After a frustratingly long wait for several states to finish counting their mail-in ballots (particularly Pennsylvania, Nevada, and Arizona), Biden has officially won the Presidential election. While it was far too close in a few key states, this is largely an artifact of the Electoral College: Biden’s actual popular vote advantage was over 4 million votes. We now have our first Vice President who is a woman of color. I think it’s quite reasonable for us all to share a long sigh of relief at this result.
We have won this battle. But the war is far from over.
First, there is the fact that we are still in a historic pandemic and economic recession. I have no doubt that Biden’s policy response will be better than Trump’s; but he hasn’t taken office yet, and much of the damage has already been done. Things are not going to get much better for quite awhile yet.
Above all, Biden is still far too hawkish on immigration and foreign policy. He won’t chant “build the wall!”, but he’s unlikely to tear down all of our border fences or abolish ICE. He won’t rattle the saber with Iran or bomb civilians indiscriminately, but he’s unlikely to end the program of assassination drone strikes. Trump has severely, perhaps irrevocably, damaged the Pax Americanawith his ludicrous trade wars, alienation of our allies, and fawning over our enemies; but whether or not Biden can restore America’s diplomatic credibility, I have no doubt that he’ll continue to uphold—and deploy—America’s military hegemony. Indeed, the failure of the former could only exacerbate the latter.
Biden’s domestic policy is considerably better, but even there he doesn’t go far enough. His healthcare plan is a substantial step forward, improving upon the progress already made by Obamacare; but it’s still not the single-payer healthcare system we really need. He has some good policy ideas for directly combating discrimination, but isn’t really addressing the deep structural sources of systemic racism. His anti-poverty programs would be a step in the right direction, but are clearly insufficient.
But there is an even more serious problem we must face as a country: Trump got 70 million votes. Even after all he did—his endless lies, his utter incompetence, his obvious corruption—and all that happened—the mishandled pandemic, the exacerbated recession—there were still 70 million people willing to vote for Trump. I said it from the beginning: I have never feared Trump nearly so much as I fear an America that could elect him.
Yes, of course he would have had a far worse shot if our voting system were better: Several viable parties, range voting, and no Electoral College would have all made things go very differently than they did in 2016. But the fact remains that tens of millions of Americans were willing to vote for this man not once, but twice.
What can explain the support of so many people for such an obviously terrible leader?
First, there is misinformation: Our mass media is biased and can give a very distorted view of the world. Someone whose view of world events was shaped entirely by right-wing media like Fox News (let alone OAN) might not realize how terrible Trump is, or might be convinced that Biden is somehow even worse. Yet today, in the 21st century, our access to information is virtually unlimited. Anyone who really wanted to know what Trump is like would be able to find out—so whatever ignorance or misinformation Trump voters had, they bear the greatest responsibility for it.
Then, there is discontent: Growth in total economic output has greatly outpaced growth in real standard of living for most Americans. While real per-capita GDP rose from $26,000 in 1974 to $56,000 today (a factor of 2.15, or 1.7% per year), real median personal income only rose from $25,000 to $36,000 (a factor of 1.44, or 0.8% per year). This reflects the fact that more and more of our country’s wealth is being concentrated in the hands of the rich. Combined with dramatically increased costs of education and healthcare, this means that most American families really don’t feel like their standard of living has meaningfully improved in a generation or more.
Yet if people are discontent with how our economy is run… why would they vote for Donald Trump, who epitomizes everything that is wrong with that system? The Democrats have not done enough to fight rising inequality and spiraling healthcare costs, but they have at least done something—raising taxes here, expanding Medicaid there. This is not enough, since it involves only tweaking the system at the edges rather than solving the deeper structural problems—but it has at least some benefit. The Republicans at their best have done nothing, and at their worst actively done everything in their power to exacerbate rising inequality. And Trump is no different in this regard than any other Republican; he promised more populist economic policy, but did not deliver it in any way. Do people somehow not see that?
I think we must face up to the fact that racism and sexism are clearly a major part of what motivates supporters of Trump. Trump’s core base consists of old, uneducated White men. Women are less likely to support him, and young people, educated people, and people of color are far less likely to support him. The race gap is staggering: A mere 8% of Black people support Trump, while 54% of White people do. While Asian and Hispanic voters are not quite so univocal, still it’s clear that if only non-White people had voted Biden would have won an utter landslide and might have taken every state—yes, likely even Florida, where Cuban-Americans did actually lean slightly toward Trump. The age and education gaps are also quite large: Among those under 30, only 30% support Trump, while among those over 65, 52% do. Among White people without a college degree, 64% support Trump, while among White people with a college degree, only 38% do. The gender gap is smaller, but still significant: 48% of men but only 42% of women support Trump. (Also the fact that the gender gap was smaller this year than in 2016 could reflect the fact that Clinton was running for President but Harris was only running for Vice President.)
