development economics

What is the cost of all this?

PNRJ core principles, current events, development economics, ethics, inequality, politics , , , , , , , , ,

Nov 23 JDN 2461003

After the Democrats swept the recent election and now the Epstein files are being released—and absolutely do seem to have information that is damning about Trump—it really seems like Trump’s popularity has permanently collapsed. His approval rating stands at 42%, which is about 42% too high, but at least comfortably well below a majority.

It now begins to feel like we have hope, not only of removing him, but also of changing how American politics in general operates so that someone like him ever gets power again. (The latter, of course, is a much taller order.)

But at the risk of undermining this moment of hope, I’d like to take stock of some of the damage that Trump and his ilk have already done.

In particular, the cuts to US foreign aid are an absolute humanitarian disaster.

These didn’t get so much attention, because there has been so much else going on; and—unfortunately—foreign aid actually isn’t that popular among American voters, despite being a small proportion of the budget and by far the most cost-effective beneficial thing that our government does.

In fact, I think USAID would be cost-effective on a purely national security basis: it’s hard to motivate people to attack a country that saves the lives of their children. Indeed, I suppose this is the kernel of truth to the leftists who say that US foreign aid is just a “tool of empire” (or even “a front for the CIA”); yes, indeed, helping the needy does in fact advance American interests and promote US national security.

Over the last 25 years, USAID has saved over 90 million lives. That is more than a fourth of the population of the United States. And it has done this for the cost of less than 1% of the US federal budget.

But under Trump’s authority and Elon Musk’s direction, US foreign aid was cut massively over the last couple of years, and the consequences are horrific. Research on the subject suggests that as many as 700,000 children will die each year as long as these cuts persist.


Even if that number is overestimated by a factor of 2, that would still be millions of children over the next few years. And it could just as well be underestimated.

If we don’t fix this fast, millions of children will die. Thousands already have.

What’s more, fixing this isn’t just a matter of bringing the funding back. Obviously that’s necessary, but it won’t be sufficient. The sudden cuts have severely damaged international trust in US foreign aid, and many of the agencies that our aid was supporting will either collapse or need to seek funding elsewhere—quite likely from China. Relationships with governments and NGOs that were built over decade have been strained or even destroyed, and will need to be rebuilt.

This is what happens when you elect monsters to positions of power.

And even after we remove them, much of the damage will be difficult or even impossible to repair. Certainly we can never bring back the children who have already needlessly died because of this.

Taylor Swift and the means of production

PNRJ development economics, futurism, inequality, market failure, politics , , , , , , , , , , , ,

Oct 5 JDN 2460954

This post is one I’ve been meaning to write for awhile, but current events keep taking precedence.

In 2023, Taylor Swift did something very interesting from an economic perspective, which turns out to have profound implications for our economic future.

She re-recorded an entire album and released it through a different record company.

The album was called 1989 (Taylor’s Version), and she created it because for the last four years she had been fighting with Big Machine Records over the rights to her previous work, including the original album 1989.

A Marxist might well say she seized the means of production! (How rich does she have to get before she becomes bourgeoisie, I wonder? Is she already there, even though she’s one of a handful of billionaires who can truly say they were self-made?)

But really she did something even more interesting than that. It was more like she said:

“Seize the means of production? I am the means of production.”

Singing and songwriting are what is known as a human-capital-intensive industry. That is, the most important factor of production is not land, or natural resources, or physical capital (yes, you need musical instruments, amplifiers, recording equipment and the like—but these are a small fraction of what it costs to get Talor Swift for a concert), or even labor in the ordinary sense. It’s one where so-called (honestly poorly named) “human capital” is the most important factor of production.

A labor-intensive industry is one where you just need a lot of work to be done, but you can get essentially anyone to do it: Cleaning floors is labor-intensive. A lot of construction work is labor-intensive (though excavators and the like also make it capital-intensive).

No, for a human-capital-intensive industry, what you need is expertise or talent. You don’t need a lot of people doing back-breaking work; you need a few people who are very good at doing the specific thing you need to get done.

Taylor Swift was able to re-record and re-release her songs because the one factor of production that couldn’t be easily substituted was herself. Big Machine Records overplayed their hand; they thought they could control her because they owned the rights to her recordings. But she didn’t need her recordings; she could just sing the songs again.

But now I’m sure you’re wondering: So what?

Well, Taylor Swift’s story is, in large part, the story of us all.

For most of the 18th, 19th, and 20th centuries, human beings in developed countries saw a rapid increase in their standard of living.

Yes, a lot of countries got left behind until quite recently.

Yes, this process seems to have stalled in the 21st century, with “real GDP” continuing to rise but inequality and cost of living rising fast enough that most people don’t feel any richer (and I’ll get to why that may be the case in a moment).

But for millions of people, the gains were real, and substantial. What was it that brought about this change?

The story we are usually told is that it was capital; that as industries transitioned from labor-intensive to capital-intensive, worker productivity greatly increased, and this allowed us to increase our standard of living.

That’s part of the story. But it can’t be the whole thing.

Why not, you ask?

Because very few people actually own the capital.

When capital ownership is so heavily concentrated, any increases in productivity due to capital-intensive production can simply be captured by the rich people who own the capital. Competition was supposed to fix this, compelling them to raise wages to match productivity, but we often haven’t actually had competitive markets; we’ve had oligopolies that consolidate market power in a handful of corporations. We had Standard Oil before, and we have Microsoft now. (Did you know that Microsoft not only owns more than half the consumer operating system industry, but after acquiring Activision Blizzard, is now the largest video game company in the world?) In the presence of an oligopoly, the owners of the capital will reap the gains from capital-intensive productivity.

But standards of living did rise. So what happened?

The answer is that production didn’t just become capital-intensive. It became human-capital-intensive.

More and more jobs required skills that an average person didn’t have. This created incentives for expanding public education, making workers not just more productive, but also more aware of how things work and in a stronger bargaining position.

Today, it’s very clear that the jobs which are most human-capital-intensive—like doctors, lawyers, researchers, and software developers—are the ones with the highest pay and the greatest social esteem. (I’m still not 100% sure why stock traders are so well-paid; it really isn’t that hard to be a stock trader. I could write you an algorithm in 50 lines of Python that would beat the average trader (mostly by buying ETFs). But they pretend to be human-capital-intensive by hiring Harvard grads, and they certainly pay as if they are.)

The most capital-intensive industries—like factory work—are reasonably well-paid, but not that well-paid, and actually seem to be rapidly disappearing as the capital simply replaces the workers. Factory worker productivity is now staggeringly high thanks to all this automation, but the workers themselves have gained only a small fraction of this increase in higher wages; by far the bigger effect has been increased profits for the capital owners and reduced employment in manufacturing.

And of course the real money is all in capital ownership. Elon Musk doesn’t have $400 billion because he’s a great engineer who works very hard. He has $400 billion because he owns a corporation that is extremely highly valued (indeed, clearly overvalued) in the stock market. Maybe being a great engineer or working very hard helped him get there, but it was neither necessary nor sufficient (and I’m sure that his dad’s emerald mine also helped).

Indeed, this is why I’m so worried about artificial intelligence.

Most forms of automation replace labor, in the conventional labor-intensive sense: Because you have factory robots, you need fewer factory workers; because you have mountaintop removal, you need fewer coal miners. It takes fewer people to do the same amount of work. But you still need people to plan and direct the process, and in fact those people need to be skilled experts in order to be effective—so there’s a complementarity between automation and human capital.

