What happened in Flint?

2016-01-302016-01-23 PNRJ current events, public policy Amartya Sen, democracy, dictator, emergency manager, environment, Flint, lead, lead poisoning, libertarian, MoveOn, Obama, racism, Reagan, Republican, Rick Snyder, Sen Hypothesis, water, water crisis

JDN 2457419

By now you’ve probably heard about the water crisis in Flint, where for almost two years highly dangerous levels of lead were in the city water system, poisoning thousands of people—including over 8,000 children. Many of these children will suffer permanent brain damage. We can expect a crime spike in the area once they get older; reduction in lead exposure may explain as much as half of the decline in crime in the United States—and increase in lead exposure will likely have the opposite effect. At least 10 people have already died.

A state of emergency has now been declared. Governor Snyder of Michigan will be asked to testify in Congress—and what he says had better be good. We have emails showing that he knew about the lead problems as early as February 2015, and as far as we can tell he did absolutely nothing until it all became public.

President Obama has said that the crisis was “inexplicable and inexcusable”. Inexcusable, certainly—but inexplicable? Hardly.

Indeed, this is a taste of the world that Republicans and Libertarians want us to live in, a world where corporations can do whatever they want and get away with it; a world where you can pollute any river, poison any population, and as long as you did it to help rich people get richer no one will stop you.

Every time someone says that our environmental regulations are “too harsh” or “stifle business” or are based on “environmentalist alarmism”, I want you to think of lead in the water in Flint.

Every time someone says that we need to “cut wasteful government spending” and “get government out of the way of business”, I want you to think of lead in the water in Flint.

This was not a natural disaster, a so-called “act of God” beyond human control. This was not some “inexplicable” event beyond our power to predict or understand.

This was a policy decision.

The worst thing about this is that people are taking exactly the wrong lesson. I’ve already seen a meme going around saying “government water/free market water” and showing Flint’s poisoned water next to (supposedly) pristine bottled water. I even saw one tweet with the audacity to assert that teacher pensions were the reason why Flint was so cash-starved that they had no choice but to accept poisoned water. The spin doctors are already at work trying to convince you that this proves that government is the problem and free markets are the solution.

But that is exactly the opposite lesson you should be taking from this.

This was not a case of excessive government intervention. This was a case of total government inaction. This was not the overbearing “nanny state” of social democracy they tell you to fear. This was the passive, ineffectual “starve the beast” government you have been promised by the likes of Reagan.

There were indeed substantial failures by governments at every level. But these failures were always in the form of doing too little, of ignoring the problem; and the original reason why Flint moved away from the municipal water supply was to reduce government spending.

(There were also failures of journalism; but does anyone think this means we should get rid of journalism?)

Nevermind that any sane person would say that clean water should be a top priority, one of the last things you’d even consider cutting spending on. Flint’s government found a way to save a few million dollars (which will now cost several billion to repair—insofar as it is even possible), so they did it. Institutionalized racism very likely contributed to their willingness to sacrifice so many people for so little money (would you poison someone for $100? Snyder and his “emergency manager” Earley apparently would).

I say “they”, and I keep saying the “government” did this; but in fact this was not a government action in the usual sense of a democratically-elected mayor and city council. The decision was made by a so-called “emergency manager”, personally appointed by the Governor and accountable to no one else. This is supposed to be a temporary office to solve emergencies, just like the dictator was in Rome until Julius Caesar decided he didn’t like that “temporary” part. Since it’s basically the same office with the same problems, I suggest we drop the “emergency manager” euphemism and start calling these people what they are—dictators.

This is actually a remarkable First World demonstration of the Sen Hypothesis: Famines don’t occur under democracies, because people who are represented in government don’t allow themselves to be starved. Similarly, people who are represented in government are much less likely to allow their water to be poisoned. It’s not that democratic governments never do anything wrong—but their wrongness is bounded by their accountability to public opinion. Every time we weaken democracy in the name of expediency or “efficiency”, we weaken that barrier against catastrophe.

MoveOn has a petition to impeach Snyder and arrest him on criminal charges. I’ve signed it, and I suggest you do as well. This perversion of democracy and depraved indifference must not stand.

The good news is that humans are altruistic after all, and many people are already doing things to help. You can help, too.

How I wish we measured percentage change

2016-01-272016-01-20 PNRJ statistics, Uncategorized exponential, logarithm, math, Miles Kimball, percentage, statistics

JDN 2457415

For today’s post I’m taking a break from issues of global policy to discuss a bit of a mathematical pet peeve. It is an opinion I share with many economists—for instance Miles Kimball has a very nice post about it, complete with some clever analogies to music.

I hate when we talk about percentages in asymmetric terms.

What do I mean by this? Well, here are a few examples.

If my stock portfolio loses 10% one year and then gains 11% the following year, have I gained or lost money? I’ve lost money. Only a little bit—I’m down 0.1%—but still, a loss.

In 2003, Venezuela suffered a depression of -26.7% growth one year, and then an economic boom of 36.1% growth the following year. What was their new GDP, relative to what it was before the depression? Very slightly less than before. (99.8% of its pre-recession value, to be precise.) You would think that falling 27% and rising 36% would leave you about 9% ahead; in fact it leaves you behind.

Would you rather live in a country with 11% inflation and have constant nominal pay, or live in a country with no inflation and take a 10% pay cut? You should prefer the inflation; in that case your real income only falls by 9.9%, instead of 10%.

We often say that the real interest rate is simply the nominal interest rate minus the rate of inflation, but that’s actually only an approximation. If you have 7% inflation and a nominal interest rate of 11%, your real interest rate is not actually 4%; it is 3.74%. If you have 2% inflation and a nominal interest rate of 0%, your real interest rate is not actually -2%; it is -1.96%.

This is what I mean by asymmetric:

Rising 10% and falling 10% do not cancel each other out. To cancel out a fall of 10%, you must actually rise 11.1%.

Gaining 20% and losing 20% do not cancel each other out. To cancel out a loss of 20%, you need a gain of 25%.

Is it starting to bother you yet? It sure bothers me.

Worst of all is the fact that the way we usually measure percentages, losses are bounded at 100% while gains are unbounded. To cancel a loss of 100%, you’d need a gain of infinity.

There are two basic ways of solving this problem: The simple way, and the good way.

The simple way is to just start measuring percentages symmetrically, by including both the starting and ending values in the calculation and averaging them.
That is, instead of using this formula:

% change = 100% * (new – old)/(old)

You use this one:

% change = 100% * (new – old)/((new + old)/2)

In this new system, percentage changes are symmetric.

Suppose a country’s GDP rises from $5 trillion to $6 trillion.

In the old system we’d say it has risen 20%:

100% * ($6 T – $5 T)/($5 T) = 20%

In the symmetric system, we’d say it has risen 18.2%:

100% * ($6 T – $5 T)/($5.5 T) = 18.2%

Suppose it falls back to $5 trillion the next year.

In the old system we’d say it has only fallen 16.7%:

100% * ($5 T – $6 T)/($6 T) = -16.7%

But in the symmetric system, we’d say it has fallen 18.2%.

100% * ($5 T – $6 T)/($5.5 T) = -18.2%

In the old system, the gain of 20% was somehow canceled by a loss of 16.7%. In the symmetric system, the gain of 18.2% was canceled by a loss of 18.2%, just as you’d expect.

This also removes the problem of losses being bounded but gains being unbounded. Now both losses and gains are bounded, at the rather surprising value of 200%.

Formally, that’s because of these limits:
lim_{x rightarrow infty} {(x-1) over {(x+1)/2}} = 2

lim_{x rightarrow infty} {(0-x) over {(x+0)/2}} = -2

It might be easier to intuit these limits with an example. Suppose something explodes from a value of 1 to a value of 10,000,000. In the old system, this means it rose 1,000,000,000%. In the symmetric system, it rose 199.9999%. Like the speed of light, you can approach 200%, but never quite get there.

100% * (10^7 – 1)/(5*10^6 + 0.5) = 199.9999%

Gaining 200% in the symmetric system is gaining an infinite amount. That’s… weird, to say the least. Also, losing everything is now losing… 200%?

This is simple to explain and compute, but it’s ultimately not the best way.

The best way is to use logarithms.

As you may vaguely recall from math classes past, logarithms are the inverse of exponents.

Since 2^4 = 16, log_2 (16) = 4.

The natural logarithm ln() is the most fundamental for deep mathematical reasons I don’t have room to explain right now. It uses the base e, a transcendental number that starts 2.718281828459045…

To the uninitiated, this probably seems like an odd choice—no rational number has a natural logarithm that is itself a rational number (well, other than 1, since ln(1) = 0).

But perhaps it will seem a bit more comfortable once I show you that natural logarithms are remarkably close to percentages, particularly for the small changes in which percentages make sense.

We define something called log points such that the change in log points is 100 times the natural logarithm of the ratio of the two:

log points = 100 * ln(new / old)

This is symmetric because of the following property of logarithms:

ln(a/b) = – ln(b/a)

Let’s return to the country that saw its GDP rise from $5 trillion to $6 trillion.

The logarithmic change is 18.2 log points:

100 * ln($6 T / $5 T) = 100 * ln(1.2) = 18.2

If it falls back to $5 T, the change is -18.2 log points:

100 * ln($5 T / $6 T) = 100 * ln(0.833) = -18.2

Notice how in the symmetric percentage system, it rose and fell 18.2%; and in the logarithmic system, it rose and fell 18.2 log points. They are almost interchangeable, for small percentages.

