What’s going on in Venezuela?

Feb 3 JDN 2458518

As you may know, Venezuela is currently in a state of political crisis. Juan Guaido has declared himself President and been recognized by the United States as such, while Nicolas Maduro claims that he remains President as he has been for the last six years—during most of which time has has “ruled by decree”, which is to say that he has been effectively a dictator.

Maduro claims that this is a US-backed coup. I’ve seen a lot of people on the left buy into this claim.

I’m not saying this is impossible: The US has backed coups several times before, and has a particular track record of doing so against socialist regimes in Latin America.

But there are some reasons to be skeptical of it.

Unrest in Venezuela is nothing new, and looks to be quite grassroots. There have been widespread protests against Maduro—and severe crackdowns against those protests—for several years now. Guaido himself got his start in politics by organizing protests against Chavez and then Maduro, starting when he was a college student.

While Chavez, Maduro’s predecessor, remains extremely popular, most of the support for Maduro in Venezuela seems to come from the military and other elites. This is looking a lot like the Lenin/Stalin pattern: A charismatic and popular authoritarian socialist revolutionary opens the door for a murderous psychopathic authoritarian socialist who rules with an iron fist and causes millions of deaths. (In China, Mao managed to play both roles by himself.)

Guaido himself rejects all claims that he’s working for the US (but I suppose he would in either case).

And so far, no US troops have been deployed to Venezuela, and at the moment, Trump is currently only threatening for more sanctions or an embargo, not a military intervention. (He’s Trump, so who knows? And he did talk about invading them a year or two ago.)

The best evidence I’ve seen that it could be a US-orchestrated coup is a leaked report about a meeting discussing the possibility of such a coup a few months ago. But at least by the most reliable accounts we have, the US decided not to support that coup. I guess that could be part of the cover-up? (It feels weird when the crazy-sounding conspiracy theorists actually have a point. There totally have been US coups against Latin American governments that were covered up for decades.)

Even if it is actually a coup, I’m not entirely convinced that’s a bad thing.

The American and French Revolutions were coups, after all. When you are faced with a strong authoritarian government, a coup may be your only option for achieving freedom.
Here’s a bit of evidence that this is indeed what’s happening: the countries that support Guaido are a lot more democratic than the countries that support Maduro.

Guaido has already been recognized by most of Europe and Latin America, including Argentina, Brazil, Chile, Colombia, Costa Rica, Guatemala, Honduras, Panama, Paraguay, and Peru. Among those supporting Maduro are China, Russia, Iran, and Turkey—not exactly bastions of liberal democracy. Within Latin America, only Bolivia, Cuba, Mexico, and Uruguay support Maduro. Of those, only Mexico and Uruguay are recognizably democratic.

The average Democracy Index of countries that support Guaido is 7.5, which would be a “flawed democracy”. The average Democracy Index of countries that support Maduro is only 4.4, a “hybrid regime”.

Here is a plot of the Democracy Index by country supporting Guaido:democracy_index_guaido

Here is a plot of the Democracy Index by country supporting Maduro:

democracy_index_maduro

Since the entire EU recognizes Guaido, I could have shown each European country separately and biased the numbers even further, but I decided to specifically stick to major European powers with explicitly stated positions on Venezuela.

And we know that Maduro was a ruthless and autocratic dictator. So this is looking an awful lot like a democratic uprising against authoritarianism. It’s hard for me to be upset about that.

Second, Venezuela was in terrible shape, and largely due to Maduro’s administration.

After Maduro was elected (we’re still not sure how legitimate that election really was), Maduro underwent a total economic meltdown. Depression, hyperinflation, famine, a resurgence of malaria, and a huge exodus of refugees all followed. Millions of people are now starving in a country that was once quite rich. Nearly 90% of the population now lives in poverty. The story of Venezuela’s economy is one of total self-destruction.

Due to the bizarre system of subsidies and price controls in place, oil is now 100 times cheaper in Venezuela than water. Venezuela’s oil production has plummeted under Maduroto its lowest levels in decades, which might be good for climate change but is very bad for a country so dependent upon oil export revenue. It’s pretty much a classic cautionary tale for the Resource Curse.

Maduro, like any good socialist dictator, has blamed US sanctions for all his country’s economic failings. But there have not been strict US sanctions against Venezuela, and we remain their chief purchaser of oil by a wide margin. If you’ve ever bought gasoline at a Citgo station, you have paid for Venezuelan oil. Moreover, if your socialist country is that heavily dependent on exporting to capitalist countries… that really doesn’t say much in favor of socialism as an economic system, does it?

