Friedman, who put it this way in the comments at Mankiw's blog:
Video poker machines had back then started to become common in side with the older "pajatso" machines that Finns loved. Come to think of it, I have never read or heard any other country having these "pajatso" machine, and I don't even know if the game has an English language name. If somebody knows the answer, please enlighten me. Pajatso (the name obviously comes from the Italian word "pagliaccio") is somewhat like Japanese pachinko, but the game is a vertical box mounted on the wall (see the image at SPEL), and instead of a ball, the player shoots a coin from near the top of the machine, trying to make it enter one of the slots that then pay out more coins. Since the coin is shot with a flick of the finger, the game gives an alluring illusion of being completely based on skill.
Professor Greg Mankiw's blog contains two interesting posts about gambling, "Why I hate gambling" and its follow-up "The (In)justice of Gambling". The essential question here is whether being a professional poker player is a moral thing to do. In my opinion, nope, since engaging in negative sum games is perhaps the simplest operational definition of "evil" that I have come up with.
Since poker is a negative-sum game (or at most zero-sum, if there is no house to collect its rake), there is no way that anybody could support himself by playing poker except by creating an equal number of losers. Yeah, I know, nobody is forced to sit on the table and it's all voluntary, just like voluntarily giving your money to a barber or a grocer. But the essential difference is that with all real professions, voluntary transactions turn out to be a net benefit both parties, so that neither party loses because even the party that gives money to the other gets in return something that is more valuable to him. All moral professions are positive sum in nature, so that they can create winners without necessarily creating losers by design. They produce things and value, instead of just shuffling it around.
Granted, the issue gets more complicated if we include the entertainment value. This can make a small-stakes poker game among friends a positive-sum activity. But at the level where one can actually make a living as a poker player, I don't see how this argument would even get off the ground. Losing your house because you have no money to pay the mortgage sounds like a heavy price to pay for such entertainment. (And take a wild guess whose job it will then be in our society to clean up after these people. I know, as we all know from the past few days that libertarians can't even acknowledge that negative externalities can exist.) On the other hand, I guess that at the very top level, the players do generate genuine entertainment value for the TV audience. Which I guess is why none of these players ever seems to actually lose money but always gets to walk away with a price of hundreds of thousands of dollars, even when they are the first player to leave the table.
To sum up: If being a poker player is a moral thing to do, then so is launching or participating in a multi-level marketing pyramid scheme, which is a perfectly equivalent zero-sum activity that doesn't produce anything but only moves the pre-existing wealth around, and can thus generate net winners only by creating an equal number of net losers. Poker is not an MLM scheme, but in all relevant aspects these two are equivalent, so if you accept one as moral, you must also accept the other one. (By the way: what is the libertarian position on MLM schemes? I don't recall seeing this topic ever addressed in libertarian blogs or other material.)
Although what do you know, both poker and pyramid schemes are also equally mum about the logically inevitable existence of a large number losers for each winner, instead choosing to radiate the public impression that anybody can be a winner if they just believe it and want it hard enough, just like Jiminy Cricket says! I seriously wonder what would happen if some poker table was full of people so that all of them believed and wanted it hard enough. Would the whole table vanish in a puff of logic?
To end this post, let me quote Patri Friedman, who put it this way in the comments at Mankiw's blog:
What matters is that smart, talented people are wasting their time transferring wealth instead of creating it. Whether or not you are a libertarian or a utilitarian, that is waste. It's waste just like any other kind of rent-seeking.
I don't think a video poker machine deals its cards just randomly as in a real game, it only gives the impression. We have no way of knowing this of course. The secret is well kept, but to my knowledge nobody has ever seen a video poker machine running out of money. There is only so much room for coins and the company should have prepared to the possibility that eventually somebody must have a really incredibly stinking rich streak of luck.
Posted by Catilina | 4:07 PM
What matters is that smart, talented people are wasting their time transferring wealth instead of creating it. Whether or not you are a libertarian or a utilitarian, that is waste. It's waste just like any other kind of rent-seeking.
I guess this applies to the finance industry as well ...
Posted by loki on the run | 5:27 PM
Actually it doesn't apply to finance industry. Speculators and other "gamblers" of financial industry make securities more liquid and so it will be easier for long term investors to sell and buy.
Posted by Anonymous | 6:17 PM
Ilkka:
First, here in the state of Connecticut, the Republican candidate is apparently running into problems because he was a card counter. This is the Republican running against Joe Lieberman, who was Al Gore's running mate in 2000. Lieberman is now in a fight in the Democratic primary.
Next, I don't know if I'd simply say zero-sum games are evil. If you said this, then you'd also be condemning the entire insurance industry. Rather, I think you should qualify it to say zero-sum games that don't involve the transfer of risk. Agricultural speculators also help shift risk from the farmer (who may face ruin if the crop price drops) and from the producer (who may face ruin if the crop price increases).
Posted by GMR | 9:38 PM
Next, I don't know if I'd simply say zero-sum games are evil. If you said this, then you'd also be condemning the entire insurance industry.
Negative-sum is evil. And insurance industry is not a zero-sum game, as it performs positive-sum transactions: their clients exchange money for security.
Posted by Ilkka Kokkarinen | 10:38 PM
My position here is quite ambivalent. Rather than equate poker with pyramid-scams, what about games like chess, go or even Tennis? In every game like this, for every winner there is a loser.