In this graph, the old value is assumed to be 1. The horizontal axis is the new value, and the vertical axis is the percentage change we would report by each method.

The green line is the usual way we measure percentages.

The red curve is the symmetric percentage method.

The blue curve is the logarithmic method.

For percentages within +/- 10%, all three methods are about the same. Then both new methods give about the same answer all the way up to changes of +/- 40%. Since most real changes in economics are within that range, the symmetric method and the logarithmic method are basically interchangeable.

However, for very large changes, even these two methods diverge, and in my opinion the logarithm is to be preferred.

The symmetric percentage never gets above 200% or below -200%, while the logarithm is unbounded in both directions.

If you lose everything, the old system would say you have lost 100%. The symmetric system would say you have lost 200%. The logarithmic system would say you have lost infinity log points. If infinity seems a bit too extreme, think of it this way: You have in fact lost everything. No finite proportional gain can ever bring it back. A loss that requires a gain of infinity percent seems like it should be called a loss of infinity percent, doesn’t it? Under the logarithmic system it is.

If you gain an infinite amount, the old system would say you have gained infinity percent. The logarithmic system would also say that you have gained infinity log points. But the symmetric percentage system would say that you have gained 200%. 200%? Counter-intuitive, to say the least.

Log points also have another very nice property that neither the usual system nor the symmetric percentage system have: You can add them.

If you gain 25 log points, lose 15 log points, then gain 10 log points, you have gained 20 log points.

25 – 15 + 10 = 20

Just as you’d expect!

But if you gain 25%, then lose 15%, and then gain 10%, you have gained… 16.9%.

(1 + 0.25)*(1 – 0.15)*(1 + 0.10) = 1.169

If you gain 25% symmetric, lose 15% symmetric, then gain 10% symmetric, that calculation is really a pain. To find the value y that is p symmetric percentage points from the starting value x, you end up needing to solve this equation:

p = 100 * (y – x)/((x+y)/2)

This can be done; it comes out like this:

y = (200 + p)/(200 – p) * x

(This also gives a bit of insight into why it is that the bounds are +/- 200%.)

So by chaining those, we can in fact find out what happens after gaining 25%, losing 15%, then gaining 10% in the symmetric system:

(200 + 25)/(200 – 25)*(200 – 15)/(200 + 15)*(200 + 10)/(200 – 10) = 1.223

Then we can put that back into the symmetric system:

100% * (1.223 – 1)/((1+1.223)/2) = 20.1%

So after all that work, we find out that you have gained 20.1% symmetric. We could almost just add them—because they are so similar to log points—but we can’t quite.

Log points actually turn out to be really convenient, once you get the hang of them. The problem is that there’s a conceptual leap for most people to grasp what a logarithm is in the first place.

In particular, the hardest part to grasp is probably that a doubling is not 100 log points.

It is in fact 69 log points, because ln(2) = 0.69.

(Doubling in the symmetric percentage system is gaining 67%—much closer to the log points than to the usual percentage system.)

Calculation of the new value is a bit more difficult than in the usual system, but not as difficult as in the symmetric percentage system.

If you have a change of p log points from a starting point of x, the ending point y is:

y = e^{p/100} * x

The fact that you can add log points ultimately comes from the way exponents add:

e^{p1/100} * e^{p2/100} = e^{(p1+p2)/100}

Suppose US GDP grew 2% in 2007, then 0% in 2008, then fell 8% in 2009 and rose 4% in 2010 (this is approximately true). Where was it in 2010 relative to 2006? Who knows, right? It turns out to be a net loss of 2.4%; so if it was $15 T before it’s now $14.63 T. If you had just added, you’d think it was only down 2%; you’d have underestimated the loss by $70 billion.

But if it had grown 2 log points, then 0 log points, then fell 8 log points, then rose 4 log points, the answer is easy: It’s down 2 log points. If it was $15 T before, it’s now $14.70 T. Adding gives the correct answer this time.

Thus, instead of saying that the stock market fell 4.3%, we should say it fell 4.4 log points. Instead of saying that GDP is up 1.9%, we should say it is up 1.8 log points. For small changes it won’t even matter; if inflation is 1.4%, it is in fact also 1.4 log points. Log points are a bit harder to conceptualize; but they are symmetric and additive, which other methods are not.

Is this a matter of life and death on a global scale? No.

But I can’t write about those every day, now can I?

Why is it so hard to get a job?

2016-01-232016-01-16 PNRJ critique of neoclassical economics, heuristics and biases, macroeconomics, market failure bias, career, college, David Graeber, Federal Reserve, fiscal policy, GDP, hiring, inflation, job separation, jobs, monetary policy, networking, recession, soft skills, System 1, underemployment, unemployment

JDN 2457411

The United States is slowly dragging itself out of the Second Depression.

Unemployment fell from almost 10% to about 5%.

Core inflation has been kept between 0% and 2% most of the time.

Overall inflation has been within a reasonable range:

US_inflation

Real GDP has returned to its normal growth trend, though with a permanent loss of output relative to what would have happened without the Great Recession.

US_GDP_growth

Consumption spending is also back on trend, tracking GDP quite precisely.

The Federal Reserve even raised the federal funds interest rate above the zero lower bound, signaling a return to normal monetary policy. (As I argued previously, I’m pretty sure that was their main goal actually.)

Employment remains well below the pre-recession peak, but is now beginning to trend upward once more.

The only thing that hasn’t recovered is labor force participation, which continues to decline. This is how we can have unemployment go back to normal while employment remains depressed; people leave the labor force by retiring, going back to school, or simply giving up looking for work. By the formal definition, someone is only unemployed if they are actively seeking work. No, this is not new, and it is certainly not Obama rigging the numbers. This is how we have measured unemployment for decades.

Actually, it’s kind of the opposite: Since the Clinton administration we’ve also kept track of “broad unemployment”, which includes people who’ve given up looking for work or people who have some work but are trying to find more. But we can’t directly compare it to anything that happened before 1994, because the BLS didn’t keep track of it before then. All we can do is estimate based on what we did measure. Based on such estimation, it is likely that broad unemployment in the Great Depression may have gotten as high as 50%. (I’ve found that one of the best-fitting models is actually one of the simplest; assume that broad unemployment is 1.8 times narrow unemployment. This fits much better than you might think.)

So, yes, we muddle our way through, and the economy eventually heals itself. We could have brought the economy back much sooner if we had better fiscal policy, but at least our monetary policy was good enough that we were spared the worst.

But I think most of us—especially in my generation—recognize that it is still really hard to get a job. Overall GDP is back to normal, and even unemployment looks all right; but why are so many people still out of work?

I have a hypothesis about this: I think a major part of why it is so hard to recover from recessions is that our system of hiring is terrible.

Contrary to popular belief, layoffs do not actually substantially increase during recessions. Quits are substantially reduced, because people are afraid to leave current jobs when they aren’t sure of getting new ones. As a result, rates of job separation actually go down in a recession. Job separation does predict recessions, but not in the way most people think. One of the things that made the Great Recession different from other recessions is that most layoffs were permanent, instead of temporary—but we’re still not sure exactly why.

Here, let me show you some graphs from the BLS.

This graph shows job openings from 2005 to 2015:

job_openings

This graph shows hires from 2005 to 2015:

job_hires

Both of those show the pattern you’d expect, with openings and hires plummeting in the Great Recession.

But check out this graph, of job separations from 2005 to 2015:

job_separations

Same pattern!

Unemployment in the Second Depression wasn’t caused by a lot of people losing jobs. It was caused by a lot of people not getting jobs—either after losing previous ones, or after graduating from school. There weren’t enough openings, and even when there were openings there weren’t enough hires.

Part of the problem is obviously just the business cycle itself. Spending drops because of a financial crisis, then businesses stop hiring people because they don’t project enough sales to justify it; then spending drops even further because people don’t have jobs, and we get caught in a vicious cycle.

But we are now recovering from the cyclical downturn; spending and GDP are back to their normal trend. Yet the jobs never came back. Something is wrong with our hiring system.

So what’s wrong with our hiring system? Probably a lot of things, but here’s one that’s been particularly bothering me for a long time.
As any job search advisor will tell you, networking is essential for career success.

There are so many different places you can hear this advice, it honestly gets tiring.

But stop and think for a moment about what that means. One of the most important determinants of what job you will get is… what people you know?

It’s not what you are best at doing, as it would be if the economy were optimally efficient.
It’s not even what you have credentials for, as we might expect as a second-best solution.

It’s not even how much money you already have, though that certainly is a major factor as well.

It’s what people you know.

Now, I realize, this is not entirely beyond your control. If you actively participate in your community, attend conferences in your field, and so on, you can establish new contacts and expand your network. A major part of the benefit of going to a good college is actually the people you meet there.

But a good portion of your social network is more or less beyond your control, and above all, says almost nothing about your actual qualifications for any particular job.

There are certain jobs, such as marketing, that actually directly relate to your ability to establish rapport and build weak relationships rapidly. These are a tiny minority. (Actually, most of them are the sort of job that I’m not even sure needs to exist.)