I don’t know what will happen. Maybe Maduro will successfully regain power. Maybe Guaido will retain control but turn out to be just as bad (there’s a long track record of coups against awful dictators resulting in equally awful dictators—Idi Amin is a classic example). Maybe Trump will do something stupid or crazy and we’ll end up in yet another decades-long military quagmire.

But there’s also a chance of something much better: Maybe Guaido can actually maintain power and build a genuinely democratic regime in Venezuela, and turn their economy back from the brink of devastation toward more sustainable growth. When the devil you know is this bad, sometimes you really do want to bet on the devil you don’t.

I don’t care what happened in that video

Jan 27 JDN 2458511

Right now there is an ongoing controversy over a viral video of a confrontation between young protesters wearing MAGA hats and an elderly Native American man. Various sources are purporting to show “a fuller picture” and “casting new light” and showing “a different side”. Others are saying it’s exactly as bad as it looks.

I think it probably is as bad as it looks, but the truth is: I don’t care. This is a distraction.

If you think litigating the precise events of this video is important, you are suffering from a severe case of scope neglect. You are looking at a single event between a handful of people when you should be looking at the overall trends of a country of over 300 million people.

First of all: The government shutdown only just ended. There are still going to be a lot of pieces to pick up. That’s what we should be talking about. That’s what we should be posting about. That’s what we should be calling Senators about. This is a national emergency. The longer this lasts, the worse it is going to get. People will die because of this shutdown—from tainted food and polluted water and denied food stamps. Our national security is being jeopardized—particularly with regard to cybersecurity.

The shutdown was also a completely unforced error. Government shutdowns shouldn’t even exist, and now that this one is over, we need to change the budget process so that this can never happen again.

And if you want to talk about the racist, sexist, and authoritarian leanings of Trump supporters, that’s quite important too. But it doesn’t hinge upon one person or one confrontation. I’m sure there are Trump supporters who aren’t racist; and I’m sure there are Obama supporters who are. But the overall statistical trend there is extremely strong.

I understand that most people suffer from severe scope neglect, and we have to live in a world filled with such people; so maybe there’s some symbolic value in finding one particularly egregious case that you can put a face on and share with the world. But if you’re going to do that, there’s two things I’d ask of you:

1. Make absolutely sure that this case is genuine. Nothing will destroy your persuasiveness faster than holding up an ambiguous case as if it were definitive.
2. After you’ve gotten their attention with the single example, show the statistics. There are truths, whole truths, and statistics. If you really want to know something, you use statistics.

The statistics are what this is really about. One person, even a hundred people—that really doesn’t matter. We need to keep our eyes on the millions of people, the directions of entire nations. For a lot of people, looking at numbers is boring; but there are people behind those numbers, and numbers are what tell us what’s really going on in the world.

For example: Trump really does seem to have brought bigotry out in the open. Hate crimes in the US increased for the third year in a row last year.

Then there are his direct policy actions which are human rights violations: The number of children detained at the border has skyrocketed to almost 13,000.

On the other hand, the economy is doing quite well: Unemployment stands at about 4%, and median income is increasing and poverty is decreasing.
Global extreme poverty continues its preciptious decline, but global climate change is getting worse, and already past the point where some serious consequences are going to be unavoidable.

Some indicators are more ambiguous: Corporate profits are near their all-time high, even in inflation-adjusted terms. That could be a sign of an overall good economy—but it also clearly has something to do with redistribution of income toward the wealthy.

Of course, all of those things were true yesterday, and will be true tomorrow. They were true last week, and will be true next week. They don’t lend themselves to a rapid-fire news cycle.

But maybe that means we don’t need a rapid-fire news cycle? Maybe that’s not the best way to understand what’s going on in the world?

If you stop destroying jobs, you will stop economic growth

Dec 30 JDN 2458483

One thing that endlessly frustrates me (and probably most economists) about the public conversation on economics is the fact that people seem to think “destroying jobs” is bad. Indeed, not simply a downside to be weighed, but a knock-down argument: If something “destroys jobs”, that’s a sufficient reason to opposite it, whether it be a new technology, an environmental regulation, or a trade agreement. So then we tie ourselves up in knots trying to argue that the policy won’t really destroy jobs, or it will create more than it destroys—but it will destroy jobs, and we don’t actually know how many it will create.

Destroying jobs is good. Destroying jobs is the only way that economic growth ever happens.

I realize I’m probably fighting an uphill battle here, so let me start at the beginning: What do I mean when I say “destroying jobs”? What exactly is a “job”, anyway?
At its most basic level, a job is something that needs done. It’s a task that someone wants to perform, but is unwilling or unable to perform on their own, and is therefore willing to give up some of what they have in order to get someone else to do it for them.