But AI doesn’t work like that. AI substitutes for human capital. It doesn’t just replace labor; it replaces expertise.

So far, AI is currently too unreliable to replace any but entry-level workers in human-capital-intensive industries (though there is some evidence it’s already doing that). But it will most likely get more reliable over time, if not via the current LLM paradigm, than through the next one that comes after. At some point, AI will come to replace experienced software developers, and then veteran doctors—and I don’t think we’ll be ready.

The long-term pattern here seems to be transitioning away from human-capital-intensive production to purely capital-intensive production. And if we don’t change the fact that capital ownership is heavily concentrated and so many of our markets are oligopolies—which we absolutely do not seem poised to do anything about; Democrats do next to nothing and Republicans actively and purposefully make it worse—then this transition will be a recipe for even more staggering inequality than before, where the rich will get even more spectacularly mind-bogglingly rich while the rest of us stagnate or even see our real standard of living fall.

The tech bros promise us that AI will bring about a utopian future, but that would only work if capital ownership were equally shared. If they continue to own all the AIs, they may get a utopia—but we sure won’t.

We can’t all be Taylor Swift. (And if AI music catches on, she may not be able to much longer either.)

Against Moral Relativism

PNRJ core principles, development economics, ethics, Logic of Kindness, tribal paradigm , , , , , , , , , , , ,

Moral relativism is surprisingly common, especially among undergraduate students. There are also some university professors who espouse it, typically but not always from sociology, gender studies or anthropology departments (examples include Marshall Sahlins, Stanley Fish, Susan Harding, Richard Rorty, Michael Fischer, and Alison Renteln). There is a fairly long tradition of moral relativism, from Edvard Westermarck in the 1930s to Melville Herskovits, to more recently Francis Snare and David Wong in the 1980s. University of California Press at Berkeley.} In 1947, the American Anthropological Association released a formal statement declaring that moral relativism was the official position of the anthropology community, though this has since been retracted.

All of this is very, very bad, because moral relativism is an incredibly naive moral philosophy and a dangerous one at that. Vitally important efforts to advance universal human rights are conceptually and sometimes even practically undermined by moral relativists. Indeed, look at that date again: 1947, two years after the end of World War II. The world’s civilized cultures had just finished the bloodiest conflict in history, including some ten million people murdered in cold blood for their religion and ethnicity, and the very survival of the human species hung in the balance with the advent of nuclear weapons—and the American Anthropological Association was insisting that morality is meaningless independent of cultural standards? Were they trying to offer an apologia for genocide?

What is relativism trying to say, anyway? Often the arguments get tied up in knots. Consider a particular example, infanticide. Moral relativists will sometimes argue, for example, that infanticide is wrong in the modern United States but permissible in ancient Inuit society. But is this itself an objectively true normative claim? If it is, then we are moral realists. Indeed, the dire circumstances of ancient Inuit society would surely justify certain life-and-death decisions we wouldn’t otherwise accept. (Compare “If we don’t strangle this baby, we may all starve to death” and “If we don’t strangle this baby, we will have to pay for diapers and baby food”.) Circumstances can change what is moral, and this includes the circumstances of our cultural and ecological surroundings. So there could well be an objective normative fact that infanticide is justified by the circumstances of ancient Inuit life. But if there are objective normative facts, this is moral realism. And if there are no objective normative facts, then all moral claims are basically meaningless. Someone could just as well claim that infanticide is good for modern Americans and bad for ancient Inuits, or that larceny is good for liberal-arts students but bad for engineering students.

If instead all we mean is that particular acts are perceived as wrong in some societies but not in others, this is a factual claim, and on certain issues the evidence bears it out. But without some additional normative claim about whose beliefs are right, it is morally meaningless. Indeed, the idea that whatever society believes is right is a particularly foolish form of moral realism, as it would justify any behavior—torture, genocide, slavery, rape—so long as society happens to practice it, and it would never justify any kind of change in any society, because the status quo is by definition right. Indeed, it’s not even clear that this is logically coherent, because different cultures disagree, and within each culture, individuals disagree. To say that an action is “right for some, wrong for others” doesn’t solve the problem—because either it is objectively normatively right or it isn’t. If it is, then it’s right, and it can’t be wrong; and if it isn’t—if nothing is objectively normatively right—then relativism itself collapses as no more sound than any other belief.

In fact, the most difficult part of defending common-sense moral realism is explaining why it isn’t universally accepted. Why are there so many relativists? Why do so many anthropologists and even some philosophers scoff at the most fundamental beliefs that virtually everyone in the world has?

I should point out that it is indeed relativists, and not realists, who scoff at the most fundamental beliefs of other people. Relativists are fond of taking a stance of indignant superiority in which moral realism is just another form of “ethnocentrism” or “imperialism”. The most common battleground of contention recently is the issue of female circumcision, which is considered completely normal or even good in some African societies but is viewed with disgust and horror by most Western people. Other common choices include abortion, clothing, especially Islamic burqa and hijab, male circumcision, and marriage; given the incredible diversity in human food, clothing, language, religion, behavior, and technology, there are surprisingly few moral issues on which different cultures disagree—but relativists like to milk them for all they’re worth!

But I dare you, anthropologists: Take a poll. Ask people which is more important to them, their belief that, say, female circumcision is immoral, or their belief that moral right and wrong are objective truths? Virtually anyone in any culture anywhere in the world would sooner admit they are wrong about some particular moral issue than they would assent to the claim that there is no such thing as a wrong moral belief. I for one would be more willing to abandon just about any belief I hold before I would abandon the belief that there are objective normative truths. I would sooner agree that the Earth is flat and 6,000 years old, that the sky is green, that I am a brain in a vat, that homosexuality is a crime, that women are inferior to men, or that the Holocaust was a good thing—than I would ever agree that there is no such thing as right or wrong. This is of course because once I agreed that there is no objective normative truth, I would be forced to abandon everything else as well—since without objective normativity there is no epistemic normativity, and hence no justice, no truth, no knowledge, no science. If there is nothing objective to say about how we ought to think and act, then we might as well say the Earth is flat and the sky is green.

So yes, when I encounter other cultures with other values and ideas, I am forced to deal with the fact that they and I disagree about many things, important things that people really should agree upon. We disagree about God, about the afterlife, about the nature of the soul; we disagree about many specific ethical norms, like those regarding racial equality, feminism, sexuality and vegetarianism. We may disagree about economics, politics, social justice, even family values. But as long as we are all humans, we probably agree about a lot of other important things, like “murder is wrong”, “stealing is bad”, and “the sky is blue”. And one thing we definitely do not disagree about—the one cornerstone upon which all future communication can rest—is that these things matter, that they really do describe actual features of an actual world that are worth knowing. If it turns out that I am wrong about these things, \I would want to know! I’d much rather find out I’d been living the wrong way than continue to live the same pretending that it doesn’t matter. I don’t think I am alone in this; indeed, I suspect that the reason people get so angry when I tell them that religion is untrue is precisely because they realize how important it is. One thing religious people never say is “Well, God is imaginary to you, perhaps; but to me God is real. Truth is relative.” I’ve heard atheists defend other people’s beliefs in such terms—but no one ever defends their own beliefs that way. No Evangelical Baptist thinks that Christianity is an arbitrary social construction. No Muslim thinks that Islam is just one equally-valid perspective among many. It is you, relativists, who deny people’s fundamental beliefs.