We shouldn’t ignore the real suffering and discontent that rising inequality has wrought, nor should we dismiss the significance of right-wing propaganda. Yet when it comes right down to it, I don’t see how we can explain Trump’s popularity without recognizing that an awful lot of White men in America are extremely racist and sexist. The most terrifying thing about Trump is that millions of Americans do know what he’s like—and they’re okay with that.
Trump will soon be gone. But many others like him remain. We need to find a way to fix this, or the next racist, misogynist, corrupt, authoritarian psychopath may turn out to be a lot less foolish and incompetent.
So I just finished reading The Meritocracy Trap by David Markovits.
The basic thesis of the book is that America’s rising inequality is not due to a defect in our meritocratic ideals, but is in fact their ultimate fruition. Markovits implores us to reject the very concept of meritocracy, and replace it with… well, something, and he’s never very clear about exactly what.
The most frustrating thing about reading this book is trying to figure out where Markovits draws the line for “elite”. He rapidly jumps between talking about the upper quartile, the upper decile, the top 1%, and even the top 0.1% or top 0.01% while weaving his narrative. The upper quartile of the US contains 75 million people; the top 0.01% contains only 300,000. The former is the size of Germany, the latter the size of Iceland (which has fewer people than Long Beach). Inequality which concentrates wealth in the top quartile of Americans is a much less serious problem than inequality which concentrates wealth in the top 0.01%. It could still be a problem—those lower three quartiles are people too—but it is definitely not nearly as bad.
I think it’s particularly frustrating to me personally, because I am an economist, which means both that such quantitative distinctions are important to me, and also that whether or not I myself am in this “elite” depends upon which line you are drawing. Do I have a post-graduate education? Yes. Was I born into the upper quartile? Not quite, but nearly. Was I raised by married parents in a stable home? Certainly. Am I in the upper decile and working as a high-paid professional? Hopefully I will be soon. Will I enter the top 1%? Maybe, maybe not. Will I join the top 0.1%? Probably not. Will I ever be in the top 0.01% and a captain of industry? Almost certainly not.
So, am I one of the middle class who are suffering alienation and stagnation, or one of the elite who are devouring themselves with cutthroat competition? Based on BLS statistics for economists and job offers I’ve been applying to, my long-term household income is likely to be about 20-50% higher than my parents’; this seems like neither the painful stagnation he attributes to the middle class nor the unsustainable skyrocketing of elite incomes. (Even 50% in 30 years is only 1.4% per year, about our average rate of real GDP growth.) Marxists would no doubt call me petit bourgeoisie; but isn’t that sort of the goal? We want as many people as possible to live comfortable upper-middle class lives in white-collar careers?
Markovits characterizes—dare I say caricatures—the habits of the middle-class versus the elite, and once again I and most people I know cross-cut them: I spend more time with friends than family (elite), but I cook familiar foods, not fancy dinners (middle); I exercise fairly regularly and don’t watch much television (elite) but play a lot of video games and sleep a lot as well (middle). My web searches involve technology and travel (elite), but also chronic illness (middle). I am a donor to Amnesty International (elite) but also play tabletop role-playing games (middle). I have a functional, inexpensive car (middle) but a top-of-the-line computer (elite)—then again that computer is a few years old now (middle). Most of the people I hang out with are well-educated (elite) but struggling financially (middle), civically engaged (elite) but pessimistic (middle). I rent my apartment and have a lot of student debt (middle) but own stocks (elite). (The latter seemed like a risky decision before the pandemic, but as stock prices have risen and student loan interest was put on moratorium, it now seems positively prescient.) So which class am I, again?
I went to public school (middle) but have a graduate degree (elite). I grew up in Ann Arbor (middle) but moved to Irvine (elite). Then again my bachelor’s was at a top-10 institution (elite) but my PhD will be at only a top-50 (middle). The beautiful irony there is that the top-10 institution is the University of Michigan and the top-50 institution is the University of California, Irvine. So I can’t even tell which class each of those events is supposed to represent! Did my experience of Ann Arbor suddenly shift from middle class to elite when I graduated from public school and started attending the University of Michigan—even though about a third of my high school cohort did exactly that? Was coming to UCI an elite act because it’s a PhD in Orange County, or a middle-class act because it’s only a top-50 university?