Capitalism has blinded us to this basic reality. We have become so accustomed to getting the vast majority of our goods via jobs that we come to think of having a job as something intrinsically valuable. It is not. Working at a job is a downside. It is something to be minimized.

There is a kind of work that is valuable: Creative, fulfilling work that you do for the joy of it. This is what we are talking about when we refer to something as a “vocation” or even a “hobby”. Whether it’s building ships in bottles, molding things from polymer clay, or coding video games for your friends, there is a lot of work in the world that has intrinsic value. But these things aren’t jobs. No one will pay them to do these things—or need to; you’ll do them anyway.

The value we get from jobs is actually obtained from goods: Everything from houses to underwear to televisions to antibiotics. The reason you want to have a job is that you want the money from that job to give you access to markets for all the goods that are actually valuable to you.

Jobs are the input—the cost—of producing all of those goods. The more jobs it takes to make a good, the more expensive that good is. This is not a rule-of-thumb statement of what usually or typically occurs. This is the most fundamental definition of cost. The more people you have to pay to do something, the harder it was to do that thing. If you can do it with fewer people (or the same people working with less effort), you should. Money is the approximation; money is the rule-of-thumb. We use money as an accounting mechanism to keep track of how much effort was put into accomplishing something. But what really matters is the “sweat of our laborers, the genius of our scientists, the hopes of our children”.

Economic growth means that we produce more goods at less cost.

That is, we produce more goods with fewer jobs.

All new technologies destroy jobs—if they are worth anything at all. The entire purpose of a new technology is to let us do things faster, better, easier—to let us have more things with less work.

This has been true since at least the dawn of the Industrial Revolution.

The Luddites weren’t wrong that automated looms would destroy weaver jobs. They were wrong to think that this was a bad thing. Of course, they weren’t crazy. Their livelihoods were genuinely in jeopardy. And this brings me to what the conversation should be about when we instead waste time talking about “destroying jobs”.

Here’s a slogan for you: Kill the jobs. Save the workers.

We shouldn’t be disappointed to lose a job; we should think of that as an opportunity to give a worker a better life. For however many years, you’ve been toiling to do this thing; well, now it’s done. As a civilization, we have finally accomplished the task that you and so many others set out to do. We have not “replaced you with a machine”; we have built a machine that now frees you from your toil and allows you to do something better with your life. Your purpose in life wasn’t to be a weaver or a coal miner or a steelworker; it was to be a friend and a lover and a parent. You can now get more chance to do the things that really matter because you won’t have to spend all your time working some job.

When we replaced weavers with looms, plows with combine harvesters, computers-the-people with computers-the-machines (a transformation now so complete most people don’t even seem to know that the word used to refer to a person—the award-winning film Hidden Figures is about computers-the-people), tollbooth operators with automated transponders—all these things meant that the job was now done. For the first time in the history of human civilization, nobody had to do that job anymore. Think of how miserable life is for someone pushing a plow or sitting in a tollbooth for 10 hours a day; aren’t you glad we don’t have to do that anymore (in this country, anyway)?

And the same will be true if we replace radiologists with AI diagnostic algorithms (we will; it’s probably not even 10 years away), or truckers with automated trucks (we will; I give it 20 years), or cognitive therapists with conversational AI (we might, but I’m more skeptical), or construction workers with building-printers (we probably won’t anytime soon, but it would be nice), the same principle applies: This is something we’ve finally accomplished as a civilization. We can check off the box on our to-do list and move on to the next thing.

But we shouldn’t simply throw away the people who were working on that noble task as if they were garbage. Their job is done—they did it well, and they should be rewarded. Yes, of course, the people responsible for performing the automation should be rewarded: The engineers, programmers, technicians. But also the people who were doing the task in the meantime, making sure that the work got done while those other people were spending all that time getting the machine to work: They should be rewarded too.

Losing your job to a machine should be the best thing that ever happened to you. You should still get to receive most of your income, and also get the chance to find a new job or retire.

How can such a thing be economically feasible? That’s the whole point: The machines are more efficient. We have more stuff now. That’s what economic growth is. So there’s literally no reason we can’t give every single person in the world at least as much wealth as we did before—there is now more wealth.

There’s a subtler argument against this, which is that diverting some of the surplus of automation to the workers who get displaced would reduce the incentives to create automation. This is true, so far as it goes. But you know what else reduces the incentives to create automation? Political opposition. Luddism. Naive populism. Trade protectionism.

Moreover, these forces are clearly more powerful, because they attack the opportunity to innovate: Trade protection can make it illegal to share knowledge with other countries. Luddist policies can make it impossible to automate a factory.