Yet the fact that relativists accuse realists of being chauvinistic hints at the deeper motivations of moral relativism. In a word: Guilt. Moral relativism is an outgrowth of the baggage of moral guilt and self-loathing that Western societies have built up over the centuries. Don’t get me wrong: Western cultures have done terrible things, many terrible things, all too recently. We needn’t go so far back as the Crusades or the ethnocidal “colonization” of the Americas; we need only look to the carpet-bombing of Dresden in 1945 or the defoliation of Vietnam in the 1960s, or even the torture program as recently as 2009. There is much evil that even the greatest nations of the world have to answer for. For all our high ideals, even America, the nation of “life, liberty, and the pursuit of happiness”, the culture of “liberty and justice for all”, has murdered thousands of innocent people—and by “murder” I mean murder, killing not merely by accident in the collateral damage of necessary war, but indeed in acts of intentional and selfish cruelty. Not all war is evil—but many wars are, and America has fought in some of them. No Communist radical could ever burn so much of the flag as the Pentagon itself has burned in acts of brutality.

Yet it is an absurd overreaction to suggest that there is nothing good about Western culture, nothing valuable about secularism, liberal democracy, market economics, or technological development. It is even more absurd to carry the suggestion further, to the idea that civilization was a mistake and we should all go back to our “natural” state as hunter-gatherers. Yet there are anthropologists working today who actually say such things. And then, as if we had not already traversed so far beyond the shores of rationality that we can no longer see the light of home, then relativists take it one step further and assert that any culture is as good as any other.

Think about what this would mean, if it were true. To say that all cultures are equal is to say that science, education, wealth, technology, medicine—all of these are worthless. It is to say that democracy is no better than tyranny, security is no better than civil war, secularism is no better than theocracy. It is to say that racism is as good as equality, sexism is as good as feminism, feudalism is as good as capitalism.

Many relativists seem worried that moral realism can be used by the powerful and privileged to oppress others—the cishet White males who rule the world (and let’s face it, cishet White males do, pretty much, rule the world!) can use the persuasive force of claiming objective moral truth in order to oppress women and minorities. Yet what is wrong with oppressing women and minorities, if there is no such thing as objective moral truth? Only under moral realism is oppression truly wrong.

Why is America so bad at public transit?

PNRJ development economics, inequality, politics, public policy , , , , , , , , , , , , , , , , ,

Sep 8 JDN 2460562

In most of Europe, 20-30% of the population commutes daily by public transit. In the US, only 13% do.

Even countries much poorer than the US have more widespread use of public transit; Kenya, Russia, and Venezuela all have very high rates of public transit use.

Cities around the world are rapidly expanding and improving their subway systems; but we are not here in the US.

Germany, France, Spain, Italy, and Japan are all building huge high-speed rail networks. We have essentially none.

Even Canada has better public transit than we do, and their population is just as spread out as ours.

Why are we so bad at this?

Surprisingly, it isn’t really that we are lacking in rail network. We actually have more kilometers of rail than China or the EU—though shockingly little of it is electrified, and we had nearly twice as many kilometers of rail a century ago. But we use this rail network almost entirely for freight, not passengers.

Is it that we aren’t spending enough government funds? Sort of. But it’s worth noting that we cover a higher proportion of public transit costs with government funds than most other countries. How can this be? It’s because transit systems get more efficient as they get larger, and attract more passengers as they provide better service. So when you provide really bad service, you end up spending more per passenger, and you need more government subsidies to stay afloat.

Cost is definitely part of it: It costs between two and seven times as much to build the same amount of light rail network in the US as it does in most EU countries. But that just raises another question: Why is it so much more expensive here?

This isn’t comparing with China—of course China is cheaper; they have a dictatorship, they abuse their workers, they pay peanuts. None of that is true of France or Germany, democracies where wages are just as high and worker protections are actually a good deal stronger than here. Yet it still costs two to seven times as much to build the same amount of rail in the US as it does in France or Germany.

Another part of the problem seems to be that public transit in the US is viewed as a social welfare program, rather than an infrastructure program: Rather than seeing it as a vital function of government that supports a strong economy, we see it as a last resort for people too poor to buy cars. And then it becomes politicized, because the right wing in the US hates social welfare programs and will do anything to make sure that they are cut down as much as possible.

It wasn’t always this way.

As recently as 1970, most US major cities had strong public transit systems. But now it’s really only the coastal cities that have them; cities throughout the South and Midwest have massively divested from their public transit. This goes along with a pattern of deindustrialization and suburbanization: These cities are stagnating economically and their citizens are moving out to the suburbs, so there’s no money for public transit and there’s more need for roads.

But the decline of US public transit goes back even further than that. Average transit trips per person in the US fell from 115 per year in 1950 to 36 per year in 1970.

This long, slow decline has only gotten worse as a result of the COVID pandemic; with more and more people working remotely, there’s just less need for commuting in general. (Then again, that also means fewer car miles, so it’s probably a good thing from an environmental perspective.)

Once public transit starts failing, it becomes a vicious cycle: They lose revenue, so they cut back on service, so they become more inconvenient, so they lose more revenue. Really successful public transit systems require very heavy investment in order to maintain fast, convenient service across an entire city. Any less than that, and people will just turn to cars instead.

Currently, the public transit systems in most US cities are suffering severe financial problems, largely as a result of the pandemic; they are facing massive shortfalls in their budgets. The federal government often helps with the capital costs of buying vehicles and laying down new lines, but not with the operating costs of actually running the system.

There seems to be some kind of systemic failure in the US in particular; something about our politics, or our economy, or our culture just makes us uniquely bad at building and maintaining public transit.

What should we do about this?

One option would be to do nothing—laissez faire. Maybe cars are just a more efficient mode of transportation, or better for what Americans want, and we should accept that.

But when you look at the externalities involved, it becomes clear that this is not the right approach. While cars produce enormous amounts of pollution and carbon emissions, public transit is much, much cleaner. (Electric cars are better than diesel buses, but still worse than trams and light rail—and besides, the vast majority of cars use gasoline.) Just for clean air and climate change alone, we have strong reasons to want fewer cars and more public transit.

And there are positive externalities of public transit too; it’s been estimated that for every $1 spent on public transit, a city gains $5 in economic activity. We’re leaving a lot of money on the table by failing to invest in something so productive.

We need a fundamental shift in how Americans think about public transit. Not as a last resort for the poor, but as a default option for everyone. Not as a left-wing social welfare program, but as a vital component of our nation’s infrastructure.

Whenever people get stuck in traffic, instead of resenting other drivers (who are in exactly the same boat!), they should resent that the government hasn’t supported more robust public transit systems—and then they should go out and vote for candidates and policies that will change that.

Of course, with everything else that’s wrong with our economy and our political system, I can understand why this might not be a priority right now. But sooner or later we are going to need to fix this, or it’s just going to keep getting worse and worse.

Housing should be cheap

PNRJ core principles, development economics, inequality, macroeconomics, market failure, public policy , , ,

Sep 1 JDN 2460555

We are of two minds about housing in our society. On the one hand, we recognize that shelter is a necessity, and we want it to be affordable for all. On the other hand, we see real estate as an asset, and we want it to appreciate in value and thereby provide a store of wealth. So on the one hand we want it to be cheap, but on the other hand we want it to be expensive. And of course it can’t be both.