For the vast majority of jobs, your social skills are a tiny, almost irrelevant part of the actual skill set needed to do the job well. This is true of jobs from writing science fiction to teaching calculus, from diagnosing cancer to flying airliners, from cleaning up garbage to designing spacecraft. Social skills are rarely harmful, and even often provide some benefit, but if you need a quantum physicist, you should choose the recluse who can write down the Dirac equation by heart over the well-connected community leader who doesn’t know what an integral is.

At the very least, it strains credibility to suggest that social skills are so important for every job in the world that they should be one of the defining factors in who gets hired. And make no mistake: Networking is as beneficial for landing a job at a local bowling alley as it is for becoming Chair of the Federal Reserve. Indeed, for many entry-level positions networking is literally all that matters, while advanced positions at least exclude candidates who don’t have certain necessary credentials, and then make the decision based upon who knows whom.

Yet, if networking is so inefficient, why do we keep using it?

I can think of a couple reasons.

The first reason is that this is how we’ve always done it. Indeed, networking strongly pre-dates capitalism or even money; in ancient tribal societies there were certainly jobs to assign people to: who will gather berries, who will build the huts, who will lead the hunt. But there were no colleges, no certifications, no resumes—there was only your position in the social structure of the tribe. I think most people simply automatically default to a networking-based system without even thinking about it; it’s just the instinctual System 1 heuristic.

One of the few things I really liked about Debt: The First 5000 Years was the discussion of how similar the behavior of modern CEOs is to that of ancient tribal chieftans, for reasons that make absolutely no sense in terms of neoclassical economic efficiency—but perfect sense in light of human evolution. I wish Graeber had spent more time on that, instead of many of these long digressions about international debt policy that he clearly does not understand.

But there is a second reason as well, a better reason, a reason that we can’t simply give up on networking entirely.

The problem is that many important skills are very difficult to measure.

College degrees do a decent job of assessing our raw IQ, our willingness to persevere on difficult tasks, and our knowledge of the basic facts of a discipline (as well as a fantastic job of assessing our ability to pass standardized tests!). But when you think about the skills that really make a good physicist, a good economist, a good anthropologist, a good lawyer, or a good doctor—they really aren’t captured by any of the quantitative metrics that a college degree provides. Your capacity for creative problem-solving, your willingness to treat others with respect and dignity; these things don’t appear in a GPA.

This is especially true in research: The degree tells how good you are at doing the parts of the discipline that have already been done—but what we really want to know is how good you’ll be at doing the parts that haven’t been done yet.

Nor are skills precisely aligned with the content of a resume; the best predictor of doing something well may in fact be whether you have done so in the past—but how can you get experience if you can’t get a job without experience?

These so-called “soft skills” are difficult to measure—but not impossible. Basically the only reliable measurement mechanisms we have require knowing and working with someone for a long span of time. You can’t read it off a resume, you can’t see it in an interview (interviews are actually a horribly biased hiring mechanism, particularly biased against women). In effect, the only way to really know if someone will be good at a job is to work with them at that job for awhile.

There’s a fundamental information problem here I’ve never quite been able to resolve. It pops up in a few other contexts as well: How do you know whether a novel is worth reading without reading the novel? How do you know whether a film is worth watching without watching the film? When the information about the quality of something can only be determined by paying the cost of purchasing it, there is basically no way of assessing the quality of things before we purchase them.

Networking is an attempt to get around this problem. To decide whether to read a novel, ask someone who has read it. To decide whether to watch a film, ask someone who has watched it. To decide whether to hire someone, ask someone who has worked with them.

The problem is that this is such a weak measure that it’s not much better than no measure at all. I often wonder what would happen if businesses were required to hire people based entirely on resumes, with no interviews, no recommendation letters, and any personal contacts treated as conflicts of interest rather than useful networking opportunities—a world where the only thing we use to decide whether to hire someone is their documented qualifications. Could it herald a golden age of new economic efficiency and job fulfillment? Or would it result in widespread incompetence and catastrophic collapse? I honestly cannot say.

How Reagan ruined America

2016-01-202017-10-08 PNRJ inequality, macroeconomics, public policy Bill Clinton, Bretton Woods, CEO pay, GDP, Gerald Ford, growth, income share, income tax, inequality, Obama, Patreon, productivity, public policy, Reagan, taxation, taxes, The Great Gatsby, wages

JDN 2457408

Or maybe it’s Ford?

The title is intentionally hyperbolic; despite the best efforts of Reagan and his ilk, America does yet survive. Indeed, as Obama aptly pointed out in his recent State of the Union, we appear to be on an upward trajectory once more. And as you’ll see in a moment, many of the turning points actually seem to be Gerald Ford, though it was under Reagan that the trends really gained steam.

But I think it’s quite remarkable just how much damage Reaganomics did to the economy and society of the United States. It’s actually a turning point in all sorts of different economic policy measures; things were going well from the 1940s to the 1970s, and then suddenly in the 1980s they take a turn for the worse.

The clearest example is inequality. From the World Top Incomes Database, here’s the graph I featured on my Patreon page of income shares in the United States:

Inequality was really bad during the Roaring Twenties (no surprise to anyone who has read The Great Gatsby), then after the turmoil of the Great Depression, the New Deal, and World War 2, inequality was reduced to a much lower level.

During this period, what I like to call the Golden Age of American Capitalism:

Instead of almost 50% in the 1920s, the top 10% now received about 33%.

Instead of over 20% in the 1920s, the top 1% now received about 10%.

Instead of almost 5% in the 1920s, the top 0.01% now received about 1%.

This pattern continued to hold, remarkably stable, until 1980. Then, it completely unraveled. Income shares of the top brackets rose, and continued to rise, ever since (fluctuating with the stock market of course). Now, we’re basically back right where we were in the 1920s; the top 10% gets 50%, the top 1% gets 20%, and the top 0.01% gets 4%.

Not coincidentally, we see the same pattern if we look at the ratio of CEO pay to average worker pay, as shown here in a graph from the Economic Policy Institute:

Up until 1980, the ratio in pay between CEOs and their average workers was steady around 20 to 1. From that point forward, it began to rise—and rise, and rise. It continued to rise under every Presidential administration, and actually hit its peak in 2000, under Bill Clinton, at an astonishing 411 to 1 ratio. In the 2000s it fell to about 250 to 1 (hurray?), and has slightly declined since then to about 230 to 1.

By either measure, we can see a clear turning point in US inequality—it was low and stable, until Reagan came along, when it began to explode.

Part of this no doubt is the sudden shift in tax rates. The top marginal tax rates on income were over 90% from WW2 to the 1960s; then JFK reduced them to 70%, which is probably close to the revenue-maximizing rate. There they stayed, until—you know the refrain—along came Reagan, and by the end of his administration he had dropped the top marginal rate to 28%. It then was brought back up to about 35%, where it has basically remained, sometimes getting as high as 40%.

Another striking example is the ratio between worker productivity and wages. The Economic Policy Institute has a very detailed analysis of this, but I think their graph by itself is quite striking:

Starting around the 1970s, and then rapidly accelerating from the 1980s onward, we see a decoupling of productivity from wages. Productivity has continued to rise at more or less the same rate, but wages flatten out completely, even falling for part of the period.

For those who still somehow think Republicans are fiscally conservative, take a look at this graph of the US national debt:

We were at a comfortable 30-40% of GDP range, actually slowly decreasing—until Reagan. We got back on track to reduce the debt during the mid-1990s—under Bill Clinton—and then went back to raising it again once George W. Bush got in office. It ballooned as a result of the Great Recession, and for the past few years Obama has been trying to bring it back under control.

Of course, national debt is not nearly as bad as most people imagine it to be. If Reagan had only raised the national debt in order to stop unemployment, that would have been fine—but he did not.

Unemployment had never been above 10% since World War 2 (and in fact reached below 4% in the 1960s!) and yet all the sudden hit almost 11%, shortly after Reagan:

Let’s look at that graph a little closer. Right now the Federal Reserve uses 5% as their target unemployment rate, the supposed “natural rate of unemployment” (a lot of economists use this notion, despite there being almost no empirical support for it whatsoever). If I draw red lines at 5% unemployment and at 1981, the year Reagan took office, look at what happens.

For most of the period before 1981, we spent most of our time below the 5% line, jumping above it during recessions and then coming back down; for most of the period after 1981, we spent most of our time above the 5% line, even during economic booms.

I’ve drawn another line (green) where the most natural break appears, and it actually seems to be the Ford administration; so maybe I can’t just blame Reagan. But something happened in the last quarter of the 20^th century that dramatically changed the shape of unemployment in America.

Inflation is at least ambiguous; it was pretty bad in the 1940s and 1950s, and then settled down in the 1960s for awhile before picking up in the 1970s, and actually hit its worst just before Reagan took office:

Then there’s GDP growth.

After World War 2, our growth rate was quite volatile, rising as high as 8% (!) in some years, but sometimes falling to zero or slightly negative. Rates over 6% were common during booms. On average GDP growth was quite good, around 4% per year.

In 1981—the year Reagan took office—we had the worst growth rate in postwar history, an awful -1.9%. Coming out of that recession we had very high growth of about 7%, but then settled into the new normal: More stable growth rates, yes, but also much lower. Never again did our growth rate exceed 4%, and on average it was more like 2%. In 2009, Reagan’s record recession was broken with the Great Recession, a drop of almost 3% in a single year.