Your assumption on poker is that there is no other motive of playing except for winning money. I hardly believe this to be the case. There is the aspect of compulsive gambling, which makes it problematic.
Think about it. There are many third-rate chess players out there who are more than willing to pay handsome amounts of money to play against professionals, even though they have no chance of winning. I believe this to be true of Poker as well.
The problem with you "right wing nut jobs" is that every moral and regulatory decision seems black and white; either laissez faire or forbid it all together.
Posted by Tiedemies | 1:05 AM
Could one say that the whole global economy is just a zero sum game of moving things around? Only real inputs seem to be fossil fuels and solar power.
Posted by Anonymous | 5:34 AM
Poker is not an MLM scheme, but in all relevant aspects these two are equivalent, so if you accept one as moral, you must also accept the other one.
You know perfectly well that this is not true at all. And yet you make such a claim. Why?
Posted by Kalle | 6:29 AM
Kalle: You know perfectly well that this is not true at all. And yet you make such a claim. Why?
Because I think it is true. When I say that poker and MLM's are equal, I mean that every single pro-poker argument I have seen so far would apply equally well to MLM schemes. Everything is voluntary, anybody can win if they just believe and work hard etc.
I may be mistaken, of course, so I would certainly be interested to see an argument for morality of poker that did not apply to MLM schemes.
Posted by Ilkka Kokkarinen | 7:24 AM
Could one say that the whole global economy is just a zero sum game of moving things around?
In the trivial physical sense, yes, but as far as humans are concerned, we can take and refine from the physical reality and get richer.
The fact that the global economy is larger now than it was, say, a hundred years ago proves that it is not a zero-sum game.
Posted by Ilkka Kokkarinen | 7:53 AM
OK. I just thought that the multi-level part in multi-level marketing schemes had something to in ensuring which way the wealth is going to move. There is a reason why they are called pyramids, right? And I cannot really find a similar structure in poker. I also think that this is a relevant aspect, but you obviously disagree?
Posted by Kalle | 8:29 AM
Kalle: And I cannot really find a similar structure in poker. I also think that this is a relevant aspect, but you obviously disagree?
Obviously, since the structure is not relevant for the argument.
I am not saying that there can't be an argument for the morality of poker that wouldn't work just as well for the morality of MLM schemes. I would just like somebody to show this argument to me.
Posted by Ilkka Kokkarinen | 8:39 AM
It seems to me that Ilkka is correct in claiming that MLM and Poker are equivalent, morally.
I look at it from this point of view.
Some people (poker professionals), perhaps because of the right combination of genes, are able to exploit a cognitive weakness that other people have (ie, being unable to quickly and correctly estimate the risk they are taking).
Similarly, some other people (ie, promoters of MLM) are exploiting a cognive weakness that other people have ...
In any social species, the ability to exploit your conspecifics for your own benefit is a handy talent to have and one that you should not be too obvious about :-) Indeed, those who can delude themselves (and thus others) that they are not exploitative will be most successful.
Posted by loki on the run | 1:14 PM
OK, to amplify on my previous remark, I think that the skill poker players have (and that MLM promoters have) is being able to read other people very well. Professional poker players can read the signs that non-professional players make that indicate the true worth of their hand, and are skilled in controlling their facial and other clues as to their own hand.
However, it all comes down to exploiting conspecifics.
Posted by loki on the run | 1:17 PM
I disagree with the jump from wasteful to immoral, and the comparison to MLM schemes.
MLM schemes involve fraud and deception. I believe fraud and deception are immoral. I believe waste and inefficiency are sad. There is a big difference.
Loki - it does apply to much of the finance industry. Arbitrage is rent-seeking. It produces something useful (information), but the benefit of that product is not weighed against the cost of finding it.
I don't have time to explain fully, but here is an example: Suppose there is an arbitrage opportunity worth one million dollars. I can spend $100K in computing resources and personnel to identify it and correct it in a week. You can spend $200K to identify and correct it in a day. Someone else can spend $950K to identify and correct it in a minute.
That latter person can make $50K, because they will be the first to take advantage of the opportunity. Yet there is *absolutely no reason* to think that society values getting the information in a minute instead of a day at the $750K extra that is being spent. That tradeoff is never made by anyone. It's just that it's winner-take-all, the first person to spot the arbitrage opportunity gets all the advantage. Therefore there is incentive to spend resources to be first. And, sadly, this means that most of the value of these opportunities is wasted in being the first to get to them. It's a classic rent-seeking situation.
Posted by Patri Friedman | 6:40 PM
I'd like to add one thing: Wasteful is immoral, at least in the economic sense, i.e., in the sense of being inefficient.
Inefficiency is not only immoral, it is outright evil. Every cent wasted could be used to feed the starving children in the world. So the millions of deaths from starvation and preventable diseases is actually the opportunity cost of the inefficiencies in the world markets.
Think about that.
Posted by Tiedemies | 12:52 PM
Inefficiency is not only immoral, it is outright evil. Every cent wasted could be used to feed the starving children in the world. So the millions of deaths from starvation and preventable diseases is actually the opportunity cost of the inefficiencies in the world markets.
What obligation do I have to feed someone else's children? Get real!
Posted by loki on the run | 3:37 PM