This is not a uniquely American phenomenon. As Noah Smith points out, it seems to be how things are done in almost every country in the world. It may be foolish for me to try to turn such a tide. But I’m going to try anyway.

Housing should be cheap.

For some reason, inflation is seen as a bad thing for every other good, necessity and luxury alike; but when it comes to housing in particular—the single biggest expense for almost everyone—suddenly we are conflicted about it, and think that maybe inflation is a good thing actually.

This is because owning a home that appreciates in value provides the illusion of increasing wealth.

Yes, I said illusion. In some particular circumstances it can sometimes increase real wealth, but when housing is getting more expensive everywhere at once (which is basically true), it doesn’t actually increase real wealth—because you still need to have a home. So while you’d get more money if you sold your current home, you’d have to go buy another home that would be just as expensive. That extra wealth is largely imaginary.

In fact, what isn’t an illusion is your increased property tax bill. If you aren’t planning on selling your home any time soon, you should really see its appreciation as a bad thing; now you suddenly owe more in taxes.

Home equity lines of credit complicate this a bit; for some reason we let people collateralize part of the home—even though the whole home is already collateralized with a mortgage to someone else—and thereby turn that largely-imaginary wealth into actual liquid cash. This is just one more way that our financial system is broken; we shouldn’t be offering these lines of credit, just as we shouldn’t be creating mortgage-backed securities. Cleverness is not a virtue in finance; banking should be boring.

But you’re probably still not convinced. So I’d like you to consider a simple thought experiment, where we take either view to the extreme: Make housing 100 times cheaper or 100 times more expensive.

Currently, houses cost about $400,000. So in Cheap World, houses cost $4,000. In Expensive World, they cost $40 million.

In Cheap World, there is no homelessness. Seriously, zero. It would make no sense at all for the government not to simply buy everyone a house. If you want to also buy your own house—or a dozen—go ahead, that’s fine; but you get one for free, paid for by tax dollars, because that’s cheaper than a year of schooling for a high-school student; it’s in fact not much more than what we’d currently spend to house someone in a homeless shelter for a year. So given the choice of offering someone two years at a shelter versus never homeless ever again, it’s pretty obvious we should choose the latter. Thus, in Cheap World, we all have a roof over our heads. And instead of storing their wealth in their homes in Cheap World, people store their wealth in stocks and bonds, which have better returns anyway.

In Expensive World, the top 1% are multi-millionaires who own homes, maybe the top 10% can afford rent, and the remaining 89% of the population are homeless. There’s simply no way to allocate the wealth of our society such that a typical middle class household has $40 million. We’re just not that rich. We probably never will be that rich. It may not even be possible to make a society that rich. In Expensive World, most people live in tents on the streets, because housing has been priced out of reach for all but the richest families.

Cheap World sounds like an amazing place to live. Expensive World is a horrific dystopia. The only thing I changed was the price of housing.


Yes, I changed it a lot; but that was to make the example as clear as possible, and it’s not even as extreme as it probably sounds. At 10% annual growth, 100 times more expensive only takes 49 years. At the current growth rate of housing prices of about 5% per year, it would take 95 years. A century from now, if we don’t fix our housing market, we will live in Expensive World. (Yes, we’ll most likely be richer then too; but will we be that much richer? Median income has not been rising nearly as fast as median housing price. If current trends continue, median income will be 5 times bigger and housing prices will be 100 times bigger—that’s still terrible.)

We’re already seeing something that feels a lot like Expensive World in some of our most expensive cities. San Francisco has ludicrously expensive housing and also a massive homelessness crisis—this is not a coincidence. Homelessness does still exist in more affordable cities, but clearly not at the same crisis level.

I think part of the problem is that people don’t really understand what wealth is. They see the number go up, and they think that means there is more wealth. Real wealth consists in goods, not in prices. The wealth we have is made of real things, not monetary prices. Prices merely decide how wealth is allocated.

A home is wealth, yes. But it’s the same amount of real wealth regardless of what price it has, because what matters is what it’s good for. If you become genuinely richer by selling an appreciated home, you gained that extra wealth from somewhere else; it was not contained within your home. You have appropriated wealth that someone else used to have. You haven’t created wealth; you’ve merely obtained it.

For you as an individual, that may not make a difference; you still get richer. But as a society, it makes all the difference: Moving wealth around doesn’t make our society richer, and all higher prices can do is move wealth around.

This means that rising housing prices simply cannot make our whole society richer. Better houses could do that. More houses could do that. But simply raising the price tag isn’t making our society richer. If it makes anyone richer—which, again, typically it does not—it does so by moving wealth from somewhere else. And since homeowners are generally richer than non-homeowners (even aside from their housing wealth!), more expensive homes means moving wealth from poorer people to richer people—increased inequality.

We used to have affordable housing, just a couple of generations ago. But we may never have truly affordable housing again, because people really don’t like to see that number go down, and they vote for policies accordingly—especially at the local level. Our best hope right now seems to be to keep it from going up faster than the growth rate of income, so that homes don’t become any more unaffordable than they already are.

But frankly I’m not optimistic. I think part of the cyberpunk dystopia we’re careening towards is Expensive World.

Wrongful beneficence

PNRJ core principles, critique of neoclassical economics, development economics, ethics, inequality, market failure, public policy , , , , , , , ,

Jun 9 JDN 2460471

One of the best papers I’ve ever read—one that in fact was formative in making me want to be an economist—is Wrongful Beneficence by Chris Meyers.

This paper opened my eyes to a whole new class of unethical behavior: Acts that unambiguously make everyone better off, but nevertheless are morally wrong. Hence, wrongful beneficence.

A lot of economists don’t even seem to believe in such things. They seem convinced that as long as no one is made worse off by a transaction, that transaction must be ethically defensible.

Chris Meyers convinced me that they are wrong.

The key insight here is that it’s still possible to exploit someone even if you make them better off. This happens when they are in a desperate situation and you take advantage of that to get an unfair payoff.


Here one of the cases Meyers offers to demonstrate this:

Suppose Carole is driving across the desert on a desolate road when her car breaks down. After two days and two nights without seeing a single car pass by, she runs out of water and feels rather certain that she will perish if not rescued soon. Now suppose that Jason happens to drive down this road and finds Carole. He sees that her situation is rather desperate and that she needs (or strongly desires) to get to the nearest town as soon as possible. So Jason offers her a ride but only on the condition that […] [she gives him] her entire net worth, the title to her house and car, all of her money in the bank, and half of her earnings for the next ten years.

Carole obviously is better off than she would be if Jason hadn’t shown up—she might even have died. She freely consented to this transaction—again, because if she didn’t, she might die. Yet it seems absurd to say that Jason has done nothing wrong by making such an exorbitant demand. If he had asked her to pay for gas, or even to compensate him for his time at a reasonable rate, we’d have no objection. But to ask for her life savings, all her assets, and half her earnings for ten years? Obviously unfair—and obviously unethical. Jason is making Carole (a little) better off while making himself (a lot) better off, so everyone is benefited; but what he’s doing is obviously wrong.

Once you recognize that such behavior can exist, you start to see it all over the place, particularly in markets, where corporations are quite content to gouge their customers with high prices and exploit their workers with low wages—but still, technically, we’re better off than we would be with no products and no jobs at all.

