Markets Are about Information, Not Incentives

If you spend any time on libertarian Twitter, you’ll hear endless praise for “incentive alignment”, “mechanism design” and of course the king of it all: “markets”.

For the most part, these genuinely interesting and complex ideas have basically been dumbed down to “pay people to do things”.

Consider Eli’s tweet about a “market” for Lunar Regolith:

Yes, it’s true that NASA is paying companies for soil, and it’s true that this “incentivizes” missions to the moon, but this is neither a market, nor NASA’s intention for the project.

As with any language debate, the question is “defined as X for what purpose”. So let me be more precise. NASA’s project is not a market, in the sense of markets as a mechanism for the efficient allocation of resources.

This is the view laid out by Ludwig von Mises’s foundational Economic Calculation in the Socialist Commonwealth, and Friedrich A. Hayek’s later Economics and Knowledge and The Use of Knowledge in Society which together form the basis of the economic calculation problem.

Quoting Hayek’s TUKS:
We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization.

I fear that our theoretical habits of approaching the problem with the assumption of more or less perfect knowledge on the part of almost everyone has made us somewhat blind to the true function of the price mechanism…

Are any of these ideals fulfilled by NASA’s project?

Of course not. This is merely a central agency setting an arbitrary price determined by technocratic calculus. From a mechanism design perspective, it’s equivalent to a prize.

Except that  NASA’s project is not even an incentive. Eli neglected to mention this, but the actual price range set by NASA is just $15,000 to $25,000.

This is a tiny fraction of the millions or billions required for a mission. As a lower bound, a SpaceX launch costs $62 million and Jim Bridenstine (who announced the project and runs NASA) estimates a cost of $30 billion to develop a “sustainable presence on the moon”.

So no, NASA is not “incentivizing” missions to the moon, at least not in any meaningful sense.

If the Lunar Regolith project doesn’t aggregation information, and doesn’t provide an incentive, what’s it for?

From Jim’s remarks at the Secure World Foundation’s Summit for Space Sustainability.
What we’re trying to do is make sure that there is a norm of behavior that says that resources can be extracted and that we’re doing it in a way that is in compliance with the Outer Space Treaty,

And from the launch announcement:
The ability to conduct in-situ resources utilization (ISRU) will be incredibly important on Mars, which is why we must proceed with alacrity to develop techniques and gain experience with ISRU on the surface of the Moon.

If Eli had spent any time at all reading about this before shitposting on Twitter, it would be immediately obvious that NASA’s purpose is primarily in setting a regulatory precedent, not creating a market.

To his credit, Eli tacks this on as “bonus”:

But this strikes me as even more disturbing than a simple omission. The fact that he’s aware of the project’s role as regulatory precedent but not of that role’s relative importance suggests a kind of willful ignorance. Eli is so fixated on promoting the “market” narrative that he’ll reframe available evidence to support it.

More cynically, I wonder if our obsession with “bold polyglot intellectuals” is just a systematized abuse of Gell-Mann Amnesia.

You go on Twitter, you read someone’s tweet on a subject you know something about, and see that the author has no understanding of the facts. So you keep scrolling and read their tweets about cancel culture, space exploration and criminal justice reform, totally forgetting how wrong they were before.

In this sense, every tweet is an option with asymmetric returns. If you’re right, you cash out; if you’re wrong, everyone forgets and you lose nothing. The incentive is to ramp up variance, make bold claims in a variety of areas, and hope you’re right some of the time.

Unlike the regolith project, Twitter is an actual market for ideas, albeit one without a price.