Whereas, sharing the wealth would only reduce the incentive to create automation; it would still be possible, simply less lucrative. Instead of making $40 billion, you’d only make $10 billion—you poor thing. I sincerely doubt there is a single human being on Earth with a meaningful contribution to make to humanity who would make that contribution if they were paid $40 billion but not if they were only paid $10 billion.

This is something that could be required by regulation, or negotiated into labor contracts. If your job is eliminated by automation, for the next year you get laid off but still paid your full salary. Then, your salary is converted into shares in the company that are projected to provide at least 50% of your previous salary in dividends—forever. By that time, you should be able to find another job, and as long as it pays at least half of what your old job did, you will be better off. Or, you can retire, and live off that 50% plus whatever else you were getting as a pension.

From the perspective of the employer, this does make automation a bit less attractive: The up-front cost in the first year has been increased by everyone’s salary, and the long-term cost has been increased by all those dividends. Would this reduce the number of jobs that get automated, relative to some imaginary ideal? Sure. But we don’t live in that ideal world anyway; plenty of other obstacles to innovation were in the way, and by solving the political conflict, this will remove as many as it adds. We might actually end up with more automation this way; and even if we don’t, we will certainly end up with less political conflict as well as less wealth and income inequality.

The best thing we can do to help them is let them in


 

Dec 23 JDN 2458476

This is a Christmas post, but not like most of my other Christmas posts. It’s not going to be an upbeat post about the effects of holidays on the economy, or the psychology of gift-giving, or the game theory that underlies the whole concept of a “holiday”.

No, today is about an urgent moral crisis. This post isn’t about Christmas as a weird but delightful syncretic solstice celebration. This post is about the so-called “spirit of Christmas”, a spirit of compassion and generosity that our country is clearly not living up to.

At the time of writing, the story had just come out: Jakelin Maquin, a 7-year-old girl from Guatemala died in the custody of US border agents.

Even if it’s true that the Border Patrol did everything they could to help her once they found out she was dying (and the reports coming out suggest that this is in fact the case), this death was still entirely preventable.

The first question we should ask is very basic: Why are there little girls in custody of border agents?
The next question is even more fundamental than that: Why are there border agents?

There are now 15,000 children being held by US Border Patrol. There should not be even one. The very concept of imprisoning children for crossing the border, under any circumstances, is a human rights violation. And yes, this is new, and it is specific to Donald Trump: Bush and Obama never separated children from their families this way. And while two-thirds of Americans oppose this policy, a majority of Republicans support it—this child’s blood is on their hands too.

Yet despite the gulf between the two major parties, the majority of Americans do support the idea of restricting immigration in general. And what I want to know is: Why? What gives us that right?

Let’s be absolutely clear about what “restricting immigration” means. It means that when someone decides they want to come to our country, either to escape oppression, work toward a better life, or simply to live with their family who came here before, men with guns come and lock them up.

We don’t politely ask them to leave. We don’t even fine them or tax them for entering. We lock them in detention camps, or force them to return to the country they came from which may be ruled by a dictator or a drug cartel.

Honestly, even the level of border security US citizens are subjected to is appalling: We’ve somehow come to think of it as normal that whenever you get on an airplane, you are first run through a body scanner, while all your belongings are inspected and scanned, and if you are found carrying any contraband—or if you even say the wrong thing—you can be summarily detained. This is literally Orwellian. “Papers, please” is the refrain of a tyrannical regime, not a liberal democracy.

If we truly believe in the spirit of compassion and generosity, we must let these people in. We don’t even have to do anything; we just need to stop violently resisting them. Stop pointing guns at them, stop locking them away. How is “Stop pointing guns at children” controversial?

I could write an entire post about the benefits for Americans of more open immigration. But honestly, we shouldn’t even care. It doesn’t matter whether immigration creates jobs, or destroys jobs, or decreases crime, or increases crime. We should not be locking up children in camps.

If we really believe in the spirit of compassion and generosity, the only thing we should care about is whether immigration is good for the immigrants. And it obviously is, or they wouldn’t be willing to go to such lengths to accomplish it. But I don’t think most people realize just how large the benefits of immigration are.

I’m going to focus on Guatemala, because that’s where Jakelin Maqin was from.

Guatemala’s life expectancy at birth is 73 years. The life expectancy for recent Hispanic immigrants to the US is 82 years. Crossing that border can give you nine years of life.