Indeed, the central message of Wrongful Beneficence is actually about sweatshop labor: It’s not that the workers are worse off than they would have been (in general, they aren’t); it’s that they are so desperate that corporations can get away with exploiting them with obviously unfair wages and working conditions.

Maybe it would be easier just to move manufacturing back to First World countries?

Right-wingers are fond of making outlandish claims that making products at First World wages would be utterly infeasible; here’s one claiming that an iPhone would need to cost $30,000 if it were made in the US. In fact, the truth is that it would only need to cost about $40 more—because hardly any of its cost is actually going to labor. Most of its price is pure monopoly profit for Apple; most of the rest is components and raw materials. (Of course, if those also had to come from the US, the price would go up more; but even so, we’re talking something like double its original price, not thirty times. Workers in the US are indeed paid a lot more than workers in China; they are also more productive.)

It’s true that actually moving manufacturing from other countries back to the US would be a substantial undertaking, requiring retooling factories, retraining engineers, and so on; but it’s not like we’ve never done that sort of thing before. I’m sure it could not be done overnight; but of course it could be done. We do this sort of thing all the time.

Ironically, this sort of right-wing nonsense actually seems to feed the far left as well, supporting their conviction that all this prosperity around us is nothing more than an illusion, that all our wealth only exists because we steal it from others. But this could scarcely be further from the truth; our wealth comes from technology, not theft. If we offered a fairer bargain to poorer countries, we’d be a bit less rich, but they would be much less poor—the overall wealth in the world would in fact probably increase.

A better argument for not moving manufacturing back to the First World is that many Third World economies would collapse if they stopped manufacturing things for other countries, and that would be disastrous for millions of people.

And free trade really does increase efficiency and prosperity for all.

So, yes; let’s keep on manufacturing goods wherever it is cheapest to do so. But when we decide what’s cheapest, let’s evaluate that based on genuinely fair wages and working conditions, not the absolute cheapest that corporations think they can get away with.

Sometimes they may even decide that it’s not really cheaper to manufacture in poorer countries, because they need advanced technology and highly-skilled workers that are easier to come by in First World countries. In that case, bringing production back here is the right thing to do.

Of course, this raises the question:

What would be fair wages and working conditions?

That’s not so easy to answer. Since workers in Third World countries are less educated than workers in First World countries, and have access to less capital and worse technology, we should in fact expect them to be less productive and therefore get paid less. That may be unfair in some cosmic sense, but it’s not anyone’s fault, and it’s not any particular corporation’s responsibility to fix it.

But when there are products for which less than 1% of the sales price of the product goes to the workers who actually made the product, something is wrong. When the profit margin is often wildly larger than the total amount spent on labor, something is wrong.

It may be that we will never have precise thresholds we can set to decide what definitely is or is not exploitative; but that doesn’t mean we can’t ever recognize it when we see it. There are various institutional mechanisms we could use to enforce better wages and working conditions without ever making such a sharp threshold.

One of the simplest, in fact, is Fair Trade.

Fair Trade is by no means a flawless system; in fact there’s a lot of research debating how effective it is at achieving its goals. But it does seem to be accomplishing something. And it’s a system that we already have in place, operating successfully in many countries; it simply needs to be scaled up (and hopefully improved along the way).

One of the clearest pieces of evidence that it’s helping, in fact, is that farmers are willing to participate in it. That shows that it is beneficent.

Of course, that doesn’t mean that it’s genuinely fair! This could just be another kind of wrongful beneficence. Perhaps Fair Trade is really just less exploitative than all the available alternatives.

If so, then we need something even better still, some new system that will reliably pass on the increased cost for customers all the way down to increased wages for workers.

Fair Trade shows us something else, too: A lot of customers clearly are willing to pay a bit more in order to see workers treated better. Even if they weren’t, maybe they should be forced to. But the fact is, they are! Even those who are most adamantly opposed to Fair Trade can’t deny that people really are willing to pay more to help other people. (Yet another example of obvious altruism that neoclassical economists somehow manage to ignore.) They simply deny that it’s actually helping, which is an empirical matter.

But if this isn’t helping enough, fine; let’s find something else that does.

Medical progress, at least, is real

PNRJ core principles, development economics, futurism, personal , , , , , , , , , , , , , ,

May 26 JDN 2460457

The following vignettes are about me.

Well, one of them is about me as I actually am. The others are about the person I would have been, if someone very much like me, with the same medical conditions, had been born in a particular place and time. Someone in these times and places probably had actual experiences like this, though of course we’ll never know who they were.

976 BC, the hilled lands near the mouth of the river:

Since I was fourteen years old, I have woken up almost every day in pain. Often it is mild, but occasionally it is severe. It often seems to be worse when I encounter certain plants, or if I awaken too early, or if I exert myself too much, or if a storm is coming. No one knows why. The healers have tried every herb and tincture imaginable in their efforts to cure me, but nothing has worked. The priests believe it is a curse from the gods, but at least they appreciate my ability to sometimes predict storms. I am lucky to even remain alive, as I am of little use to the tribe. I will most likely remain this way the rest of my life.

24 AD, Rome:

Since I was fourteen years old, I have woken up almost every day in pain. Often it is mild, but occasionally it is severe. It often seems to be worse when I encounter certain plants, or if I awaken too early, or if I exert myself too much, or if a storm is coming. No one knows why. The healers have tried every herb and tincture imaginable in their efforts to cure me, but nothing has worked. The priests believe it is a curse from the gods, but at least they appreciate my ability to sometimes predict storms. I am lucky that my family was rich enough to teach me reading and mathematics, as I would be of little use for farm work, but can at least be somewhat productive as a scribe and a tutor. I will most likely remain this way the rest of my life.

1024 AD, England:

Since I was fourteen years old, I have woken up almost every day in pain. Often it is mild, but occasionally it is severe. It often seems to be worse when I encounter certain plants, or if I awaken too early, or if I exert myself too much, or if a storm is coming. No one knows why. The healers have tried every herb and tincture imaginable in their efforts to cure me, but nothing has worked. The priests believe it is a curse imposed upon me by some witchcraft, but at least they appreciate my ability to sometimes predict storms. I am lucky that my family was rich enough to teach me reading and mathematics, as I would be of little use for farm work, but can at least be somewhat productive as a scribe and a tutor. I will most likely remain this way the rest of my life.

2024 AD, Michigan:

Since I was fourteen years old, I have woken up almost every day in pain. Often it is mild, but occasionally it is severe. It often seems to be worse when I encounter certain pollens, fragrances, or chemicals, or if I awaken too early, or if I exert myself too much, or when the air pressure changes before a storm. Brain scans detected no gross abnormalities. I have been diagnosed with chronic migraine, but this is more a description of my symptoms than an explanation. I have tried over a dozen different preventative medications; most of them didn’t work at all, some of them worked but gave me intolerable side effects. (One didn’t work at all and put me in the hospital with a severe allergic reaction.) I’ve been more successful with acute medications, which at least work as advertised, but I have to ration them carefully to avoid rebound effects. And the most effective acute medication is a subcutaneous injection that makes me extremely nauseated unless I also take powerful anti-emetics along with it. I have had the most success with botulinum toxin injections, so I will be going back to that soon; but I am also looking into transcranial magnetic stimulation. Currently my condition is severe enough that I can’t return to full-time work, but I am hopeful that with future treatment I will be able to someday. For now, I can at least work as a writer and a tutor. Hopefully things get better soon.

