A Thought Experiment

by lizard

I came across an interesting thought experiment I’m going to feature first before describing where I found it. Without any introduction, The Fish Farming Story:

As a thought experiment, let’s consider aquaculture (fish farming) in a lake. Imagine a lake with a thousand identical fish farms owned by a thousand competing companies. Each fish farm earns a profit of $1000/month. For a while, all is well.

But each fish farm produces waste, which fouls the water in the lake. Let’s say each fish farm produces enough pollution to lower productivity in the lake by $1/month.

A thousand fish farms produce enough waste to lower productivity by $1000/month, meaning none of the fish farms are making any money. Capitalism to the rescue: someone invents a complex filtering system that removes waste products. It costs $300/month to operate. All fish farms voluntarily install it, the pollution ends, and the fish farms are now making a profit of $700/month – still a respectable sum.

But one farmer (let’s call him Steve) gets tired of spending the money to operate his filter. Now one fish farm worth of waste is polluting the lake, lowering productivity by $1. Steve earns $999 profit, and everyone else earns $699 profit.

Everyone else sees Steve is much more profitable than they are, because he’s not spending the maintenance costs on his filter. They disconnect their filters too.

Once four hundred people disconnect their filters, Steve is earning $600/month – less than he would be if he and everyone else had kept their filters on! And the poor virtuous filter users are only making $300. Steve goes around to everyone, saying “Wait! We all need to make a voluntary pact to use filters! Otherwise, everyone’s productivity goes down.”

Everyone agrees with him, and they all sign the Filter Pact, except one person who is sort of a jerk. Let’s call him Mike. Now everyone is back using filters again, except Mike. Mike earns $999/month, and everyone else earns $699/month. Slowly, people start thinking they too should be getting big bucks like Mike, and disconnect their filter for $300 extra profit…

A self-interested person never has any incentive to use a filter. A self-interested person has some incentive to sign a pact to make everyone use a filter, but in many cases has a stronger incentive to wait for everyone else to sign such a pact but opt out himself. This can lead to an undesirable equilibrium in which no one will sign such a pact.

Now, for how I came across this little tidbit.

The thought experiment comes from a blog called Slate Star Codex, specifically from a post titled Meditations on Moloch which opens with a look at the Moloch section of Allen Ginsberg’s poem, Howl. Before yesterday I’d never heard of this blog. I stumbled across the link at Rigorous Intuition, one of the better online communities of conspiracy theorists centered around the author Jeff Wells. The guy who posted the link is Wombaticus Rex, an interesting fellow in his own right.

I didn’t want the content to be weighed down with the baggage of how I came across it, because I know how easily certain perspectives are judged and dismissed. But for those interested in looking deeper, any one of those links is an interesting thread to follow.


  1. JC

    Of course, if you taught a man to fish, you could get rid of the fish farms and all the people could share in the bounty.

    When capitalism crumbles, it will be those who are capable of being self-sufficient and engage in mutual aid that will thrive.

    • Craig Moore

      Ocean fish stocks are in a world of hurt. The bounty will be meager at best. Now if capitalism crumbles, as you suggest, all fish will be freely distributed based on one’s need whether one works or not. No incentive to do otherwise. When the caught fish are gone, only the self-sufficient will survive provided they can defend their limited fish stocks from theives who organize to pillage the self-sufficient. I suspect shooting will be involved both ways. Right out of Mad Max and Water World.

      • JC

        You’re defending regulation? lol…

        And actually, I prefer Tank Girl’s methods.

    • Big Swede

      Interesting. So when cap crumbles myself being pretty self sufficient is going to reward the parasites with my shared bounty?

      • JC

        We’ve already established in the past that you participate heavily with mutual aid organizations like farmer/rancher co-ops, credit unions, rural electric and phone companies, volunteer fire department, search and rescue, etc.

        Now, exactly what is your bitch?

        You’re half-way to socialist nirvana and you want to flip your benefactors the bird? Ungrate.

        • By “participate” you mean I’ve “contributed” hundreds of thousands of dollars to prop taxes, Farm Credit Service, Yellowstone Valley CoOp.

          What have the huddled masses contributed?

          • lizard19

            a convenient target for your misplaced indignation.

          • JC

            How would the oligarchs gather their wealth, if not by exploiting the labor of the huddled masses?

            • Robots?

              • JC

                Bingo. Oligarchs replaced laborers with robots, hence an overabundance of workers to overpopulate park benches and back alleys.

              • Offer prepaid charge cards for abortions.

          • lizard19

            you also have no problem taking info-handouts from this blog for free. you are welcome.

            • Worth every penny.

  2. Your article here, your thought experiment, exactly nails the reason why private health insurance does not work. All companies have to play by the rules set by the worst actors. Otherwise, they end up with the clients rejected by the others, and become less profitable.

    Swede demonstrates the illusion of the self-made man, and Rand enhanced that illusion as John Galt. The problem is that because Swede’s support systems do not fail him, he does not realize how much he needs them.

  3. Private car ins works perfectly. It’s only when states interfere that the prices skyrocket and the choices diminish.

    How many HC ins. choices do we have in MT? Few.

    • Indeed, property and casualty insurance works very well. But the concept of “insurance” does not translate into a public utility, health care, any more than it would into utilities like electricity or food. Health care is a public good, and needs government to be run properly, to ensure access for all and keep costs down. You know, like evidence all,over the world indicates.

      And indeed if you look around you’ll see a failure of private health insurance in millions of people who could not get insurance, only made better under ACA via government subsidy of the insurance cartel. Open your eyes, man.

  4. History lesson.

    “The Kulaks were the hardest working, most productive, ablest peasants, They were the backbone of productive Russian society. To keep the fruits of their labor from the communists and resist the collectivization of the land, they would hide their grain and property. Because they resisted communism the most (much like our middle class), the Kulaks were the social class Lenin and Stalin hated the most. Kulaks represented the greatest obstacles to making Russia a classless, propertyless, and communistic state. The unfortunate result was the methodical and organized destruction of this social class by the communists. Lenin organized the Committees of the Village Poors, which consisted of the laziest, poorest, most resentful* peasants. These idle, malicious, shiftless, dual paupers gained power over the Kulaks, and subsequently took revenge on the most productive farmers.”-Bowman

    Galt hell, John G. held up in some canyon like some scared puppy. The difference between Stalin’s purge was the fact that the Kulaks were for the most part defenseless.

    This times different, gather your Village of Poors, we’d love to meet you.

    *JC, Liz?

    • lizard19

      how about you just start calling yourself Big Kulak?

    • I told you guys he’s stuck in the 60’s and 70’s, still fighting the Cold War.

  5. Just a guy

    So the moral of the experiment is that a certain degree of regulation is needed because some are loath to make decisions that benefit others at a cost to themselves? Not exactly ground breaking thought, and certainly not a fatal indictment of capitalism.

    • lizard19

      no, not ground breaking, which makes it all the more frustrating. will we escape the Malthusian trap?

  6. Nameless Range

    Good post.

    I have been reading Scott Alexander (Slate Star Codex) for years, and found him on the blog Less Wrong. He is brilliant.

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