And what about income? GDP per capita PPP in the US is almost $60,000 per year. In Guatemala? Just over $8,000. Of course, that’s not accounting for the fact that Guatemalans are less educated; but even the exact same worker emigrating from there to here can greatly increase their income. The minimum wage in Guatemala is 90 GTQ per day, which is about $11.64. For a typical 8-hour workday, the US minimum wage of $7.25 per hour comes to $58 per day. That same exact worker can quintuple their income just by getting a job on the other side of the border.

Almost 60 percent of Guatemalans live in poverty. Over 20% live below the UN extreme poverty line. A full 11% of Guatemala’s GDP is remittances: Money that immigrants pay to help their families back home. A further 7% is exports to the US. This means that almost a fifth of Guatemala’s economy is dependent on the United States.

For comparison, less than 0.5% of Americans live in extreme poverty. (The UN recently claimed almost 6%; the Trump administration has claimed only 0.1% which is even more dubious. Both methodologies are deeply flawed; in particular, the UN report looks at income, not consumption—and consumption is what matters.) The overall poverty rate in the US is about 12%.

These figures are still appallingly high for a country as rich as the US; our extreme poverty rate should be strictly zero, a policy decision which could be implemented immediately and permanently in the form of a basic income of $700 per person per year, at a total expenditure of only $224 billion per year—about a third of the military budget. The net cost would in fact be far smaller than that, because we’d immediately turn around and spend that money. In fact, had this been done at the trough of the Great Recession, it would almost certainly have saved the government money.

Making our overall poverty rate strictly zero would be more challenging, but not obviously infeasible; since the poverty line is about $12,000 per person per year, it would take a basic income of that much to eliminate poverty, which would cost about $3.8 trillion per year. This is a huge expenditure, comparable as a proportion of GDP to the First World War (though still less than the Second). On the other hand, it would end poverty in America immediately and forever.

But even as things currently stand, the contrast between Guatemala and the US could hardly be starker: Immigrants are moving from a country with 60% poverty and 20% extreme poverty to one with 12% poverty and 0.5% extreme poverty.

Guatemala is a particularly extreme example; things are not as bad in Mexico or Cuba, for example. But the general pattern is a very consistent one: Immigrants come to the United States because things are very bad where they come from and their chances of living a better life here are much higher.

The best way to help these people, at Christmas and all year round, literally couldn’t be easier:

Let them in.

What would a new macroeconomics look like?

Dec 9 JDN 2458462

In previous posts I have extensively criticized the current paradigm of macroeconomics. But it’s always easier to tear the old edifice down than to build a better one in its place. So in this post I thought I’d try to be more constructive: What sort of new directions could macroeconomics take?

The most important change we need to make is to abandon the assumption of dynamic optimization. This will be a very hard sell, as most macroeconomists have become convinced that the Lucas Critique means we need to always base everything on the dynamic optimization of a single representative agent. I don’t think this was actually what Lucas meant (though maybe we should ask him; he’s still at Chicago), and I certainly don’t think it is what he should have meant. He had a legitimate point about the way macroeconomics was operating at that time: It was ignoring the feedback loops that occur when we start trying to change policies.

Goodhart’s Law is probably a better formulation: Once you make an indicator into a target, you make it less effective as an indicator. So while inflation does seem to be negatively correlated with unemployment, that doesn’t mean we should try to increase inflation to extreme levels in order to get rid of unemployment; sooner or later the economy is going to adapt and we’ll just have both inflation and unemployment at the same time. (Campbell’s Law provides a specific example that I wish more people in the US understood: Test scores would be a good measure of education if we didn’t use them to target educational resources.)

The reason we must get rid of dynamic optimization is quite simple: No one behaves that way.

It’s often computationally intractable even in our wildly oversimplified models that experts spend years working onnow you’re imagining that everyone does this constantly?

The most fundamental part of almost every DSGE model is the Euler equation; this equation comes directly from the dynamic optimization. It’s supposed to predict how people will choose to spend and save based upon their plans for an infinite sequence of future income and spending—and if this sounds utterly impossible, that’s because it is. Euler equations don’t fit the data at all, and even extreme attempts to save them by adding a proliferation of additional terms have failed. (It reminds me very much of the epicycles that astronomers used to add to the geocentric model of the universe to try to squeeze in weird results like Mars, before they had the heliocentric model.)

We should instead start over: How do people actually choose their spending? Well, first of all, it’s not completely rational. But it’s also not totally random. People spend on necessities before luxuries; they try to live within their means; they shop for bargains. There is a great deal of data from behavioral economics that could be brought to bear on understanding the actual heuristics people use in deciding how to spend and save. There have already been successful policy interventions using this knowledge, like Save More Tomorrow.