If the gap between these two classes is such a wide chasm, how am I straddling it? I honestly feel quite confident in characterizing myself as precisely the upwardly-mobile upper-middle class that Markovits claims no longer exists. Perhaps we’re rarer than we used to be; perhaps our status is more precarious; but we plainly aren’t gone.
Markovits keeps talking about “radical differences” “not merely in degree but in kind” between “subordinate” middle-class workers and “superordinate” elite workers, but if the differences are really that stark, why is it so hard to tell which group I’m in? From what I can see, the truth seems less like a sharp divide between middle-class and upper-class, and more like an increasingly steep slope from middle-class to upper-middle class to upper-class to rich to truly super-rich. If I had to put numbers on this, I’d say annual household incomes of about $50,000, $100,000, $200,000, $400,000, $1 million, and $10 million respectively. (And yet perhaps I should add more categories: Even someone who makes $10 million a year has only pocket change next to Elon Musk or Jeff Bezos.) The slope has gotten steeper over time, but it hasn’t (yet?) turned into a sharp cliff the way Markovits describes. America’s Lorenz curve is clearly too steep, but it doesn’t have a discontinuity as far as I can tell.
Some of the inequalities Markovits discusses are genuine, but don’t seem to be particularly related to meritocracy. The fact that students from richer families go to better schools indeed seems unjust, but the problem is clearly not that the rich schools are too good (except maybe at the very top, where truly elite schools seem a bit excessive—five-figure preschool tuition?), but that the poor schools are not good enough. So it absolutely makes sense to increase funding for poor schools and implement various reforms, but this is hardly a radical notion—nor is it in any way anti-meritocratic. Providing more equal opportunities for the poor to raise their own station is what meritocracy is all about.
Other inequalities he objects to seem, if not inevitable, far too costly to remove: Educated people are better parents, who raise their children in ways that make them healthier, happier, and smarter? No one is going to apologize for being a good parent, much less stop doing so because you’re concerned about what it does to inequality. If you have some ideas for how we might make other people into better parents, by all means let’s hear them. But I believe I speak for the entire upper-middle class when I say: when I have kids of my own, I’m going to read to them, I’m not going to spank them, and there’s not a damn thing you can do to change my mind on either front. Quite frankly, this seems like a heavy-handed satire of egalitarianism, right out of Harrison Bergeron: Let’s make society equal by forcing rich people to neglect and abuse their kids as much as poor people do! My apologies to Vonnegut: I thought you were ridiculously exaggerating, but apparently some people actually think like this.
This is closely tied with the deepest flaw in the argument: The meritocratic elite are actually more qualified. It’s easy to argue that someone like Donald Trump shouldn’t rule the world; he’s a deceitful, narcissistic, psychopathic, incompetent buffoon. (The only baffling part is that 40% of American voters apparently disagree.) But it’s a lot harder to see why someone like Bill Gates shouldn’t be in charge of things: He’s actually an extremely intelligent, dedicated, conscientious, hard-working, ethical, and competent individual. Does he deserve $100 billion? No, for reasons I’ve talked about before. But even he knows that! He’s giving most of it away to highly cost-effective charities! Bill Gates alone has saved several million lives by his philanthropy.
Markovits tries to argue that the merits of the meritocratic elite are arbitrary and contextual, like the alleged virtues of the aristocratic class: “The meritocratic virtues, that is, are artifacts of economic inequality in just the fashion in which the pitching virtues are artifacts of baseball.” (p. 264) “The meritocratic achievement commonly celebrated today, no less than the aristocratic virtue acclaimed in the ancien regime, is a sham.” (p. 268)
But it’s pretty hard for me to see how things like literacy, knowledge of history and science, and mathematical skill are purely arbitrary. Even the highly specialized skills of a quantum physicist, software engineer, or geneticist are clearly not arbitrary. Not everyone needs to know how to solve the Schrodinger equation or how to run a polymerase chain reaction, but our civilization greatly benefits from the fact that someone does. Software engineers aren’t super-productive because of high inequality; they are super-productive because they speak the secret language of the thinking machines. I suppose some of the skills involved in finance, consulting, and law are arbitrary and contextual; but he makes it sound like the only purpose graduate school serves is in teaching us table manners.
Precisely by attacking meritocracy, Markovits renders his own position absurd. So you want less competent people in charge? You want people assigned to jobs they’re not good at? You think businesses should go out of their way to hire employees who will do their jobs worse? Had he instead set out to show how American society fails at achieving its meritocratic ideals—indeed, failing to provide equality of opportunity for the poor is probably the clearest example of this—he might have succeeded. But instead he tries to attack the ideals themselves, and fails miserably.
