Where Ayn Rand Was Wrong
"From each according to his ability, to each according to his need" creates a world where need is rewarded and ability is punished, profoundly screwing up the incentives for everyone involved. That's not what Ayn Rand got wrong - that's what she got right. The thing is, what she proposed - laissez-faire capitalism - also has the incentives wrong.
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I'll break it down into two statements, S1 and S2.
S1 = "Ayn Rand seems to think that in the environment of free competition, money and Quality go together."
S2 = "Meaning, that the way to make more money is to make a better product..."
S1 does not imply S2. If S1 is true, then S2 is not always true or false.
The word "money" in S1 is not specific enough. You did not specify who will have more money when there is free competition.
In a laissez-faire capitalist system, the entry barrier is lowest because there is no government imposed rules and regulations. Firms are free to enter the market and exit, so you'll end up with more industries that fit into the category of perfect competition. Consumers are the ones that get more money, which can be used somewhere else, such as buying more products or investing. Quality of the products in this kind of market goes up because firms are pressured by the possibility of competitors taking business away from them and will have to increase quality in order to stay in business, when there is a demand.
The producers (supply side) do not benefit from the competition as compared to consumers (demand side.) They are the ones that have to try hard to stay in business because competition is fierce.
The way to make money in a laissez-faire capitalist system is to avoid entering an industry with too much competition and low profit margin and find a better industry with less competition, and higher profit margin.
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Your example of refrigerator is true because we don't have laissez-faire capitalism today anywhere. As the result, we don't have enough competition in a lot of industries. I don't know about too much about this industry in detail, but I know if there is no government regulation, we should see a new company enters the industry and sells refrigerators that last longer with a reasonable price.
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I agree with your example of shoes. It has nothing to do with your statements about quality. It has to do with the behaviors of consumers when there is something new in the market. It takes time for the market to accept a new product, and to convince the consumers, you'll need to market it slowly and direct consumers to adapt to the new product. And it also takes time for the company to adjust the cost structure as the market changes.
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The problem with your dentist example is the word "best." It is a example of universalist intrinsicism. The question I want ask you is: best for whom? When a client goes to a dentist, they don't desire just to get their teeth fixed. There are wants other than getting the teeth fixed. For example, some may want to see a dentist that is close by; some may want one with better bed side manner; some may want to see a female dentist because some women are uncomfortable with a male dentist; etc, etc, etc...
If I were a dentist in your example, it is my best interest to know my clients' preference and provide the best option for them because for the long run, I'll earn their trust and establish credibility.
If I were a client and did not do enough research when choosing a dentist, I would be screwed. It seems very fair to me. And if I did get screwed, I would switch to a new dentist and tell my friends how bad my original one is. At the end, the bad dentists that scam clients would make less money and would probably be driven out of business.
Working hard and being rational is required and rewarded in laissez-faire capitalist system. Making health care a public service will create a monopoly, which is harmful to the consumers.
And when the government controls the health care system, it will cause inefficiency in resource allocation, i.e. shortage and long wait line.
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S2 = "Meaning, that the way to make more money is to make a better product..."
S2 is what I meant by S1. The word "meaning" was kind of indicative of that :-) True, S1 alone, taken out of context, could have many meanings, because it is vague -- which is exactly why I clarified it. S2 is the statement I discuss. More precisely: "in order to make as much money as they can (in a given industry), one needs to make the best product they are capable of". That is not true in general (although it is in Ayn Rand's books), and that is what I argue with.
I don't think Crocks did what they did with that shoe for the reasons that you specify. Well, okay, they might have played a role as well. But I don't think so. I think that Crocks deliberately made a much crappier product than they could have, in order to later "improve" it and make more money on upgrades. And Apple is doing the exact same thing all the time. The gradual increase in features in new versions of iPods is not due entirely to development of new technology -- they deliberately downgrade their products and remove features that they could implement, only in order to add them *later* and make the faithful users upgrade again. So it's all about quality.
Do I say that this behavior by the firms is not rational? Or not natural and to be expected, given the way consumers behave? No at all! It is both rational an expected. It's just not in line with the beautiful world that Ayn Rand envisioned.
"If I were a dentist in your example, it is my best interest to know my clients' preference and provide the best option for them because for the long run, I'll earn their trust and establish credibility."