The best thing about this is that it should make our models simpler. We’re no longer asking each agent in the model to solve an impossible problem. However people actually make these decisions, we know it can be done, because it is being done. Most people don’t really think that hard, even when they probably should; so the heuristics really can’t be that complicated. My guess is that you can get a good fit—certainly better than an Euler equation—just by assuming that people set a target for how much they’re going to save (which is also probably pretty small for most people), and then spend the rest.

The second most important thing we need to add is inequality. Some people are much richer than others; this is a very important fact about economics that we need to understand. Yet it has taken the economics profession decades to figure this out, and even now I’m only aware of one class of macroeconomic models that seriously involves inequality, the Heterogeneous Agent New Keynesian (HANK) models which didn’t emerge until the last few years (the earliest publication I can find is 2016!). And these models are monsters; they are almost always computationally intractable and have a huge number of parameters to estimate.

Understanding inequality will require more parameters, that much is true. But if we abandon dynamic optimization, we won’t need as many as the HANK models have, and most of the new parameters are actually things we can observe, like the distribution of wages and years of schooling.

Observability of parameters is a big deal. Another problem with the way the Lucas Critique has been used is that we’ve been told we need to be using “deep structural parameters” like the temporal elasticity of substitution and the coefficient of relative risk aversion—but we have no idea what those actually are. We can’t observe them, and all of our attempts to measure them indirectly have yielded inconclusive or even inconsistent results. This is probably because these parameters are based on assumptions about human rationality that are simply not realistic. Most people probably don’t have a well-defined temporal elasticity of substitution, because their day-to-day decisions simply aren’t consistent enough over time for that to make sense. Sometimes they eat salad and exercise; sometimes they loaf on the couch and drink milkshakes. Likewise with risk aversion: many moons ago I wrote about how people will buy both insurance and lottery tickets, which no one with a consistent coefficient of relative risk aversion would ever do.

So if we are interested in deep structural parameters, we need to base those parameters on behavioral experiments so that we can understand actual human behavior. And frankly I don’t think we need deep structural parameters; I think this is a form of greedy reductionism, where we assume that the way to understand something is always to look at smaller pieces. Sometimes the whole is more than the sum of its parts. Economists obviously feel a lot of envy for physics; but they don’t seem to understand that aerodynamics would never have (ahem) gotten off the ground if we had first waited for an exact quantum mechanical solution of the oxygen atom (which we still don’t have, by the way). Macroeconomics may not actually need “microfoundations” in the strong sense that most economists intend; it needs to be consistent with small-scale behavior, but it doesn’t need to be derived from small-scale behavior.

This means that the new paradigm in macroeconomics does not need to be computationally intractable. Using heuristics instead of dynamic optimization and worrying less about microfoundations will make the models simpler; adding inequality need not make them so much more complicated.

Fighting the zero-sum paradigm

Dec 2 JDN 2458455

It should be obvious at this point that there are deep, perhaps even fundamental, divides between the attitudes and beliefs of different political factions. It can be very difficult to even understand, much less sympathize, with the concerns of people who are racist, misogynistic, homophobic, xenophobic, and authoritarian.
But at the end of the day we still have to live in the same country as these people, so we’d better try to understand how they think. And maybe, just maybe, that understanding will help us to change them.

There is one fundamental belief system that I believe underlies almost all forms of extremism. Right now right-wing extremism is the major threat to global democracy, but left-wing extremism subscribes to the same core paradigm (consistent with Horseshoe Theory).

I think the best term for this is the zero-sum paradigm. The idea is quite simple: There is a certain amount of valuable “stuff” (money, goods, land, status, happiness) in the world, and the only political question is who gets how much.

Thus, any improvement in anyone’s life must, necessarily, come at someone else’s expense. If I become richer, you become poorer. If I become stronger, you become weaker. Any improvement in my standard of living is a threat to your status.

If this belief were true, it would justify, or at least rationalize, all sorts of destructive behavior: Any harm I can inflict upon someone else will yield a benefit for me, by some fundamental conservation law of the universe.

Viewed in this light, beliefs like patriarchy and White supremacy suddenly become much more comprehensible: Why would you want to spend so much effort hurting women and Black people? Because, by the fundamental law of zero-sum, any harm to women is a benefit to men, and any harm to Black people is a benefit to White people. The world is made of “teams”, and you are fighting for your own against all the others.

And I can even see why such an attitude is seductive: It’s simple and easy to understand. And there are many circumstances where it can be approximately true.
When you are bargaining with your boss over a wage, one dollar more for you is one dollar less for your boss.
When your factory outsources production to China, one more job for China is one less job for you.