Markovits avoids the error that David Graeber made: Graeber sees that there are many useless jobs but doesn’t seem to have a clue why these jobs exist (and turns to quite foolish Marxian conspiracy theories to explain it). Markovits understands that these jobs are profitable for the firms that employ them, but unproductive for society as a whole. He is right; this is precisely what virtually the entire fields of finance, sales, advertising, and corporate law consist of. Most people in our elite work very hard with great skill and competence, and produce great profits for the corporations that employ them, all while producing very little of genuine societal value. But I don’t see how this is a flaw in meritocracy per se.
Nor does Markovits stop at accusing employment of being rent-seeking; he takes aim at education as well: “when the rich make exceptional investments in schooling, this does reduce the value of ordinary, middle-class training and degrees. […] Meritocratic education inexorably engenders a wasteful and destructive arms educational arms race, which ultimately benefits no one, not even the victors.” (p.153) I don’t doubt that education is in part such a rent-seeking arms race, and it’s worthwhile to try to minimize that. But education is not entirely rent-seeking! At the very least, is there not genuine value in teaching children to read and write and do arithmetic? Perhaps by the time we get to calculus or quantum physics or psychopathology we have reached diminishing returns for most students (though clearly at least some people get genuine value out of such things!), but education is not entirely comprised of signaling or rent-seeking (and nor do “sheepskin effects” prove otherwise).
My PhD may be less valuable to me than it would be to someone in my place 40 years ago, simply because there are more people with PhDs now and thus I face steeper competition. Then again, perhaps not, as the wage premium for college and postgraduate education has been increasing, not decreasing, over that time period. (How much of that wage premium is genuine social benefit and how much is rent-seeking is difficult to say.) In any case it’s definitely still valuable. I have acquired many genuine skills, and will in fact be able to be genuinely more productive as well as compete better in the labor market than I would have without it. Some parts of it have felt like a game where I’m just trying to stay ahead of everyone else, but it hasn’t all been that. A world where nobody had PhDs would be a world with far fewer good scientists and far slower technological advancement.
Abandoning meritocracy entirely would mean that we no longer train people to be more productive or match people to the jobs they are most qualified to do. Do you want a world where surgery is not done by the best surgeons, where airplanes are not flown by the best pilots? This necessarily means less efficient production and an overall lower level of prosperity for society as a whole. The most efficient way may not be the best way, but it’s still worth noting that it’s the most efficient way.
Really, is meritocracy the problem, or is it something else?
Markovits is clearly right that something is going wrong with American society: Our inequality is much too high, and our job market is much too cutthroat. I can’t even relate to his description of what the job market was like in the 1960s (“Old Economy Steve” has it right): “Even applicants for white-collar jobs received startlingly little scrutiny. For most midcentury workers, getting a job did not involve any application at all, in the competitive sense of the term.” (p.203)
In fact, if anything he seems to understate the difference across time, perhaps because it lets him overstate the difference across class (p. 203):
Today, by contrast, the workplace is methodically arranged around gradations of skill. Firms screen job candidates intensively at hiring, and they then sort elite and non-elite workers into separate physical spaces.
Only the very lowest-wage employers, seeking unskilled workers, hire casually. Middle-class employers screen using formal cognitive tests and lengthy interviews. And elite employers screen with urgent intensity, recruiting from only a select pool and spending millions of dollars to probe applicants over several rounds of interviews, lasting entire days.
Today, not even the lowest-wage employers hire casually! Have you ever applied to work at Target? There is a personality test you have to complete, which I presume is designed to test your reliability as an obedient corporate drone. Never in my life have I gotten a job that didn’t involve either a lengthy application process or some form of personal connection—and I hate to admit it, but usually the latter. It is literally now harder to get a job as a cashier at Target than it was to get a job as an engineer at Ford 60 years ago.
But I still can’t shake the feeling that meritocracy is not exactly what’s wrong here. The problem with the sky-high compensation packages at top financial firms isn’t that they are paid to people who are really good at their jobs; it’s that those jobs don’t actually accomplish anything beneficial for society. Where elite talent and even elite compensation is combined with genuine productivity, such as in science and engineering, it seems unproblematic (and I note that Markovits barely even touches on these industries, perhaps because he sees they would undermine his argument). The reason our economic growth seems to have slowed as our inequality has massively surged isn’t that we are doing too good a job of rewarding people for being productive.
Indeed, it seems like the problem may be much simpler: Labor supply exceeds labor demand.