3024 AD, Aegir 7, Ran System:

For a few months when I was fourteen years old, I woke up nearly every day in pain. Often it was mild, but occasionally it was severe. It often seemed to be worse when I encountered certain pollens, fragrances or chemicals, or if I awakened too early, or if I exerted myself too much, or when the air pressure changed before a storm. Brain scans detected no gross abnormalities, only subtle misfiring patterns. Genetic analysis confirmed I had chronic migraine type IVb, and treatment commenced immediately. Acute medications suppressed the pain while I underwent gene therapy and deep-effect transcranial magnetic stimulation. After three months of treatment, I was cured. That was an awful few months, but it’s twenty years behind me now. I can scarcely imagine how it might have impaired my life if it had gone on that whole time.

What is the moral of this story?

Medical progress is real.

Many people often doubt that society has made real progress. And in a lot of ways, maybe it hasn’t. Human nature is still the same, and so many of the problems we suffer have remained the same.

Economically, of course we have had tremendous growth in productivity and output, but it doesn’t really seem to have made us much happier. We have all this stuff, but we’re still struggling and miserable as a handful at the top become spectacularly, disgustingly rich.

Social progress seems to have gone better: Institutions have improved, more of the world is democratic than ever before, and women and minorities are better represented and better protected from oppression. Rates of violence have declined to some of their lowest levels in history. But even then, it’s pretty clear that we have a long, long way to go.

But medical progress is undeniable. We live longer, healthier lives than at any other point in history. Our infant and child mortality rates have plummeted. Even chronic conditions that seem intractable today (such as my chronic migraines) still show signs of progress; in a few generations they should be cured—in surely far less than the thousand years I’ve considered here.

Like most measures of progress, this change wasn’t slow and gradual over thousands of years; it happened remarkably suddenly. Humans went almost 200,000 years without any detectable progress in medicine, using basically the same herbs and tinctures (and a variety of localized and ever-changing superstitions) the entire time. Some of it worked (the herbs and tinctures, at least), but mostly it didn’t. Then, starting around the 18th century, as the Enlightenment took hold and Industrial Revolution ramped up, everything began to change.

We began to test our medicine and see if it actually worked. (Yes, amazingly, somehow, nobody had actually ever thought to do that before—not in anything resembling a scientific way.) And when we learned that most of it didn’t, we began to develop new methods, and see if those worked; and when they didn’t either, we tried new things instead—until, finally, eventually, we actually found medicines that actually did something, medicines worthy of the name. Our understanding of anatomy and biology greatly improved as well, allowing us to make better predictions about the effects our medicines would have. And after a few hundred years of that—a few hundred, out of two hundred thousand years of our species—we actually reached the point where most medicine is effective and a variety of health conditions are simply curable or preventable, including diseases like malaria and polio that had once literally plagued us.

Scientific medicine brought humanity into a whole new era of existence.

I could have set the first vignette 10,000 years ago without changing it. But the final vignette I could probably have set only 200 years from now. I’m actually assuming remarkable stagnation by putting it in the 31st century; but presumably technological advancement will slow at one point, perhaps after we’ve more or less run out of difficult challenges to resolve. (Then again, for all I know, maybe my 31st century counterpart will be an emulated consciousness, and his chronic pain will be resolved in 17.482 seconds by a code update.)

Indeed, the really crazy thing about all this is that there are still millions of people who don’t believe in scientific medicine, who want to use “homeopathy” or “naturopathy” or “acupuncture” or “chiropractic” or whatever else—who basically want to go back to those same old herbs and tinctures that maybe sometimes kinda worked but probably not and nobody really knows. (I have a cousin who is a chiropractor. I try to be polite about it, but….) They point out the various ways that scientific medicine has failed—and believe me, I am painfully aware of those failures—but then where the obvious solution is to improve scientific medicine, they instead want to turn the whole ship around, and go back to what we had before, which was obviously a million times worse.

And don’t tell me it’s harmless: One, it’s a completewaste of resources that could instead have been used for actual scientific medicine. (9% of all out-of-pocket spending on healthcare in the US is on “alternative medicine”—which is to say, on pointless nonsense.) Two, when you have a chronic illness and people keep shoving nonsense treatments in your face, you start to feel blamed for your condition: “Why haven’t you tried [other incredibly stupid idea that obviously won’t work]? You’re so closed-minded! Maybe your illness isn’t really that bad, or you’d be more desperate!” If “alternative medicine” didn’t exist, maybe these people could help me cope with the challenges of living with a chronic illness, or even just sympathize with me, instead of constantly shoving stupid nonsense in my face.

Not everything about the future looks bright.

In particular, I am pessimistic about the near-term future of artificial intelligence, which I think will cause a lot more problems than it solves and does have a small—but not negligible—risk of causing a global catastrophe.

I’m also not very optimistic about climate change; I don’t think it will wipe out our civilization or anything so catastrophic, but I do think it’s going to kill millions of people and we’ve done too little, too late to prevent that. We’re now doing about what we should have been doing in the 1980s.

But I am optimistic about scientific medicine. Every day, new discoveries are made. Every day, new treatments are invented. Yes, there is a lot we haven’t figured out how to cure yet; but people are working on it.

And maybe they could do it faster if we stopped wasting time on stuff that obviously won’t work.

How Effective Altruism hurt me

PNRJ core principles, development economics, ethics, inequality, personal, public policy , , , , , , , ,

May 12 JDN 2460443

I don’t want this to be taken the wrong way. I still strongly believe in the core principles of Effective Altruism. Indeed, it’s shockingly hard to deny them, because basically they come out to this:

Doing more good is better than doing less good.

Then again, most people want to do good. Basically everyone agrees that more good is better than less good. So what’s the big deal about Effective Altruism?

Well, in practice, most people put shockingly little effort into trying to ensure that they are doing the most good they can. A lot of people just try to be nice people, without ever concerning themselves with the bigger picture. Many of these people don’t give to charity at all.

Then, even among people who do give to charity, typically give to charities more or less at random—or worse, in proportion to how much mail those charities send them begging for donations. (Surely you can see how that is a perverse incentive?) They donate to religious organizations, which sometimes do good things, but fundamentally are founded upon ignorance, patriarchy, and lies.

Effective Altruism is a movement intended to fix this, to get people to see the bigger picture and focus their efforts on where they will do the most good. Vet charities not just for their honesty, but also their efficiency and cost-effectiveness:

Just how many mQALY can you buy with that $1?

That part I still believe in. There is a lot of value in assessing which charities are the most effective, and trying to get more people to donate to those high-impact charities.

But there is another side to Effective Altruism, which I now realize has severely damaged my mental health.

That is the sense of obligation to give as much as you possibly can.

Peter Singer is the most extreme example of this. He seems to have mellowed—a little—in more recent years, but in some of his most famous books he uses the following thought experiment:

To challenge my students to think about the ethics of what we owe to people in need, I ask them to imagine that their route to the university takes them past a shallow pond. One morning, I say to them, you notice a child has fallen in and appears to be drowning. To wade in and pull the child out would be easy but it will mean that you get your clothes wet and muddy, and by the time you go home and change you will have missed your first class.