When we vote for President, one more vote for the Democrats is one less vote for the Republicans.

But of course the world is not actually zero-sum. Both you and your boss would be worse off if your job were to disappear; they need your work and you need their money. For every job that is outsourced to China, another job is created in the United States. And democracy itself is such a profound public good that it basically overwhelms all others.

In fact, it is precisely when a system is running well that the zero-sum paradigm becomes closest to true. In the space of all possible allocations, it is the efficient ones that behave in something like a zero-sum way, because when the system is efficient, we are already producing as much as we can.

This may be part of why populist extremism always seems to assert itself during periods of global prosperity, as in the 1920s and today: It is precisely when the world is running at its full capacity that it feels most like someone else’s gain must come at your loss.

Yet if we live according to the zero-sum paradigm, we will rapidly destroy the prosperity that made that paradigm seem plausible. A trade war between the US and China would put millions out of work in both countries. A real war with conventional weapons would kill millions. A nuclear war would kill billions.

This is what we must convey: We must show people just how good things are right now.

This is not an easy task; when people want to believe the world is falling apart, they can very easily find excuses to do so. You can point to the statistics showing a global decline in homicide, but one dramatic shooting on the TV news will wipe that all away. You can show the worldwide rise in real incomes across the board, but that won’t console someone who just lost their job and blames outsourcing or immigrants.

Indeed, many people will be offended by the attempt—the mere suggestion that the world is actually in very good shape and overall getting better will be perceived as an attempt to deny or dismiss the problems and injustices that still exist.

I encounter this especially from the left: Simply pointing out the objective fact that the wealth gap between White and Black households is slowly closing is often taken as a claim that racism no longer exists or doesn’t matter. Congratulating the meteoric rise in women’s empowerment around the world is often paradoxically viewed as dismissing feminism instead of lauding it.

I think the best case against progress can be made with regard to global climate change: Carbon emissions are not falling nearly fast enough, and the world is getting closer to the brink of truly catastrophic ecological damage. Yet even here the zero-sum paradigm is clearly holding us back; workers in fossil-fuel industries think that the only way to reduce carbon emissions is to make their families suffer, but that’s simply not true. We can make them better off too.

Talking about injustice feels righteous. Talking about progress doesn’t. Yet I think what the world needs most right now—the one thing that might actually pull us back from the brink of fascism or even war—is people talking about progress.

If people think that the world is full of failure and suffering and injustice, they will want to tear down the whole system and start over with something else. In a world that is largely democratic, that very likely means switching to authoritarianism. If people think that this is as bad as it gets, they will be willing to accept or even instigate violence in order to change to almost anything else.

But if people realize that in fact the world is full of success and prosperity and progress, that things are right now quite literally better in almost every way for almost every person in almost every country than they were a hundred—or even fifty—years ago, they will not be so eager to tear the system down and start anew. Centrism is often mocked (partly because it is confused with false equivalence), but in a world where life is improving this quickly for this many people, “stay the course” sounds awfully attractive to me.
That doesn’t mean we should ignore the real problems and injustices that still exist, of course. There is still a great deal of progress left to be made.  But I believe we are more likely to make progress if we acknowledge and seek to continue the progress we have already made, than if we allow ourselves to fall into despair as if that progress did not exist.

How much should we give?

Nov 4 JDN 2458427

How much should we give of ourselves to others?

I’ve previously struggled with this basic question when it comes to donating money; I have written multiple posts on it now, some philosophical, some empirical, and some purely mathematical.

But the question is broader than this: We don’t simply give money. We also give effort. We also give emotion. Above all, we also give time. How much should we be volunteering? How many protest marches should we join? How many Senators should we call?

It’s easy to convince yourself that you aren’t doing enough. You can always point to some hour when you weren’t doing anything particularly important, and think about all the millions of lives that hang in the balance on issues like poverty and climate change, and then feel a wave of guilt for spending that hour watching Netflix or playing video games instead of doing one more march. This, however, is clearly unhealthy: You won’t actually make yourself into a more effective activist, you’ll just destroy yourself psychologically and become no use to anybody.

I previously argued for a sort of Kantian notion that we should commit to giving our fair share, defined as the amount we would have to give if everyone gave that amount. This is quite appealing, and if I can indeed get anyone to donate 1% of their income as a result, I will be quite glad. (If I can get 100 people to do so, that’s better than I could ever have done myself—a good example of highly cost-effective slacktivism.)

Lately I have come to believe that this is probably inadequate. We know that not everyone will take this advice, which means that by construction it won’t be good enough to actually solve global problems.

This means I must make a slightly greater demand: Define your fair share as the amount you would have to give if everyone among people who are likely to give gave that amount.