This graph shows the relationship over time between unemployment and job vacancies. As you can see, they are generally inversely related: More vacancies means less unemployment. I have drawn in a green line which indicates the cutoff between having more vacancies than unemployment—upper left—and having more unemployment than vacancies—lower right. We have almost always been in the state of having more unemployment than we have vacancies; notably, the mid-1960s were one of the few periods in which we had significantly more vacancies than unemployment.
For decades we’ve been instituting policies to try to give people “incentives to work”; but there is no shortage of labor in this country. We seem to have plenty of incentives to work—what we need are incentives to hire people and pay them well.
Indeed, perhaps we need incentives not to work—like a basic income or an expanded social welfare system. Thanks to automation, productivity is now astonishingly high, and yet we work ourselves to death instead of enjoying leisure.
And of course there are various other policy changes that have made our inequality worse—chiefly the dramatic drops in income tax rates at the top brackets that occurred under Reagan.
In fact, many of the specific suggestions Markovits makes—which, much to my chagrin, he waits nearly 300 pages to even mention—are quite reasonable, or even banal: He wants to end tax deductions for alumni donations to universities and require universities to enroll more people from lower income brackets; I could support that. He wants to regulate finance more stringently, eliminate most kinds of complex derivatives, harmonize capital gains tax rates to ordinary income rates, and remove the arbitrary cap on payroll taxes; I’ve been arguing for all of those things for years. What about any of these policies is anti-meritocratic? I don’t see it.
More controversially, he wants to try to re-organize production to provide more opportunities for mid-skill labor. In some industries I’m not sure that’s possible: The 10X programmer is a real phenomenon, and even mediocre programmers and engineers can make software and machines that are a hundred times as productive as doing the work by hand would be. But some of his suggestions make sense, such as policies favoring nurse practitioners over specialist doctors and legal secretaries instead of bar-certified lawyers. (And please, please reform the medical residency system! People die from the overwork caused by our medical residency system.)
But I really don’t see how not educating people or assigning people to jobs they aren’t good at would help matters—which means that meritocracy, as I understand the concept, is not to blame after all.
Imagine for a moment a hypothetical being who was a perfect utilitarian, who truly felt at the deepest level an equal caring for all human beings—or even all life.
We often imagine that such a being would be perfectly moral, and sometimes chide ourselves for failing so utterly to live up to its ideal. Today I’d like to take a serious look at how such a being would behave, and ask whether it is really such a compelling ideal after all.
I cannot feel sadness at your grandmother’s death, for over 150,000 people die every day. By far the highest QALY lost are the deaths of children in the poorest countries, and I feel sad for them as an aggregate, but couldn’t feel particularly saddened by any individual one.
My happiness does not change from hour to hour or day to day, except as a slow, steady increase over time that is occasionally interrupted briefly by sudden disasters like hurricanes or tsunamis. 2020 was the saddest year I’ve had in awhile, as for once there was strongly correlated suffering across the globe sufficient to break through the trend of steadily increasing prosperity.
Should we go out with friends for drinks or dinner or games, I’ll be ever-so-slightly happier, some barely perceptible degree, provided that there is no coincidental event which causes more than the baseline rate of global suffering that day. And I’d be just as happy to learn that someone else I’d never met went out to dinner with someone else I’d also never met.
Of course I love you, my dear: Precisely as much as I love the other eight billion people on Earth.
I hope now that you can see how flat, how bleak, how inhuman such a being’s experience would be. We might sometimes wish some respite from the roller coaster ride of our own emotional experiences, but in its place this creature feels almost nothing at all, just a vague sense of gradually increasing contentment which is occasionally interrupted by fleeting deviations from the trend.
Such a being is incapable of feeling love as we would recognize it—for a mind such as ours could not possibly feel so intensely for a billion people at once. To love all the people of the world equally, and still have anything resembling a human mind, is to love no one at all.
Perhaps we should not feel so bad that we are not such creatures, then?
Of course I do not mean to say that we should care nothing for distant strangers in foreign lands, or even that the tiny amount most people seem to care is adequate. We should care—and we should care more, and do more, than most people do.
But I do mean to say that it is possible to care too much about other people far away, an idea that probably seems obvious to some but radical to others. The human capacity for caring is not simply zero-sum—there are those who care more overall and less overall—but I do believe that it is limited: At some point you begin to sacrifice so much for those you have no attachments to that you begin to devalue your own attachments.
There is an interior optimum: We should care enough, but not too much. We should sacrifice some things, but not everything. Those closest to us should matter morethan those further away—but both should matter. Where exactly to draw that line is a very difficult question, which has stumped far greater philosophers than I; but at least we can narrow the space and exclude the endpoints.