I then ask the students: do you have any obligation to rescue the child? Unanimously, the students say they do. The importance of saving a child so far outweighs the cost of getting one’s clothes muddy and missing a class, that they refuse to consider it any kind of excuse for not saving the child. Does it make a difference, I ask, that there are other people walking past the pond who would equally be able to rescue the child but are not doing so? No, the students reply, the fact that others are not doing what they ought to do is no reason why I should not do what I ought to do.

Basically everyone agrees with this particular decision: Even if you are wearing a very expensive suit that will be ruined, even if you’ll miss something really important like a job interview or even a wedding—most people agree that if you ever come across a drowning child, you should save them.

(Oddly enough, when contemplating this scenario, nobody ever seems to consider the advice that most lifeguards give, which is to throw a life preserver and then go find someone qualified to save the child—because saving someone who is drowning is a lot harder and a lot riskier than most people realize. (“Reach or throw, don’t go.”) But that’s a bit beside the point.)

But Singer argues that we are basically in this position all the time. For somewhere between $500 and $3000, you—yes, you—could donate to a high-impact charity, and thereby save a child’s life.

Does it matter that many other people are better positioned to donate than you are? Does it matter that the child is thousands of miles away and you’ll never see them? Does it matter that there are actually millions of children, and you could never save them all by yourself? Does it matter that you’ll only save a child in expectation, rather than saving some specific child with certainty?

Singer says that none of this matters. For a long time, I believed him.

Now, I don’t.

For, if you actually walked by a drowning child that you could save, only at the cost of missing a wedding and ruining your tuxedo, you clearly should do that. (If it would risk your life, maybe not—and as I alluded to earlier, that’s more likely than you might imagine.) If you wouldn’t, there’s something wrong with you. You’re a bad person.

But most people don’t donate everything they could to high-impact charities. Even Peter Singer himself doesn’t. So if donating is the same as saving the drowning child, it follows that we are all bad people.

(Note: In general, if an ethical theory results in the conclusion that the whole of humanity is evil, there is probably something wrong with that ethical theory.)

Singer has tried to get out of this by saying we shouldn’t “sacrifice things of comparable importance”, and then somehow cash out what “comparable importance” means in such a way that it doesn’t require you to live on the street and eat scraps from trash cans. (Even though the people you’d be donating to largely do live that way.)

I’m not sure that really works, but okay, let’s say it does. Even so, it’s pretty clear that anything you spend money on purely for enjoyment would have to go. You would never eat out at restaurants, unless you could show that the time saved allowed you to get more work done and therefore donate more. You would never go to movies or buy video games, unless you could show that it was absolutely necessary for your own mental functioning. Your life would be work, work, work, then donate, donate, donate, and then do the absolute bare minimum to recover from working and donating so you can work and donate some more.

You would enslave yourself.

And all the while, you’d believe that you were never doing enough, you were never good enough, you are always a terrible person because you try to cling to any personal joy in your own life rather than giving, giving, giving all you have.

I now realize that Effective Altruism, as a movement, had been basically telling me to do that. And I’d been listening.

I now realize that Effective Altruism has given me this voice in my head, which I hear whenever I want to apply for a job or submit work for publication:

If you try, you will probably fail. And if you fail, a child will die.

The “if you try, you will probably fail” is just an objective fact. It’s inescapable. Any given job application or writing submission will probably fail.

Yes, maybe there’s some sort of bundling we could do to reframe that, as I discussed in an earlier post. But basically, this is correct, and I need to accept it.

Now, what about the second part? “If you fail, a child will die.” To most of you, that probably sounds crazy. And it is crazy. It’s way more pressure than any ordinary person should have in their daily life. This kind of pressure should be reserved for neurosurgeons and bomb squads.

But this is essentially what Effective Altruism taught me to believe. It taught me that every few thousand dollars I don’t donate is a child I am allowing to die. And since I can’t donate what I don’t have, it follows that every few thousand dollars I fail to get is another dead child.

And since Effective Altruism is so laser-focused on results above all else, it taught me that it really doesn’t matter whether I apply for the job and don’t get it, or never apply at all; the outcome is the same, and that outcome is that children suffer and die because I had no money to save them.

I think part of the problem here is that Effective Altruism is utilitarian through and through, and utilitarianism has very little place for good enough. There is better and there is worse; but there is no threshold at which you can say that your moral obligations are discharged and you are free to live your life as you wish. There is always more good that you could do, and therefore always more that you should do.

Do we really want to live in a world where to be a good person is to owe your whole life to others?

I do not believe in absolute selfishness. I believe that we owe something to other people. But I no longer believe that we owe everything. Sacrificing my own well-being at the altar of altruism has been incredibly destructive to my mental health, and I don’t think I’m the only one.

By all means, give to high-impact charities. But give a moderate amount—at most, tithe—and then go live your life. You don’t owe the world more than that.

Israel, Palestine, and the World Bank’s disappointing priorities

PNRJ current events, development economics, inequality, macroeconomics, politics, public policy, tribal paradigm , , , , , , , , , , , , ,

Nov 12 JDN 2460261

Israel and Palestine are once again at war. (There are a disturbing number of different years in which one could have written that sentence.) The BBC has a really nice section of their website dedicated to reporting on various facets of the war. The New York Times also has a section on it, but it seems a little tilted in favor of Israel.

This time, it started with a brutal attack by Hamas, and now Israel has—as usual—overreacted and retaliated with a level of force that is sure to feed the ongoing cycle of extremism. All across social media I see people wanting me to take one side or the other, often even making good points: “Hamas slaughters innocents” and “Israel is a de facto apartheid state” are indeed both important points I agree with. But if you really want to know my ultimate opinion, it’s that this whole thing is fundamentally evil and stupid because human beings are suffering and dying over nothing but lies. All religions are false, most of them are evil, and we need to stop killing each other over them.

Anti-Semitism and Islamophobia are both morally wrong insofar as they involve harming, abusing or discriminating against actual human beings. Let people dress however they want, celebrate whatever holidays they want, read whatever books they want. Even if their beliefs are obviously wrong, don’t hurt them if they aren’t hurting anyone else. But both Judaism and Islam—and Christianity, and more besides—are fundamentally false, wrong, evil, stupid, and detrimental to the advancement of humanity.

That’s the thing that so much of the public conversation is too embarrassed to say; we’re supposed to pretend that they aren’t fighting over beliefs that obviously false. We’re supposed to respect each particular flavor of murderous nonsense, and always find some other cause to explain the conflict. It’s over culture (what culture?); it’s over territory (whose territory?); it’s a retaliation for past conflict (over what?). We’re not supposed to say out loud that all of this violence ultimately hinges upon people believing in nonsense. Even if the conflict wouldn’t disappear overnight if everyone suddenly stopped believing in God—and are we sure it wouldn’t? Let’s try it—it clearly could never have begun, if everyone had started with rational beliefs in the first place.

But I don’t really want to talk about that right now. I’ve said enough. Instead I want to talk about something a little more specific, something less ideological and more symptomatic of systemic structural failures. Something you might have missed amidst the chaos.

The World Bank recently released a report on the situation focused heavily on the looming threat of… higher oil prices. (And of course there has been breathless reporting from various outlets regarding a headline figure of $150 per barrel which is explicitly stated in the report as an unlikely “worst-case scenario”.)

There are two very big reasons why I found this dismaying.