Unfortunately, this question is considerably harder. It may not even have a unique answer. The number of people willing to give an amount n is obviously dependent upon the amount x itself, and we are nowhere close to knowing what that function n(x) looks like.

So let me instead put some mathematical constraints on it, by choosing an elasticity. Instead of an elasticity of demand or elasticity of supply, we could call this an elasticity of contribution.

Presumably the elasticity is negative: The more you ask of people, the fewer people you’ll get to contribute.

Suppose that the elasticity is something like -0.5, where contribution is relatively inelastic. This means that if you increase the amount you ask for by 2%, you’ll only decrease the number of contributors by 1%. In that case, you should be like Peter Singer and ask for everything. At that point, you’re basically counting on Bill Gates to save us, because nobody else is giving anything. The total amount contributed n(x) * x is increasing in x.

On the other hand, suppose that elasticity is something like 2, where contribution is relatively elastic. This means that if you increase the amount you ask for by 2%, you will decrease the number of contributors by 4%. In that case, you should ask for very little. You’re asking everyone in the world to give 1% of their income, as I did earlier. The total amount contributed n(x) * x is now decreasing in x.

But there is also a third option: What if the elasticity is exactly -1, unit elastic? Then if you increase the amount you ask for by 2%, you’ll decrease the number of contributors by 2%. Then it doesn’t matter how much you ask for: The total amount contributed n(x) * x is constant.

Of course, there’s no guarantee that the elasticity is constant over all possible choices of x—indeed, it would be quite surprising if it were. A quite likely scenario is that contribution is inelastic for small amounts, then passes through a regime where it is nearly unit elastic, and finally it becomes elastic as you start asking for really large amounts of money.

The simplest way to model that is to just assume that n(x) is linear in x, something like n = N – k x.

There is a parameter N that sets the maximum number of people who will ever donate, and a parameter k that sets how rapidly the number of contributors drops off as the amount asked for increases.

The first-order condition for maximizing n(x) * x is then quite simple: x = N/(2k)

This actually turns out to be the precisely the point at which the elasticity of contribution is -1.

The total amount you can get under that condition is N2/(4k)

Of course, I have no idea what N and k are in real life, so this isn’t terribly helpful. But what I really want to know is whether we should be asking for more money from each person, or asking for less money and trying to get more people on board.

In real life we can sometimes do both: Ask each person to give more than they are presently giving, whatever they are presently giving. (Just be sure to run your slogans by a diverse committee, so you don’t end up with “I’ve upped my standards. Now, up yours!”) But since we’re trying to find a benchmark level to demand of ourselves, let’s ignore that for now.

About 25% of American adults volunteer some of their time, averaging 140 hours of volunteer work per year. This is about 1.6% of all the hours in a year, or 2.4% of all waking hours. Total monetary contributions in the US reached $400 billion for the first time this year; this is about 2.0% of GDP. So the balance between volunteer hours and donations is actually pretty even. It would probably be better to tilt it a bit more toward donations, but it’s really not bad. About 60% of US households made some sort of charitable contribution, though only half of these received the charitable tax deduction.

This suggests to me that the quantity of people who give is probably about as high as it’s going to get—and therefore we need to start talking more about the amount of money. We may be in the inelastic regime, where the way to increase total contributions is to demand more from each individual.

Our goal is to increase the total contribution to poverty eradication by about 1% of GDP in both the US and Europe. So if 60% of people give, and currently total contributions are about 2.0% of GDP, this means that the average contribution is about 3.3% of the contributor’s gross income. Therefore I should tell them to donate 4.3%, right? Not quite; some of them might drop out entirely, and the rest will have to give more to compensate.
Without knowing the exact form of the function n(x), I can’t say precisely what the optimal value is. But it is most likely somewhat larger than 4.3%; 5% would be a nice round number in the right general range. This would raise contributions in the US to 2.6% of GDP, or about $500 billion. That’s a 20% increase over the current level, which is large, but feasible.

Accomplishing a similar increase in Europe would then give us a total of $200 billion per year in additional funds to fight global poverty; this might not quite be enough to end world hunger (depending on which estimate you use), but it would definitely have a large impact.

I asked you before to give 1%. I am afraid I must now ask for more. Set a target of 5%. You don’t have to reach it this year; you can gradually increase your donations each year for several years (I call this “Save More Lives Tomorrow”, after Thaler’s highly successful program “Save More Tomorrow”). This is in some sense more than your fair share; I’m relying on the assumption that half the population won’t actually give anything. But ultimately this isn’t about what’s fair to us. It’s about solving global problems.