That's exactly the problem, that you would soon discover that this approach doesn't pay off, and indeed that's not what they do. I think I explained it in my post. In short, again: 1) A reputation system is not necessarily good. It relies on some assumptions in order to work, and they don't hold here. I list them, and explain why they don't. 2) Clients usually won't even know if they are getting screwed. (Unlike, say, in the restaurant buisness, where the quality of service is nearly 100% aparrent).
"And when the government controls the health care system, it will cause inefficiency in resource allocation, i.e. shortage and long wait line."
There is more than one way for the government to intervene, and each approach has its tradeoffs. A system where the income of the doctor directly depends on the cost of treatment that the patient requires has an obvious drawback, which I explained. Fixing it causes other drawbacks.
I don't feel qualified right now to discuss the relative merits of, say, the Israeli health care system vs. the US health care system. At least, on a level above an ordinary layperson who, like everyone, needs to see a doctor once in a while. [And on that level I can say that the Israeli system seems to work great while the US systems seems profoundly screwed up...]
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What I meant in the previous comment was that S1 is not indicative of S2.
Also, I used my Objectivism CD-ROM and didn't not find anything close to S1.
I think that Crocks deliberately made a much crappier product than they could have, in order to later "improve" it and make more money on upgrades.
Well, there is nothing wrong with that. When the consumers are not ready for an improved version of a product, it is natural for a company to make a watered down version. The product is still in high quality from the consumers' point of view.
You see the problem here is that you use the word "quality" as if there is a universal standard for all product and for all consumers. In reality, it is not the case. A crappy pair of shoes is crappy only for the producer, not for the consumers.
It's just not in line with the beautiful world that Ayn Rand envisioned.
I'd like to know exactly how you get the idea that Ayn Rand envisioned a beautiful world. Can you give me the quotes? Ayn Rand's philosophy is about being realistic and objective, not envisioning any non-existent world or an idealized version of it.
That's exactly the problem, that you would soon discover that this approach doesn't pay off, and indeed that's not what they do. I think I explained it in my post. In short, again: 1) A reputation system is not necessarily good. It relies on some assumptions in order to work, and they don't hold here. I list them, and explain why they don't. 2) Clients usually won't even know if they are getting screwed. (Unlike, say, in the restaurant buisness, where the quality of service is nearly 100% aparrent).
Whether it is what people do or not doesn't matter. The only thing matter is that those who choose wisely will be rewarded because a free market is just.
Your point #2 is another fallacy of universalism. If clients get what they want, from their point of view they are not screwed. In other words, if a dentist provides a service to a client and they are satisfied with it, they are not screwed even if they pay higher price. The fact that you, who know more about the service, think they are screwed isn't matter.
Regarding to #1 reputation system, it works for some people, and they are fine with it. If you don't like the system, you can always find other ways to figure out which dentist is good for you. Why would we need the government to get involved? Personally, I don't think government will solve the problem. Contrary to what you think, government will make the problem larger by introducing more rules and regulations and paper work and tons of convoluted bureaucratic processes. Eventually, it will destroy innovation and capital generation process in the health care industry.
There is more than one way for the government to intervene, and each approach has its tradeoffs. A system where the income of the doctor directly depends on the cost of treatment that the patient requires has an obvious drawback, which I explained. Fixing it causes other drawbacks.
This can be fixed by freeing the market. When more health care providers enter the market, some will be more honest and have better control of the costs. If the country is free enough, those providers will do well.
Government intervention will make things worse. I have tons of examples: the auto industry, banks, narcotics, and immigration. How many people in the US like driving an American car? How hard it is to take out a loan from the bank in the US now? And How much does it charge you to maintain an account? How many people destroy their lives because of drugs? How much money does the US government spend on drug related crimes? How much does it cost for the DHS to deal with immigration related issues?
[And on that level I can say that the Israeli system seems to work great while the US systems seems profoundly screwed up...]
Again, I'd like to know exact what you mean by "work great." And I'd like to know the cost, both explicit and hidden. A quick glimpse of the health care industries around the world shows me that those countries with government controlled health care have to fund the system with more taxes. What is the tax rate in Israel?
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Wow!
Tell me, do you REALLY believe that? Millions of con artists would cheer to these words! I'll tell you a true story: one woman was diagnosed with a breast cancer, and a "healer" convinced her that he'll make it go away by "cosmic energy treatments" or some shit like that. So, she didn't do surgery or chemo, and instead paid him a few thousand dollars for his bullshit. She was tremendously satisfied! Imagine, she was certain that her tumor was gone and she was so happy to keep her breast! For the rest of her life, she was convinced that she was cured. Which was, you know, not that long -- she died in three years -- but according to your logic, that doesn't matter, right? As long as she was happy, that means she got what she paid for.... right?