The first, of course, is that there are obviously far more important concerns here than commodity prices. Yes, I know that this report is part of an ongoing series of Commodity Markets Outlook reports, but the fact that this is the sort of thing that the World Bank has ongoing reports about is also saying something important about the World Bank’s priorities. They release monthly commodity forecasts and full Commodity Markets Outlook reports that come out twice a year, unlike the World Development Reports that only come out once a year. The World Bank doesn’t release a twice-annual Conflict Report or a twice-annual Food Security Report. (Even the FAO, which publishes an annual State of Food Security and Nutrition in the World report, also publishes a State of Agricultural Marketsreport just as often.)

The second is that, when reading the report, one can clearly tell that whoever wrote it thinks that rising oil and gas prices are inherently bad. They keep talking about all of these negative consequences that higher oil prices could have, and seem utterly unaware of the really enormous upside here: We may finally get a chance to do something about climate change.

You see, one of the most basic reasons why we haven’t been able to fix climate change is that oil is too damn cheap. Its market price has consistently failed to reflect its actual costs. Part of that is due to oil subsidies around the world, which have held the price lower than it would be even in a free market; but most of it is due to the simple fact that pollution and carbon emissions don’t cost money for the people who produce them, even though they do cost the world.

Fortunately, wind and solar power are also getting very cheap, and are now at the point where they can outcompete oil and gas for electrical power generation. But that’s not enough. We need to remove oil and gas from everything: heating, manufacturing, agriculture, transportation. And that is far easier to do if oil and gas suddenly become more expensive and so people are forced to stop using them.

Now, granted, many of the downsides in that report are genuine: Because oil and gas are such vital inputs to so many economic processes, it really is true that making them more expensive will make lots of other things more expensive, and in particular could increase food insecurity by making farming more expensive. But if that’s what we’re concerned about, we should be focusing on that: What policies can we use to make sure that food remains available to all? And one of the best things we could be doing toward that goal is finding ways to make agriculture less dependent on oil.

By focusing on oil prices instead, the World Bank is encouraging the world to double down on the very oil subsidies that are holding climate policy back. Even food subsides—which certainly have their own problems—would be an obviously better solution, and yet they are barely mentioned.

In fact, if you actually read the report, it shows that fears of food insecurity seem unfounded: Food prices are actually declining right now. Grain prices in particular seem to be falling back down remarkably quickly after their initial surge when Russia invaded Ukraine. Of course that could change, but it’s a really weird attitude toward the world to see something good and respond with, “Yes, but it might change!” This is how people with anxiety disorders (and I would know) think—which makes it seem as though much of the economic policy community suffers from some kind of collective equivalent of an anxiety disorder.

There also seems to be a collective sense that higher prices are always bad. This is hardly just a World Bank phenomenon; on the contrary, it seems to pervade all of economic thought, including the most esteemed economists, the most powerful policymakers, and even most of the general population of citizens. (The one major exception seems to be housing, where the sense is that higher prices are always good—even when the world is in a chronic global housing shortage that leaves millions homeless.) But prices can be too low or too high. And oil prices are clearly, definitely too low. Prices should reflect the real cost of production—all the real costs of production. It should cost money to pollute other people’s air.

In fact I think the whole report is largely a nothingburger: Oil prices haven’t even risen all that much so far—we’re still at $80 per barrel last I checked—and the one thing that is true about the so-called Efficient Market Hypothesis is that forecasting future prices is a fool’s errand. But it’s still deeply unsettling to see such intelligent, learned experts so clearly panicking over the mere possibility that there could be a price change which would so obviously be good for the long-term future of humanity.

There is plenty more worth saying about the Israel-Palestine conflict, and in particular what sort of constructive policy solutions we might be able to find that would actually result in any kind of long-term peace. I’m no expert on peace negotiations, and frankly I admit it would probably be a liability that if I were ever personally involved in such a negotiation, I’d be tempted to tell both sides that they are idiots and fanatics. (The headline the next morning: “Israeli and Palestinian Delegates Agree on One Thing: They Hate the US Ambassador”.)

The World Bank could have plenty to offer here, yet so far they’ve been too focused on commodity prices. Their thinking is a little too much ‘bank’ and not enough ‘world’.

It is a bit ironic, though also vaguely encouraging, that there are those within the World Bank itself who recognize this problem: Just a few weeks ago Ajay Banga gave a speech to the World Bank about “a world free of poverty on a livable planet”.

Yes. Those sound like the right priorities. Now maybe you could figure out how to turn that lip service into actual policy.

The rise and plateau of China’s economy

PNRJ current events, development economics, public policy , , , , , , ,

Sep 3 JDN 2460191

It looks like China’s era of extremely rapid economic growth may be coming to an end. Consumer confidence in China cratered this year (and, in typical authoritarian fashion, the agency responsible just quietly stopped publishing the data after that). Current forecasts have China’s economy growing only about 4-5% this year, which would be very impressive for a First World country—but far below the 6%, 7%, even 8% annual growth rates China had in recent years.

Some slowdown was quite frankly inevitable. A surprising number of people—particularly those in or from China—seem to think that China’s ultra-rapid growth was something special about China that could be expected to continue indefinitely.

China’s growth does look really impressive, in isolation:

But in fact this is a pattern we’ve seen several times now (admittedly mostly in Asia): A desperately poor Third World country finally figures out how to get its act together, and suddenly has extremely rapid growth for awhile until it manages to catch up and become a First World country.

It happened in South Korea:

It happened in Japan:

It happened in Taiwan:

It even seems to be happening in Botswana:

And this is a good thing! These are the great success stories of economic development. If we could somehow figure out how to do this all over the world, it might literally be the best thing that ever happened. (It would solve so many problems!)

Here’s a more direct comparison across all these countries (as well as the US), on a log scale:

From this you can pretty clearly see two things.

First, as countries get richer, their growth tends to slow down gradually. By the time Japan, Korea, and Taiwan reached the level that the US had been at back in 1950, their growth slowed to a crawl. But that was okay, because they had already become quite rich.

And second, China is nothing special: Yes, their growth rate is faster than the US, because the US is already so rich. But they are following the same pattern as several other countries. In fact they’ve actually fallen behind Botswana—they used to be much richer than Botswana, and are now slightly poorer.

So while there are many news articles discussing why China’s economy is slowing down, and some of them may even have some merit (they really seem to have screwed up their COVID response, for instance, and their terrible housing price bubble just burst); but the ultimate reason is really that 7% annual economic growth is just not sustainable. It will slow down. When and how remains in question—but it will happen.

Thus, I am not particularly worried about the fact that China’s growth has slowed down. Or at least, I wouldn’t be, if China were governed well and had prepared for this obvious eventuality the way that Korea and Japan did. But what does worry me is that they seem unprepared for this. Their authoritarian government seems to have depended upon sky-high economic growth to sustain support for their regime. The cracks are now forming in that dam, and something terrible could happen when it bursts.

Things may even be worse than they look, because we know that the Chinese government often distorts or omits statistics when they become inconvenient. That can only work for so long: Eventually the reality on the ground will override whatever lies the government is telling.

There are basically two ways this could go: They could reform their government to something closer to a liberal democracy, accept that growth will slow down and work toward more shared prosperity, and then take their place as a First World country like Japan did. Or they could try to cling to their existing regime, gripping ever tighter until it all slips out of their fingers in a potentially catastrophic collapse. Unfortunately, they seem to be opting for the latter.

I hope I’m wrong. I hope that China will find its way toward a future of freedom and prosperity.

But at this point, it doesn’t look terribly likely.