GDP per capita tells a similar story, of volatile but fast growth before Reagan followed by stable but slow growth thereafter:

Of course, it wouldn’t be fair to blame Reagan for all of this. A lot of things have happened in the late 20^th century, after all. In particular, the OPEC oil crisis is probably responsible for many of these 1970s shocks, and when Nixon moved us at last off the Bretton Woods gold standard, it was probably the right decision, but done at a moment of crisis instead of as the result of careful planning.

Also, while the classical gold standard was terrible, the Bretton Woods system actually had some things to recommend it. It required strict capital controls and currency exchange regulations, but the period of highest economic growth and lowest inequality in the United States—the period I’m calling the Golden Age of American Capitalism—was in fact the same period as the Bretton Woods system.

Some of these trends started before Reagan, and all of them continued in his absence—many of them worsening as much or more under Clinton. Reagan took office during a terrible recession, and either contributed to the recovery or at least did not prevent it.

The President only has very limited control over the economy in any case; he can set a policy agenda, but Congress must actually implement it, and policy can take years to show its true effects. Yet given Reagan’s agenda of cutting top tax rates, crushing unions, and generally giving large corporations whatever they want, I think he bears at least some responsibility for turning our economy in this very bad direction.

The challenges of a global basic income

2016-01-162016-01-16 PNRJ critique of neoclassical economics, development economics, public policy, Uncategorized Afghanistan, Afghanistan War, Al Capone, Angola, Bangladesh, basic income, British Empire, China, colonialism, Daesh, Eritrea, imperialism, India, Iraq, Iraq War, Isayas Afewerki, Kim Jong-un, King Salman, Libya, military, Muammar Qaddafi, Robert Mugabe, Saddam Hussein, sanctions, Saudi Arabia, South Africa, Taliban, United Nations, war, wousult, ZImbabwe

JDN 2457404

In the previous post I gave you the good news. Now for the bad news.

So we are hoping to implement a basic income of $3,000 per person per year worldwide, eliminating poverty once and for all.

There is no global government to implement this system. There is no global income tax to be collected or refunded. The United Nations and the World Bank, for all the good work that they do, are nowhere near powerful enough (or well-funded enough) to accomplish this feat.

Worse, the people we need to help the most, not coincidentally, live in the countries that are worst-managed. They are surrounded not only by squalor, but also by corruption, war, ethnic tension. Most of the people are underfed, uneducated, and dying from diseases such as malaria and schistomoniasis that we could treat in a day for pocket change. Their infrastructure is either crumbling or nonexistent. Their water is unsafe to drink. And worst of all, many of their governments don’t care. Tyrants like Robert Mugabe, Kim Jong-u n, King Salman (of our lovely ally Saudi Arabia), and Isayas Afewerki care nothing for the interests of the people they rule, and are interested only in maximizing their own wealth and power. If we arranged to provide grants to these countries in an amount sufficient to provide the basic income, there’s no reason to think they’d actually provide it; they’d simply deposit the check in their own personal bank accounts, and use it to buy ever more extravagant mansions or build ever greater monuments to themselves. They really do seem to follow a utility function based entirely upon their own consumption; witness your neoclassical rational agent and despair.

There are ways for international institutions and non-governmental organizations to intervene to help people in these countries, and indeed many have done so to considerable effect. As bad as things are, they are much better than they used to be, and they promise to be even better tomorrow. But there is only so much they can do without the force of law at their backs, without the power to tax incomes and print currency.

We will therefore need a new kind of institutional framework, if not a true world government then something very much like it. Establishing this new government will not be easy, and worst of all I see no way to do it other than military force. Tyrants will not give up their power willingly; it will need to be taken from them. We will need to capture and imprison tyrants like Robert Mugabe and Kim Jong Un in the same way that we once did to mob bosses like John Dillinger and Al Capone, for ultimately a tyrant is nothing but a mob boss with an army.Unless we can find some way to target them precisely and smoothly replace their regimes with democracies, this will mean nothing less than war, and it could kill thousands, even millions of people—but millions of people are already dying, and will continue to die as long as we leave these men in power. Sanctions might help (though sanctions kill people too), and perhaps a few can be persuaded to step down, but the rest must be overthrown, by some combination of local revolutions and international military coalitions. The best model I’ve seen for how this might be pulled off is Libya, where Qaddafi was at last removed by an international military force supporting a local revolution—but even Libya is not exactly sunshine and rainbows right now. One of the first things we need to do is seriously plan a strategy for removing repressive dictators with a minimum of collateral damage.

To many, I suspect this sounds like imperialism, colonialism redux. Didn’t so many imperialistic powers say that they were doing it to help the local population? Yes, they did; and one of the facts that we must face up to is that it was occasionally true. Or if helping the local population was not their primary motivation, it was nonetheless a consequence. Countries colonized by the British Empire in particular are now the most prosperous, free nations in the world: The United States, Canada, Australia. South Africa and India might seem like exceptions (GDP PPP per capita of $12,400 and $5,500 respectively) but they really aren’t, compared to what they were before—or even compared to what is next to them today: Angola has a per capita GDP PPP of $7,546 while Bangladesh has only $2,991. Zimbabwe is arguably an exception (per capita GDP PPP of $1,773), but their total economic collapse occurred after the British left. To include Zimbabwe in this basic income program would literally triple the income of most of their population. But to do that, we must first get through Robert Mugabe.

Furthermore, I believe that we can avoid many of the mistakes of the past. We don’t have to do exactly the same thing that countries used to do when they invaded each other and toppled governments. Of course we should not enslave, subjugate, or murder the local population—one would hope that would go without saying, but history shows it doesn’t. We also shouldn’t annex the territory and claim it as our own, nor should we set up puppet governments that are only democratic as long as it serves our interests. (And make no mistake, we have done this, all too recently.) The goal must really be to help the people of countries like Zimbabwe and Eritrea establish their own liberal democracy, including the right to make policies we don’t like—or even policies we think are terrible ideas. If we can do so without war, of course we should. But right now what is usually called “pacifism” leaves millions of people to starve while we do nothing.

The argument that we have previously supported (or even continue to support, ahem, Saudi Arabia) many of these tyrants is sort of beside the point. Yes, that is clearly true; and yes, that is clearly terrible. But do you think that if we simply leave the situation alone they’ll go away? We should never have propped up Saddam Hussein or supported the mujihadeen who became the Taliban; and yes, I do think we could have known that at the time. But once they are there, what do you propose to do now? Wait for them to die? Hope they collapse on their own? Give our #thoughtsandprayers to revolutionaries? When asked what you think we should do, “We shouldn’t have done X” is not a valid response.

Imagine there is a mob boss who had kidnapped several families and is holding them in a warehouse. Suppose that at some point the police supported the mob boss in some way; in a deal to undermine a worse rival mafia family, they looked the other way on some things he did, or even gave him money that he used to strengthen his mob. (With actual police, the former is questionable, but actually done all the time; the latter would be definitely illegal. In the international analogy, both are ubiquitous.) Even suppose that the families who were kidnapped were previously from a part of town that the police would regularly shake down for petty crimes and incessant stop-and-frisks. The police definitely have a lot to answer for in all this; their crimes should not be forgotten. But how does it follow in any way that the police should not intervene to rescue the families from the warehouse? Suppose we even know that the warehouse is heavily guarded, and the resulting firefight may kill some of the hostages we are hoping to save. This gives us reason to negotiate, or to find the swiftest, most precise means to deploy the SWAT teams; but does it give us reason to do nothing?

Once again I think Al Capone is the proper analogy; when the FBI captured Al Capone, they didn’t bomb Chicago to the ground, nor did they attempt to enslave the population of Illinois. They thought of themselves as targeting one man and his lieutenants and re-establishing order and civil government to a free people; that is what we must do in Eritrea and Zimbabwe. (In response to all this, no doubt someone will say: “You just want the US to be the world’s police.” Well, no, I want an international coalition; but yes, given our military and economic hegemony, the US will take a very important role. Above all, yes, I want the world to have police. Why don’t you?)

For everything we did wrong in the recent wars in Afghanistan and Iraq, I think we actually did this part right: Afghanistan’s GDP PPP per capita has risen over 70% since 2002, and Iraq’s is now 17% higher than its pre-war peak. It’s a bit early to say whether we have really established stable liberal democracies there, and the Iraq War surely contributed to the rise of Daesh; but when the previous condition was the Taliban and Saddam Hussein it’s hard not to feel that things are at least somewhat improving. In a generation or two maybe we really will say “Iraq” in the same breath as “Korea” as one of the success stories of prosperous democracies set up after US wars. Or maybe it will all fall apart; it’s hard to say at this point.

So, we must find a way to topple the tyrants. Once that is done, we will need to funnel huge amounts of resources—at least one if not two orders of magnitude larger than our current level of foreign aid into building infrastructure, educating people, and establishing sound institutions. Our current “record high” foreign aid is less than 0.3% of world’s GDP. We have a model for this as well: It’s what we did in West Germany and Japan after WW2, as well as what we did in South Korea after the Korean War. It is not a coincidence that Germany soon regained its status as a world power while Japan and Korea were the first of the “Asian Tigers”, East Asian nations that rose up to join us at a First World standard of living.