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If she is a friend, or someone that pays me for advice, then she might live if she takes my advice to see the doctor.
I must point out that your breast cancer example is not related to the subject. When a product such as Windows, which I know is not best quality to my best knowledge and not made to the best effort my Microsoft, is acceptable in a market, I am not screwed, because it matches what I want in a product. In your shoe example, you seem to indicate that we are screwed because the product can be made better.
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I have one comment regarding irrationality: rational behavior is to exploit the irrationality of others. And that's what happens. Idealists will often refrain from doing it for ethical reasons. But any worldview that begins with "but if all people just behave rationally, then..." is a-priori unrealistic.
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Please give me the quotes. I don't think Ayn Rand would encourage people to make the best product even if they lose money for doing it.
In Objectivism, money isn't the highest value. If it were, then being a con artist would have been accepted as a moral behavior, which wouldn't make sense. Honesty and integrity are placed higher in the hierarchy of values, so your money argument isn't going to work.
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See my other entry! That's exactly what I wrote about there. I'll repeat:
Remember when Roark is asked to build a Tudor styled home for one lady? She honestly wanted to help him, but she wanted a very particular kind of house. Roark was in desperate need of money at the time, and there is no question that he could oblige her and build her exactly the house she was asking for. But he didn't want to. Remember? He spent some time trying to convince the lady that she didn't really want what she thought she wanted, and then he simply declined and went to work in the mine shafts. Artistic integrity was more important to him than money.
Another one (of many) examples was with Hank Rearden, who insisted on manufacturing his Rearden metal despite the fact that he would make more money by refraining from it (because of the offer made to him by the "bad guys"). But he wanted to do it, because he couldn't stand the thought of burying his invention, no matter what the cost! Actually, I remember a conversation between him and Dagny about this very thing -- he asks her along the lines of "Did you do your very best?" "Yes." "Did you plan to make money?" "Yes!" "Well, did you make money?" "No", she admits. That's how he tries to convince her to go on strike, remember?
That's exactly the reason why the creators go on strike in "Atlas Shrugged": because they want to live in a world where doing your very best rewards you with the most money, and their current world is the opposite of that. The world they built in their valley worked just like that, remember? Each was doing according to his abilities, and was rewarded according to the results.
"In Objectivism, money isn't the highest value. If it were, then being a con artist would have been accepted as a moral behavior, which wouldn't make sense. Honesty and integrity are placed higher in the hierarchy of values"
EXACTLY! That's exactly what I was saying! I'm pleasantly surprised that I don't have to convince you in this very thing (it sounded to me as if you disagree with it).
That's exactly it: in Ayn Rand's philosophy, money does not even have a value per se -- the important thing is how you make it. She has nothing but despise for people who inherit huge sums of money and then spend their lives partying and doing nothing (even if these people end up richer than her hard-working protagonists). Money has value to her and her protagonists only when it is deserved -- when it is accepted fairly in exchange for an item of quality.
And that's what I call idealism. You don't have to agree on the term, as long as we agree on what is meant by it: that Rand's protagonists value things like integrity, honesty and quality much more than money. (But "idealism" is the word many people would use to describe this kind of views). In situations where there is a choice between making more money and the other values (e.g. quality) Rand's protagonists don't hesitate! They have their incentives right. Making money "the wrong way" just isn't worth it for them.
My problem is: they all owe that behaviour to their values, and not all people share them. In fact, very few people share these values! Ayn Rand thinks that the economic system she proposes would be enough to ensure that the whole world becomes like that little valley of theirs. But it won't! In order to work, it requires that people adopt her values and her philosophy as well. And that, to put in succinctly, is not going to happen any time soon. In the real world, too many people, when faced with the option of making more money by compromising a little (or a lot) on quality or honesty, would go for the money. (Especially if many other people they know do it. And that's just one of the many, many psychological reasons for this kind of behaviour).
That's one reason I love game theory, btw. Game theory (mechanism design, to be precise) says, basically: "Educating people in order to try and change their incentives is a very noble idea, but it's not going to work any time soon. So, is there something we can do that would work on the people that we have now, as they are?"
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My research is on the purely theoretical side (just because math is so much simpler than actual people :-))
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