This may even make a certain space for morally justifying selfishness. Surely it does not justify total, utter selfishness with no regard for the suffering of others. But it defends self-care at the very least, and perhaps can sweep away some of the feelings of guilt we may have from being fortunate or prevailing in fair competition. Yes, much of what you have was gained by sheer luck, and even much of what you have earned, you earned by out-competing someone else nearly as deserving. But this is true of everyone, and as long as you played fair, you’ve not done wrong by doing better. There’s even good reason to think that a system which allocates its privileges by fair competition is a particularly efficient one, one which ultimately raises the prosperity of all.
If nothing else, reflecting on this has made me feel better about giving 8% of my gross income to charity instead of 20% or 50% or even 80%. And if even 8% is too much for you, try 2% or even 1%.
The race to the bottomis a common result of competition, between firms, between states, or even between countries. One firm finds a way to cut corners and reduce costs, then lowers their price to undercut others; then soon every firm is cutting those same corners. Or one country decides to weaken their regulations in order to attraction more business; then soon every other country has to weaken their regulations as well.
Let’s first consider individual firms. Suppose that you run a business, and you are an upstanding, ethical person. You want to treat your employees, your customers, and your community well. You have high labor standards, you exceed the requirements of environmental regulations, and you make a high-quality product at a reasonable price for a moderate profit.
Then, a competitor appears. The owner of this company is not so ethical. They exploit their workers, perhaps even stealing their wages. They flaunt environmental regulations. They make shoddy products. All of this allows them to make their products for a lower price than yours.
Suppose that most customers can’t tell the difference between your product and theirs. What will happen? They will stop buying yours, because it’s more expensive. What do you do then?
You could simply go out of business. But that doesn’t really solve anything. Probably you’ll be forced to lower your standards. You’ll treat your workers worse, pollute more, reduce product quality. You may not do so as much as the other company, but you’ll have to do it some in order to get the price down low enough to still compete. And your profits will be lower than theirs as a result.
Far better would be for the government to step in and punish that other business for breaking the rules—or if what they’re doing is technically legal, change the rules so that it’s not anymore. Then you could continue to produce high-quality products with fair labor standards and good environmental sustainability.
But there are some problems with this. First, consider this from the point of view of a regulator, who is being lobbied by both companies. Your company asks for higher standards to improve product quality while protecting workers and the environment. But theirs claims that these higher standards will push them out of business. Who will they believe?
In fact, it may be worse than that: Suppose we’ve already settled into an equilibrium where all the firms have low standards. In that case, all the lobbyists will be saying that regulations need to be kept weak, lest the whole industry fail.
But in fact there’s no reason to think that stricter regulations would actually destroy the whole industry. Firm owners are used to thinking in terms of fixed competitors: They act in response to what competitors do. And in many cases it’s actually true that if just one firm tried to raise their standards, they would be outcompeted and go out of business. This does not mean that if all firms were forced to raise their standards, the industry would collapse. In fact, it’s much more likely that stricter regulations would only moderately reduce output and profits, if imposed consistently across the whole industry.
To see why, let’s consider a very simple model, a Bertrand competition game. There are two firms, A and B. Each can either use process H, producing a product of high quality with high labor standards and good sustainability, or use process L, producing a product of low quality with low labor standards and poor sustainability. Process H costs $100 per unit, process L costs $50 per unit. Customers can’t tell the difference, so they will buy whichever product is offered at the lowest price. Let’s say you are in charge of firm A. You choose which process to use, and set your price. At the same time, firm B chooses a process and sets their price.
Suppose choose to use process H. The lowest possible price you could charge to still make a profit would be a price of $101 (ignoring cents; let’s say customers also ignore them, which might be true!).
But firm B could choose process L, and then set a price of $100. They can charge just one dollar less than you charge for their product, but their cost is only $50, so now they are making a large profit—and you get nothing.
So you are forced to lower your standards, in order to match their price. You could try to undercut them at a price of $100, but in the long run that’s a bad idea, since eventually you’ll both be driven to charging a price of 51 and making only a very small profit. And there’s a way to stop them from undercutting you, which is to offer a price-matching guarantee; you can tell your customers that if they see a lower price from firm B than what you’re offering, you’ll match it for them. Then firm B has no incentive to try to undercut you, and you can maintain a stable equilibrium at a price of $100. You have been forced to used process L even though you know it is worse, because any attempt to unilaterally deviate from that industry norm would result in your company going bankrupt.
But now suppose the government comes in and mandates that all firms use process H, and they really enforce this rule so that no firm wants to try to break it. Then you’d want to raise the price, but you wouldn’t necessarily have to raise it all that much. Even $101 would be enough to ensure some profit, and you could even maintain your current profits by raising the price up to $150. In reality the result would probably be somewhere in between those two, depending on the elasticity of demand; so perhaps you end up charging $125 and make half the profit you did before.