Will all of this be expensive? Absolutely. By assuming $3,000 per person per year I am already figuring in an expenditure of $21 trillion per year, indefinitely. This would be the most expensive project upon which humanity has ever embarked. But it could also be the most important—an end to poverty, everywhere, forever. And we have that money, we’re simply using it for other things. At purchasing power parity the world spends over $100 trillion per year. Using 20% of the world’s income to eliminate poverty forever doesn’t seem like such a bad deal to me. (It’s not like it would disappear; it would be immediately spent back into the economy anyway. We might even see growth as a result.)

When dealing with events on this scale, it’s easy to get huge numbers that sound absurd. But even if we assumed that only the US, Europe, and China supported this program, it would only take 37% of our combined income—roughly what we currently spend on housing.

Whenever people complain, “We spend billions of dollars a year on aid, and we haven’t solved world hunger!” the proper answer is, “That’s right; we should be spending trillions.”

The possibilities of a global basic income

2016-01-132017-10-08 PNRJ development economics, inequality, public policy, Uncategorized basic income, Gini coefficient, globalization, hunger, income, inequality, insecure affluence, politics, poverty, Switzerland, taxation, trade, United Nations, World Bank

JDN 2457401

This post is sort of a Patreon Readers’ Choice; it had a tied score with the previous post. If ties keep happening, I may need to devise some new scheme, lest I end up writing so many Readers’ Choice posts I don’t have time for my own topics (I suppose there are worse fates).

The idea of a global basic income is one I have alluded to many times, but never directly focused on.

As I wrote this I realized it’s actually two posts. I have good news and bad news.
First, the good news.

A national basic income is a remarkably simple, easy policy to make: When the tax code comes around for revision that year, you get Congress to vote in a very large refundable credit, disbursed monthly, that goes to everyone—that is a basic income. To avoid ballooning the budget deficit, you would also want to eliminate a bunch of other deductions and credits, and might want to raise the tax rates as well—but these are all things that we have done before many times. Different administrations almost always add some deductions and remove others, raise some rates and lower others. By this simple intervention, we could end poverty in America immediately and forever. The most difficult part of this whole process is convincing a majority of both houses of Congress to support it. (And even that may not be as difficult as it seems, for a basic income is one of the few economic policies that appeals to both Democrats, Libertarians, and even some Republicans.)

Similar routine policy changes could be applied in other First World countries. A basic income could be established by a vote of Parliament in the UK, a vote of the Senate and National Assembly in France, a vote of the Riksdag in Sweden, et cetera; indeed, Switzerland is already planning a referendum on the subject this year. The benefits of a national basic income policy are huge, the costs are manageable, the implementation is trivial. Indeed, the hardest thing to understand about all of this is why we haven’t done it already.

But the benefits of a national basic income are of course limited to the nation(s) in which it is applied. If Switzerland votes in its proposal to provide $30,000 per person per year (that’s at purchasing power parity, but it’s almost irrelevant whether I use nominal or PPP figures, because Swiss prices are so close to US prices), that will help a lot of people in Switzerland—but it won’t do much for people in Germany or Italy, let alone people in Ghana or Nicaragua. It could do a little bit for other countries, if the increased income for the poor and lower-middle class results in increased imports to Switzerland. But Switzerland especially is a very small player in global trade. A US basic income is more likely to have global effects, because the US by itself accounts for 9% of the world’s exports and 13% of the world’s imports. Some nations, particularly in Latin America, depend almost entirely upon the US to buy their exports.

But even so, national basic incomes in the entire First World would not solve the problem of global poverty. To do that, we would need a global basic income, one that applies to every human being on Earth.

The first question to ask is whether this is feasible at all. Do we even have enough economic output in the world to do this? If we tried would we simply trigger a global economic collapse?

Well,if you divide all the world’s income, adjusted for purchasing power, evenly across all the world’s population, the result is about $15,000 per person per year. This is about the standard of living of the average (by which I mean median) person in Lebanon, Brazil, or Botswana. It’s a little better than the standard of living in China, South Africa, or Peru. This is about half of what the middle class of the First World are accustomed to, but it is clearly enough to not only survive, but actually make some kind of decent living. I think most people would be reasonably happy with this amount of income, if it were stable and secure—and by construction, the majority of the world’s population would be better off if all incomes were equalized in this way.

Of course, we can’t actually do that. All the means we have for redistributing income to that degree would require sacrificing economic efficiency in various ways. It is as if we were carrying water in buckets with holes in the bottom; the amount we give at the end is a lot less than the amount we took at the start.

Indeed, the efficiency costs of redistribution rise quite dramatically as the amount redistributed increases.

I have yet to see a convincing argument for why we could not simply tax the top 1% at a 90% marginal rate and use all of that income for public goods without any significant loss in economic efficiency—this is after all more or less what we did here in the United States in the 1960s, when we had a top marginal rate over 90% and yet per capita GDP growth was considerably higher than it is today. A great many economists seem quite convinced that taxing top incomes in this way would create some grave disincentive against innovation and productivity, yet any time anything like this has been tried such disincentives have conspicuously failed to emerge. (Why, it’s almost as if the rich aren’t that much smarter and more hard-working than we are!)

I am quite sure, on the other hand, that if we literally set up the tax system so that all income gets collected by the government and then doled out to everyone evenly, this would be economically disastrous. Under that system, your income is basically independent of the work you do. You could work your entire life to create a brilliant invention that adds $10 billion to the world economy, and your income would rise by… 0.01%, the proportion that your invention added to the world economy. Or you could not do that, indeed do nothing at all, be a complete drain upon society, and your income would be about $1.50 less each year. It’s not hard to understand why a lot of people might work considerably less hard in such circumstances; if you are paid exactly the same whether you are an entrepreneur, a software engineer, a neurosurgeon, a teacher, a garbage collector, a janitor, a waiter, or even simply a couch potato, it’s hard to justify spending a lot of time and effort acquiring advanced skills and doing hard work. I’m sure there are some people, particularly in creative professions such as art, music, and writing—and indeed, science—who would continue to work, but even so the garbage would not get picked up, the hamburgers would never get served, and the power lines would never get fixed. The result would be that trying to give everyone the same income would dramatically reduce the real income available to distribute, so that we all ended up with say $5,000 per year or even $1,000 per year instead of $15,000.

Indeed, absolute equality is worse than the system of income distribution under Soviet Communism, which still provided at least some incentives to work—albeit often not to work in the most productive or efficient way.

So let’s suppose that we only have the income of the top 1% to work with. It need not be literally that we take income only from the top 1%; we could spread the tax burden wider than that, and there may even be good reasons to do so. But I think this gives us a good back-of-the-envelope estimate of how much money we would realistically have to work with in funding a global basic income. It’s actually surprisingly hard to find good figures on the global income share of the top 1%; there’s one figure going around which is not simply wrong it’s ridiculous, claiming that the income threshold for the top 1% worldwide is only $34,000. Why is it ridiculous? Because the United States comprises 4.5% of the world’s population, and half of Americans make more money than that. This means that we already have at least 2% of the world’s population making at least that much, in the United States alone. Add in people from Europe, Japan, etc. and you easily find that this must be the income of about the top 5%, maybe even only the top 10%, worldwide. Exactly where it lies depends on the precise income distributions of various countries.

But here’s what I do know; the global Gini coefficient is about 0.40, and the US Gini coefficient is about 0.45; thus, roughly speaking, income inequality on a global scale recapitulates income inequality in the US. The top 1% in the US receive about 20% of the income. So let’s say that the top 1% worldwide probably also receive somewhere around 20% of the income. We were only using it to estimate the funds available for a basic income anyway.

This would mean that our basic income could be about $3,000 per person per year at purchasing power parity. That probably doesn’t sound like a lot, and I suppose it isn’t; but the UN poverty threshold is $2 per person per day, which is $730 per person per day. Thus, our basic income is over four times what it would take to eliminate global poverty by the UN threshold.

Now in fact I think that this threshold is probably too low; but is it four times too low? We are accustomed to such a high standard of living in the First World that it’s easy to forget that people manage to survive on far, far less than we have. I think in fact our problem here is not so much poverty per se as it is inequality and financial insecurity. We live in a state of “insecure affluence”; we have a great deal (think for a moment about your shelter, transportation, computer, television, running water, reliable electricity, abundant food—and if you are reading this you probably have all these things), but we constantly fear that we may lose it at any moment, and not without reason. (My family actually lost the house I grew up in as a result of predatory banking and the financial crisis.) We are taught all our lives that the only way to protect this abundance is by means of a hyper-competitive, winner-takes-allcutthroat capitalist economy that never lets us ever become comfortable in appreciating that abundance, for it could be taken from us at any time.

I think the apotheosis of what it is to live in insecure affluence is renting an apartment in LA or New York—you must have a great deal going for you to be able to live in the city at all, but you are a renter, an interloper; the apartment, like so much of your existence, is never fully secure, never fully yours. Perhaps the icing on the cake is if you’re doing it for grad school (as I was a year ago), this bizarre system in which we live near poverty for several years not in spite but because of the fact that we are so hard-working, intelligent and educated. (And it never ceases to baffle me that economists who lived through that can still believe in the Life-Cycle Spending Hypothesis.)

Being below the poverty line in a First World country is a kind of poverty, but it’s a very different kind than being below the poverty line in a Third World country. (I think we need a new term to distinguish it, and maybe “insecure affluence” or “economic insecurity” is the right one.) A national basic income could be set considerably higher than the global basic income (since we’re giving it to far fewer people), so we might actually be able to set $15,000 nationally—but to do that worldwide would use up literally all the money in the world.