Even though the new regulation raised costs all the way up to the current price, they did not result in collapsing the industry; because the rule was enforced uniformly, all firms were able to raise their standards and also raise their prices. This is what we should typically expect to happen; so any time someone claims that a new regulation will “destroy the industry” we should be very skeptical of that claim. (It’s not impossible; for instance, a regulation mandating that all fast food workers be paid $200 per hour would surely collapse the fast food industry. But it’s very unlikely that anyone would seriously propose a regulation like that.)
So as long as you have a strong government in place, you can escape the race to the bottom. But then we must consider international competition: What if other countries have weaker regulations, and so firms want to move their production to those other countries?
Well, a small country may actually be forced to lower their standards in order to compete. I’m not sure there’s much that Taiwan or Singapore could do to enforce higher labor standards. If Taiwan decided to tighten all their labor regulations, firms might just move their production to Indonesia or Vietnam. Then again, monthly incomes in Taiwan, once adjusted for currency exchange rates, are considerably higher than those in Vietnam. Indeed, wages in Taiwan aren’t much lower than wages in the US. So apparently Taiwan has some power to control their own labor standards—perhaps due to their highly educated population and strong industrial infrastructure.
Perhaps these rules go too far; while I agree with the concern about protectionism, I definitely think we should be doing more to enforce penalties for forced labor, for instance. But this is not the result of too little international governance—if anything it is the result of too much. Our free trade agreements are astonishingly binding, even on the most powerful countries (China has successfully sued the United States under WTO rules!). I wish only that our human rights charters were anywhere near as well enforced.
This means that the race to the bottom is not the inevitable result of competition between firms or even between countries. When it occurs, it is the result of particular policy regimes nationally or internationally. We can make better rules.
The first step may be to stop listening to the people who say that any change will “destroy the industry” because they are unable (or unwilling?) to understand how uniformly-imposed rules differ from unilateral deviations from industry norms.
There are great many distortions in real-world markets that cause them to deviate from the ideal of perfectly competitive free markets, and economists rightfully spend much of their time locating, analyzing, and mitigating such distortions.
But I think there is a general perception among economists, and perhaps among others as well, that if we could somehow make markets perfectly competitive and efficient, we’d be done; the world, or at least the market, would be just and fair and all would be good. And this perception is gravely mistaken. To make that clear to you, I offer a little fable.
Once upon a time, widgets were made by hand. One person, working for one eight-hour day, could make 100 widgets. Most people were employed making widgets full-time. The wage for making widgets was $1 per widget.
Then, an inventor came up with a way to automate the production of widgets. For $100 per day, the same cost to hire a worker to make 100 widgets, the machine could instead make 101 widgets.
Because it was 1% more efficient, businesses began adopting the new machine, and now made slightly more widgets than before. But some workers who had previously made widgets were laid off, while others saw their wages fall to only $0.99 per widget.
If there were more widgets, but fewer people were getting paid less to make them, where did the extra wealth go? To the inventor, of course, who now owns 10% of all widget production and has billions of dollars.
Later, another inventor came up with an even better machine, which could make 102 widgets in a day. And that inventor became a billionare too, while more became unemployed and wages fell to $0.98 per widget.
And then there was another inventor, and another, and another; and today the machines can make 200 widgets in a day and wages are only $0.50 per widget. We now have twice as many widgets as we used to have, and hundreds of billionaires; yet only half as many people now work making widgets as once did, and those who remain make only half of what they once did.
Was this market inefficient or uncompetitive? Not at all! In fact it was quite efficient: It delivered the most widgets for the least cost every step of the way. And the first round of billionaires didn’t get enough power to keep the next round from innovating even better and also becoming billionaires. No one stole or cheated to get where they are; the billionaires really made it to the top by being brilliant innovators who made the world more efficient.
Indeed, by the standard measures of economic surplus, the world has gotten better with each new machine. GDP has gone up, wealth has gone up. Yet millions of people are out of work, and millions more are making pitifully low wages. Overall the nation seems to be worse off, even though all the numbers keep saying things are getting better.
There are some relatively simple solutions to this problem: We could tax those billionaires, and use the money to provide public goods to everyone else; and then the added wealth from doubling our quantity of widgets would benefit everyone and not just the inventors who made it happen. Would that reduce the incentives to innovate? A little, perhaps; but it’s hard to believe that most people who would be willing to invent something for $1 billion wouldn’t be willing to do so for $500 million or even for $50 million. At some point that extra money really isn’t benefiting you all that much. And what’s the point of incentivizing innovation if it makes life worse for most of our population?