Raising the minimum income worldwide to $3,000 per person per year would transform the lives of billions of people. It would, in a very real sense, end poverty, worldwide, immediately and forever.

And that’s the good news. Stay tuned for the bad news.

What would an interplanetary economy look like?

2016-01-092016-01-02 PNRJ futurism, public policy, Uncategorized asteroid, Blade Runner, Earth, France, Game of Thrones, Idiot Free Zone, inequality, metal, mining, monopoly, outer space, Patreon, planet, space travel, The Expanse

JDN 2457397

Today’s post is the second Reader’s Choice topic, chosen by a vote of my Patreons.

Remember, you too can vote on future topics if you pledge at least $10 per month.

Actually, there was a tie between two topics; since I was in an SF mood today, I decided to do this one as the official Reader’s Choice post. The second, “The challenges and possibilities of a global basic income”, I’ll do as a later post. (If I don’t get around to that before the next vote, you can of course always vote for it again.)

Will we ever colonize outer space? Many people thought we’d be there by now.

In Blade Runner, released in 1982, Roy was built and deployed to the outer colonies in 2015, which you may remember as the year that just ended.

Predictions of the future are often wrong, but predictions from the 2 0^th century of the 21^st century seem to be consistently overoptimistic about technology. In a past Idiot Free Zone post, I hypothesize that this is due to the confusion between exponential and logistic growth.

Paul Krugman is also a big fan of SF (it is actually about as likely that I’d run into Krugman at Worldcon as at an economics conference), and he wrote a paper on the possibility of interstellar trade way back in 1978. I think he’s kind of satirizing economic theorists actually; he uses sophisticated mathematics to address a problem that doesn’t exist in the real world—just like they do.

I think we will eventually at least reach the point of interplanetary colonization, if not actually interstellar. To begin, let me emphasize that vital distinction. Mars is currently about 60 million kilometers away at its closest approach. The core of the Alpha Centauri system is 4.24 light-years away, which is about 40 trillion kilometers. The distance from Ann Arbor to Toledo is about 84 kilometers. Thus, the difficulty of going to Alpha Centauri is about as much higher than that of going to Mars as the difficulty of going to Mars is compared to going from Ann Arbor to Toledo—each a factor of 700,000 times the distance.

With current technology, we can send robots to Mars (how cool is that? We did get some of the future we were promised). A typical trip takes about half a year. It costs us about $2.5 billion to do that, though India somehow managed to at least make Mars orbit for $75 million. Even if we use the $2.5 billion figure, that still means our current economic output the US and Europe alone could support hundreds of missions per year if we were willing to pay for it. (Devote the entire US military budget to NASA and we could land a new robot on Mars every day.) Interplanetary travel is most definitely feasible.

Interstellar travel on the other hand, is still far out of reach. In principle we are limited by the speed of light; in fact, it’s a good deal worse than that. The fastest we have ever gotten a spacecraft leaving the Solar System is about 60,000 km/h; at that speed it would take almost one billion hours to get to Alpha Centauri, which is over 100,000 years. We will need substantial breakthroughs in spacecraft propulsion before we can even consider sending anything to even the nearest stars. (I wouldn’t give up hope completely, however; in 1901 someone could just as well have criticized H.G. Wells’ The First Men in the Moon on the grounds that no one will ever invent a propulsion system powerful enough to reach the moon.)

By the time we manage interstellar travel, our technology will be so much more advanced it’s hard to even imagine what things will be like. But interplanetary travel we could probably do right now.

So let’s suppose we do in fact establish colonies on other planets—most likely Mars and Mercury, as well as several moons of Jupiter and Saturn. What would our economy look like once we did?

For a decidedly Game of Thrones take on this situation, see The Expanse. Their scientific accuracy is quite good (although they still have sound in space!); so far, their economic accuracy seems pretty good as well, but so far I haven’t seen enough yet to be sure.
One thing I think The Expanse does get right is that asteroid mining is a vital part of the interplanetary trade network. The thing that’s currently keeping us from colonizing other planets is a lack of economic incentives to bear the enormous cost of space travel. Asteroid mining is one thing that might actually provide those incentives, if we can leap just a few more technological hurdles in terms of mining robots and spacecraft propulsion.

Many asteroids contain metals such as silver, gold and platinum at concentrations 20 times as great as anything found on the surface of the Earth. The amount of iron and nickel they contain is even larger; we could supply the entire iron production of the Earth (3.2 billion tonnes) with a single asteroid, 16 Psyche, for the next million years. That one asteroid over 2e19 kg of nearly pure iron-nickel, which is 200 quadrillion tonnes. Many asteroids also contain large concentrations of other useful and rare metals, such as lithium and neodymium.

It is unlikely we would actually try to colonize asteroids (they do in The Expanse, but I’m not sure I buy it). None are large enough to support an atmosphere (kind of by definition), so we’d have to build space stations large enough for permanent habitation. With such ludicrous amounts of iron all around us, that might be possible; but would it be cost-effective? I think it’s more likely that we would have temporary habitats, able to support people for several months or maybe a few years, and people would basically do “tours of duty” working in the asteroids, and then return home. This is similar to how we use space stations right now; you can live there for a long time—the standing record is over a year—but nobody lives their whole life there. It might be a sort of “seasonal” work, where the seasons are decided by large-scale orbital mechanics rather than local planetary axial tilt. (We might have to start doing “seasonal adjustments” to statistics based on this!) Provided that the workers are paid a substantial portion of the spoils—by no means a certainty, as we all know from sweatshops around the world—this work could easily be lucrative enough that you become a millionaire after a tour or two and then retire.

But they might well return home to Mars, since the orbital transfer from the asteroid belt to Mars is considerably easier (it has what we call a lower “delta-v”) than the same transfer all the way back to Earth, and the launch and landing are even easier still. Mars does support an atmosphere—currently very thin and not breathable, but that could change with terraforming. It is also large enough to spread out with room for many homes, greenhouses, power plants, etc., and has enough gravity to at least keep human bodies as a basic level of functioning without too much additional support. (Mars’ gravity is about 40% that of Earth’s.)

Of course, most of the products we make are going to be used on Earth—most of everything is going to be used on Earth, probably for centuries to come. It’s possible that we’ll end up like the British Empire did where the colonies are more populous than the source, but it will take a long time for that to happen. (Moreover, the primary reason—cheap, fertile agricultural land—will not apply unless we happen upon a habitable planet or get very good at terraforming.) This means we will need to ship something from Mars to Earth. But since the delta-v is exceptionally high, we’ll want to ship as little as possible. I think this means that we will do most of the refinement and even manufacturing on Mars, and then ship prefabricated components to Earth. Any process that removes mass will be done on Mars, to minimize the amount of mass that needs to make the trip to Earth.

And what will Earth provide in return? As we import this huge quantity of metal (or metal components), what will we export in return?
Well, one possibility is that we won’t—at first, we (by which I mean “our corporations”) will simply retain ownership of the entire supply chain and do all the accounting as though production were being done entirely on Earth. We won’t think of it as “trade”, just as corporations engaging in a series of prospecting and mining ventures. At least at first.

Yet this will become increasingly unwieldy, just as it became unwieldy for the British Empire to retain control of all its colonies and collect their taxes for the Crown. Communication between Mars, Earth, and the asteroid belt will be relatively fast—a few hours delay at worst—but travel will be very slow and very expensive. Local institutions will form and assert themselves, and may eventually topple the corporate managers, expropriate their assets, and create new governments. The corporations could see the rebellion coming a year in advance from the transmissions, and still be powerless to stop it because the ships will take too long to arrive.

Once new local governments form, we will start thinking of it as “trade”. So what will we be trading? To some extent people on Mars might simply accept Earth currency (perhaps US Dollars, or Euros, or as I like to imagine some unified currency, perhaps the Atlantic Union Dollar); but only if they can then use that Earth currency to buy things they actually need. What will they actually need?

Food, for one. Some amount of food production will be done on Mars by necessity—you can’t survive if you depend entirely on imported food to survive. But it will be expensive, and most likely nutrient-dense but tasteless and monotonous genetically-engineered vegetable products. People will get tired of eating bricks of processed Aresoy^(TM) for the 17,000^th time and will crave real food; Earth will respond by selling them frozen steaks at $12,000 per kilogram. Probably only luxury foods will be imported, actually; why spend $11,900 for a hamburger when you can spend $12,000 for filet mignon? Nominal income on Mars will be huge—millionaires will be ubiquitous. At purchasing power parity, it may not be so impressive, once you account for the ridiculous cost of food and housing. It’ll be like living in Silicon Valley—on steroids.

Water, perhaps. This one is not as obvious as it may seem. While Earth does have the largest concentration of liquid water (except for a couple of moons of the gas giants), there is plenty of ice in them thar asteroids. It will most likely be cheaper (albeit not cheap) to obtain water by capturing and melting down asteroid ice than to ship it all the way from Earth.

But I think the most important Earth export will beculture. The main products that Martians will want to buy from us will be books, movies, songs, video games, hologram simulations. They will be blueprints, patents, 3D printer schematics. Those who travel to Mars will be bold, adventurous, many of them loners and misfits—but deep down they will still sometimes long for the comforts of the books they read as children, the songs they listened to as teenagers. The beautiful thing about selling culture is that it can be transported almost for free—just add it to the radio transmissions you were already sending. Mars will also produce its own culture, of course, but the much smaller population and constant struggle for survival will mean that most of the cultural flow will be outward from Earth to the colonies rather than the reverse. The Internet won’t work normally between Earth and Mars due to the time delay, but there will be something like it, a local MarsNet that caches material from the Internet on a delay of a few hours and then shares it with the colony. You won’t download webpages in real time, you’ll request them a day in advance. You won’t send instant messages, but sending email will be hardly any different. (Instead of Nigerian princes we’ll start getting scam spam about Martian mining entrepreneurs.) Whoever owns this communication monopoly will become fantastically rich, perhaps even more so than the mining companies themselves—because the mining companies have overhead.

Overall, the increased availability of previously-scarce metals like gold, lithium, and neodymium will make new technologies possible and also widely available, including battery technologies that might finally allow Earth to wean itself off of carbon emissions. (Unfortunately, our current means of spacecraft launch are all very carbon-intensive. We will need to invent nuclear engines that don’t leave fallout so that we can launch with them from the ground.) Like all trade, the mutual imports and exports between Earth and Mars will benefit both societies.

But unless we change course dramatically as a society, interplanetary trade will make one problem even worse, and that is inequality. I am having trouble foreseeing an interplanetary trade system that doesn’t involve making the middlemen who own the shipping and networking companies rich even beyond the wildest dreams of today’s plutocrats. We will witness the birth of humanity’s first trillionaires, individual men (and let’s face it, probably men, unless we figure out gender equality too) who own as much as not just entire countries, but as entire large First World countries. The GDP of France today is $2.8 trillion per year; the CEO of Aresoy or MarsNet could well make more than that on dividends. Of course, that provides him a great incentive to start the project now—but what will it mean for our societies when one person can buy a spaceship as casually as we would buy a cup of coffee?

Saudi Arabia is becoming a problem.

2016-01-062016-01-05 PNRJ current events, public policy Al Qaeda, Bashir al-Assad, Ben Carson, climate change, Daesh, geopolitics, international, Iraq, ISIS, Islam, Jordan, Lindsey Graham, military, military budget, Obama, oil, Saudi Arabia, Syria, Turkey, Twitter, Vonnegut, Wahhabism

JDN 2457394

There has been a lot of talk lately about what’s going on in the Middle East, particularly in Syria, Iran, and Iraq, where Daesh (I like to call them that precisely because they don’t like it), also known as ISIS or ISIL, has been killing people and destroying things–including priceless ancient artifacts.

We in the United States actually have little to fear from Daesh. Pace Ben Carson and Lindsey Graham, Daesh is absolutely not an existential threat to the United States. We have them completely outnumbered and outgunned—indeed, we have the world outgunned, as we ourselves account for 40% of the world’s military spending and a comparable portion of the world’s nuclear missiles, naval tonnage, and air fleet.
The people who need to worry are those living in (or fleeing from) the Middle East.

Some 17,000 civilians were killed by warfare in Iraq in 2014, the plurality killed by Daesh and only a small fraction killed by US or NATO forces. Contrary to the belief of people like Noam Chomsky who think the US military is comprised of bloodthirsty genocidal murderers, we actually go quite far out of our way to minimize civilian deaths, up to and including dropping pamphlets warning of bombing raids before we carry them out (I love the “admits” in that headline. You keep using that word…). Then there’s Syria, where there have been over 200,000 deaths, though actually more attributable to Bashir al-Assad than to Daesh.

Daesh, on the other hand, has no qualms about killing anyone they consider not a “true Muslim”, which basically means anyone who doesn’t support them—it certainly doesn’t exclude all Muslims. Daesh is so brutal and extreme that Al Qaeda has condemned their tactics. Yes, that Al Qaeda, the one that crashed airplanes into the World Trade Center in 2001. If you really want to know the sorts of things Daesh has been doing (and have the stomach for it), there are plenty of photos and video footage, many of them openly promoted by Daesh itself, including on their Twitter feed which also shows lots of (I am not kidding) kitten photos called “Mewjahideen”.

But today I’m not actually going to focus on Daesh itself. I’m going to focus on a country that is ostensibly our ally in the fight against them—yet the way they’ve been behaving is a lot more like being an ally of Daesh. As I gave away in the title, I mean of course Saudi Arabia.

Between the time that I drafted this post as a Blog From the Future on Patreon and the time that you are now reading this, Saudi Arabia did another terrible thing, namely executing an important Shi’ite cleric and triggering the possibility of war between Saudi Arabia and Iran. (I think it helps support the point I’m about to make shortly that the focus of this article is on the effect on oil prices.)

First, remember what Saudi Arabia is—namely, an absolute theocratic monarchy founded upon the same Wahhabi Islamist ideology that drives Daesh. They teach Wahhabi Islam as their state religion in schools. This by itself should make us wonder whether they are really our allies—they after all agree a lot more with our enemies than they do with us. And indeed, while they speak of joining the “war on terror”, they are actually the leading source of funds for global Islamist terrorism. In theory, with their large, powerful military and a majority-Muslim population (which would help avoid the sense that this is some kind of Christian/atheist versus Muslim neo-Crusade, which it absolutely must not be), Saudi Arabia could be a valuable ally in this war—but they don’t particularly want to be.

Saudi Arabia is now paying to support refugees, but they aren’t actually accepting any refugees themselves. It would make sense for the US to do this, because we are very far away and it would be very difficult to transport refugees here. It does not make sense for Saudi Arabia to do this, except in order to look like they’re doing something while actually doing as little as possible. (Also, I’ve read conflicting reports as to whether they’ve pledged $10 million to Jordan or $10 billion—which is kind of like saying, “The car was either $1,000 or $1,000,000, I’m not sure.” The most credible estimate I’ve seen is $300 million, $10 million to Jordan. In my favorite unit of wealth, they’ve donated a romney. It’s a whopping… 0.04% of their country’s income in a year.) They should be doing what Turkey is doing, and taking on hundreds of thousands of refugees themselves.

As is fairly common among tyrants (look no further than North Korea), Saudi Arabia’s leaders often present some rather… eccentric beliefs, such as the claim that Daesh is actually secretly a wing of the Israeli military. Maybe this is Freudian projection: Knowing that they are secretly supporting Daesh and its ideology, they decide to accuse whomever they most dislike—i.e., Israel—of doing that very thing. And they certainly do hate Israel; Saudi Arabia’s state-run media frequently compare Israel to Nazis because apparently irony is completely lost on them.

One of the things Daesh does to display its brutality is behead nonbelievers; yet Saudi Arabia beheads far more people, including for thoughtcrimes such as apostasy and political dissent, as well as “crimes” such as sorcery and witchcraft. The human rights violation here is not so much the number of executions as the intentional spectacle of brutality, as well as the “crimes” cited. In the summer of 2014, they beheaded about one person per day—in a country of 27 million people, it wouldn’t be that odd to execute 30 people in a month, if they were in fact murderers. That’s about the size and execution rate of Texas. The world’s real execution leader is China, where over 2,000—and previously as many as 10,000—people per year are executed. China does have a huge population of almost 1.4 billion people—but even so, they execute more people than the rest of the world combined.

I mean, one can certainly argue that the death penalty in general is morally wrong (it is certainly economically inefficient); but I never could quite manage to be outraged by the use of lethal injection on serial killers (which is mainly what we’re talking about in Texas). But Saudi Arabia doesn’t use lethal injection, they use beheading. And they don’t just execute serial killers—they execute atheists and feminists.

Saudi Arabia’s human rights record is one of the worst in the world. (And that’s from the US Department of State, so don’t tell me our government doesn’t know this.) Freedom House gives them the lowest possible rating, and lists several reasons why their government should be considered a global pariah. Even the Heritage Foundation (which overweights economic freedom over civil liberties, in my opinion—would you rather pay high taxes, or be executed for thoughtcrime?) gave Saudi Arabia a moderate freedom rating at best.

So, the question really becomes: Why do we call these people our allies?

Why did President Obama cut short a visit to India—which is, you know, a democracy—to see the new king—as in absolute monarch—of Saudi Arabia? (Though good on Michelle Obama for refusing to wear the hijab. You can see the contempt in the faces of the Saudi dignitaries, but she just grins smugly. You can almost hear, “What are you gonna do about it?”) Why was “cementing ties with Saudi Arabia” even something we wanted to do?

The answer of course is painfully obvious, especially to economists: Oil.

Saudi Arabia is by far the world’s largest oil exporter, accounting for a sixth of all crude oil exports.

The United States is by far the world’s largest oil importer, accounting for an eighth of all crude oil imports.

As Vonnegut said, we are rolling drunk on petroleum. We are addicts, and they’re our dealer. And if there’s one thing addicts don’t do, it’s rat out their own dealers.

Fortunately, US oil imports are on the decline, and why? Thanks, Obama. Under policies that really were largely spearheaded by the Obama administration such as expanded fracking and subsidized solar power investment, a combination of increased domestic oil production and reduced domestic oil consumptionhas been reducing the need to continue importing oil from other countries.

Of course, the “expanded fracking” and “increased oil production” part gives me very mixed feelings, given its obvious connection to climate change. But I will say this: If we’re going to be burning all that oil anyway, far better that we extract it ourselves than that we buy it from butchers and tyrants. And indeed US carbon emissions have also been steady or declining under Obama.

The sudden crash in oil prices last year has been damaging to both Saudi Arabia and other major oil exporters such as Russia and Venezuela, which are nowhere near as bad but also hardly wholesome liberal democracies. (It also hurt Norway, who didn’t deserve it; but they’re wisely divesting from fossil fuels, starting with coal.) Now is the perfect time to implement a carbon tax; consumers will hardly feel it—it’ll just feel like prices are going back to normal—but oil exporters will have even more pressure to switch industries, and above all global carbon emissions will decrease.

Ideally we would also combine this with what I call a “human rights tariff”, a tariff applied to the goods a country exports based upon that country’s human rights record. We could keep it very simple: Another percentage point added to the tariff every time you execute someone for political, religious, or ideological reasons. A percentage point off every time you go at least a month without executing anyone for any reason except murder.

Obviously that wouldn’t deal with the fact that women can’t drive, or the fact that hijab is mandatory, or the fact that homosexuality is illegal—but hey, it would at least be something. Right now, every barrel of oil we buy from them is basically saying that we care more about cheap gasoline than we do about human rights.

The power of exponential growth

2016-01-022016-01-02 PNRJ cognitive science, core principles, statistics artificial intelligence, brain, cognitive science, evolution, exponential, growth, Legacy of the Void, mathematics, Moore's Law, Singularitarian, Singularity

JDN 2457390

There’s a famous riddle: If the water in a lakebed doubles in volume every day, and the lakebed started filling on January 1, and is half full on June 17, when will it be full?

The answer is of course June 18—if it doubles every day, it will go from half full to full in a single day.

But most people assume that half the work takes about half the time, so they usually give answers in December. Others try to correct, but don’t go far enough, and say something like October.

Human brains are programmed to understand linear processes. We expect things to come in direct proportion: If you work twice as hard, you expect to get twice as much done. If you study twice as long, you expect to learn twice as much. If you pay twice as much, you expect to get twice as much stuff.

We tend to apply this same intuition to situations where it does not belong, processes that are not actually linear but exponential. As a result, when we extrapolate the slow growth early in the process, we wildly underestimate the total growth in the long run.

For example, suppose we have two countries. Arcadia has a GDP of $100 billion per year, and they grow at 4% per year. Berkland has a GDP of $200 billion, and they grow at 2% per year. Assuming that they maintain these growth rates, how long will it take for Arcadia’s GDP to exceed Berkland’s?

If we do this intuitively, we might sort of guess that at 4% you’d add 100% in 25 years, and at 2% you’d add 100% in 50 years; so it should be something like 75 years, because then Arcadia will have added $300 million while Berkland added $200 million. You might even just fudge the numbers in your head and say “about a century”.

In fact, it is only 35 years. You could solve this exactly by setting (100)(1.04^x) = (200)(1.02^x); but I have an intuitive method that I think may help you to estimate exponential processes in the future.

Divide the percentage into 69. (For some numbers it’s easier to use 70 or 72; remember, these are just to be approximate. The exact figure is 100*ln(2) = 69.3147… and then it wouldn’t be the percentage p but 100*ln(1+p/100); try plotting those and you’ll see why using p works.) This is the time it will take to double.

So at 4%, Arcadia will double in about 17.5 years, quadrupling in 35 years. At 2%, Berkland will double in about 35 years. Thus, in 35 years, Arcadia will quadruple and Berkland will double, so their GDPs will be equal.

Economics is full of exponential processes: Compound interest is exponential, and over moderately long periods GDP and population both tend to grow exponentially. (In fact they grow logistically, which is similar to exponential until it gets very large and begins to slow down. If you smooth out our recessions, you can get a sense that since the 1940s, US GDP growth has slowed down from about 4% per year to about 2% per year.) It is therefore quite important to understand how exponential growth works.

Let’s try another one. If one account has $1 million, growing at 5% per year, and another has $1,000, growing at 10% per year, how long will it take for the second account to have more money in it?

69/5 is about 14, so the first account doubles in 14 years. 69/10 is about 7, so the second account doubles in 7 years. A factor of 1000 is about 10 doublings (2^10 = 1024), so the second account needs to have doubled 10 times more than the first account. Since it doubles twice as often, this means that it must have doubled 20 times while the other doubled 10 times. Therefore, it will take about 140 years.

In fact, it takes 141—so our quick approximation is actually remarkably good.

This example is instructive in another way; 141 years is a pretty long time, isn’t it? You can’t just assume that exponential growth is “as fast as you want it to be”. Once people realize that exponential growth is very fast, they often overcorrect, assuming that exponential growth automatically means growth that is absurdly—or arbitrarily—fast. (XKCD made a similar point in this comic.)

I think the worst examples of this mistake are among Singularitarians. They—correctly—note that computing power has become exponentially greater and cheaper over time, doubling about every 18 months, which has been dubbed Moore’s Law. They assume that this will continue into the indefinite future (this is already problematic; the growth rate seems to be already slowing down). And therefore they conclude there will be a sudden moment, a technological singularity, at which computers will suddenly outstrip humans in every way and bring about a new world order of artificial intelligence basically overnight. They call it a “hard takeoff”; here’s a direct quote:

But many thinkers in this field including Nick Bostrom and Eliezer Yudkowsky worry that AI won’t work like this at all. Instead there could be a “hard takeoff”, a huge subjective discontinuity in the function mapping AI research progress to intelligence as measured in ability-to-get-things-done. If on January 1 you have a toy AI as smart as a cow, one which can identify certain objects in pictures and navigate a complex environment, and on February 1 it’s proved the Riemann hypothesis and started building a ring around the sun, that was a hard takeoff.

Wait… what? For someone like me who understands exponential growth, the last part is a baffling non sequitur. If computers start half as smart as us and double every 18 months, in 18 months, they will be as smart as us. In 36 months, they will be twice as smart as us. Twice as smart as us literally means that two people working together perfectly can match them—certainly a few dozen working realistically can. We’re not in danger of total AI domination from that. With millions of people working against the AI, we should be able to keep up with it for at least another 30 years. So are you assuming that this trend is continuing or not? (Oh, and by the way, we’ve had AIs that can identify objects and navigate complex environments for a couple years now, and so far, no ringworld around the Sun.)

That same essay make a biological argument, which misunderstands human evolution in a way that is surprisingly subtle yet ultimately fundamental:

If you were to come up with a sort of objective zoological IQ based on amount of evolutionary work required to reach a certain level, complexity of brain structures, etc, you might put nematodes at 1, cows at 90, chimps at 99, homo erectus at 99.9, and modern humans at 100. The difference between 99.9 and 100 is the difference between “frequently eaten by lions” and “has to pass anti-poaching laws to prevent all lions from being wiped out”.

No, actually, what makes humans what we are is not that we are 1% smarter than chimpanzees.

First of all, we’re actually more like 200% smarter than chimpanzees, measured by encephalization quotient; they clock in at 2.49 while we hit 7.44. If you simply measure by raw volume, they have about 400 mL to our 1300 mL, so again roughly 3 times as big. But that’s relatively unimportant; with Moore’s Law, tripling only takes about 2.5 years.

But even having triple the brain power is not what makes humans different. It was a necessary condition, but not a sufficient one. Indeed, it was so insufficient that for about 200,000 years we had brains just as powerful as we do now and yet we did basically nothing in technological or economic terms—total, complete stagnation on a global scale. This is a conservative estimate of when we had brains of the same size and structure as we do today.

What makes humans what we are? Cooperation. We are what we are because we are together.
The capacity of human intelligence today is not 1300 mL of brain. It’s more like 1.3 gigaliters of brain, where a gigaliter, a billion liters, is about the volume of the Empire State Building. We have the intellectual capacity we do not because we are individually geniuses, but because we have built institutions of research and education that combine, synthesize, and share the knowledge of billions of people who came before us. Isaac Newton didn’t understand the world as well as the average third-grader in the 21^st century does today. Does the third-grader have more brain? Of course not. But they absolutely do have more knowledge.

(I recently finished my first playthrough of Legacy of the Void, in which a central point concerns whether the Protoss should detach themselves from the Khala, a psychic union which combines all their knowledge and experience into one. I won’t spoil the ending, but let me say this: I can understand their hesitation, for it is basically our equivalent of the Khala—first literacy, and now the Internet—that has made us what we are. It would no doubt be the Khala that made them what they are as well.)

Is AI still dangerous? Absolutely. There are all sorts of damaging effects AI could have, culturally, economically, militarily—and some of them are already beginning to happen. I even agree with the basic conclusion of that essay that OpenAI is a bad idea because the cost of making AI available to people who will abuse it or create one that is dangerous is higher than the benefit of making AI available to everyone. But exponential growth not only isn’t the same thing as instantaneous takeoff, it isn’t even compatible with it.

The next time you encounter an example of exponential growth, try this. Don’t just fudge it in your head, don’t overcorrect and assume everything will be fast—just divide the percentage into 69 to see how long it will take to double.

	Of men and bears \| H… on 9/11, 14 years on—and where ar…
	Of men and bears \| H… on The War on Terror has been a t…
	Everyone includes yo… on The paperclippers are already…
	What does “can… on Against “doing your…
	Bundling the stakes… on Against Self-Delusion

Human Economics

Cognitive development economics: Understanding the mind in order to feed the world

Month: January 2016