In the real world there are lots of other problems, of course. Corruption, regulatory capture, rent-seeking, collusion, and so on all make our markets less efficient than they could have been. But even if markets were efficient, it’s not clear that they would be fair or just, or that they would be making most people’s lives better.
Indeed, I’m not convinced that most billionaires really got where they are by being particularly innovative. I can appreciate the innovations made by Cisco and Microsoft, but what brilliant innovation underlies Facebook or Amazon? The Internet itself is a great innovation (largely created by DARPA and universities), but is using it to talk to people or sell things really such a great leap? Tesla and SpaceX are innovative, but they have largely been money pits for Elon Musk, who inherited a good chunk of his wealth and made most of the rest by owning shares in PayPal. Yet even if we suppose that all the billionaires got where they are by inventing things that made the economy more efficient, it’s still not clear that they deserve to keep that staggering wealth.
I think the fundamental problem is that we have mentally equated ‘value of marginal product’ with ‘what you rightfully earn’. But the former is dependent upon the rest of the market: Who you are competing with, what your customers want. You can work very hard and be very talented, but if you’re making something that people aren’t willing to pay for, you won’t make any money. And the fact that people won’t pay for something doesn’t mean it isn’t valuable: If you produce public goods, they could benefit many people a great deal but still not draw in profits. Conversely, the fact that something is profitable doesn’t necessarily make it valuable: It could just be a very effective method of rent-seeking.
I’m not saying we should do away with markets; they’re very useful, and they do have a lot of benefits. But we should acknowledge their limitations. We should be aware not only that real-world markets are not perfectly efficient, but also that even a perfectly efficient market wouldn’t make for the best possible world.
Suppose you were offered the choice of the following two gambles; which one would you take?
Gamble A: 99.9% chance of $0; 0.1% chance of $100 million
Gamble B: 10% chance of $50,000; 80% chance of $100,000; 10% chance of $1 million
I think it’s pretty clear that you should choose gamble B.
If you were risk-neutral, the expected payoffs would be $100,000 for gamble A and $185,000 for gamble B. So clearly gamble B is the better deal.
But you’re probably risk-averse. If you have logarithmic utility with a baseline and current wealth of $10,000, the difference is even larger:
0.001*ln(10001) = 0.009
0.1*ln(6) + 0.8*ln(11) + 0.1*ln(101) = 2.56
Yet suppose this is a gamble that a lot of people get to take. And furthermore suppose that what you read about in the news every day is always the people who are the very richest. Then you will read, over and over again, about people who took gamble A and got lucky enough to get the $100 million. You’d probably start to wonder if maybe you should be taking gamble A instead.
This is more or less the world we live in. A handful of billionaires own staggering amounts of wealth, and we are constantly hearing about them. Even aside from the fact that most of them inherited a large portion of it and all of them had plenty of advantages that most of us will never have, it’s still not clear that they were actually smart about taking the paths they did—it could simply be that they got spectacularly lucky.
Or perhaps there’s an even clearer example: Professional athletes. The vast majority of athletes make basically no money at sports. Even most paid athletes are in minor leagues and make only a modest living.
There’s certainly nothing wrong with being an amateur who plays sports for fun. But if you were to invest a large proportion of your time training in sports in the hopes of becoming a professional athlete, you would most likely find yourself gravely disappointed, as your chances of actually getting into the major leagues and becoming a multi-millionaire are exceedingly small. Yet you can probably name at least a few major league athletes who are multi-millionaires—perhaps dozens, if you’re a serious fan—and I doubt you can name anywhere near as many minor league players or players who never made it into paid leagues in the first place.
When we spend all of our time focused on the superstars, what we are effectively assessing is the maximum possible income available on a given career track. And it’s true; the maximum for professional athletes and especially entrepreneurs is extremely high. But the maximum isn’t what you should care about; you should really be concerned about the average or even the median.
And it turns out that the same professions that offer staggeringly high incomes at the very top also tend to be professions with extremely high risk attached. The average income for an athlete is very small; the median is almost certainly zero. Entrepreneurs do better; their average and median income aren’t too much worse than most jobs. But this moderate average comes with a great deal of risk; yes, you could become a billionaire—but far more likely, you could become bankrupt.
This is a deeply perverse result: The careers that our culture most glorifies, the ones that we inspire people to dream about, are precisely those that are the most likely to result in financial ruin.
Realizing this changes your perspective on a lot of things. For instance, there is a common lament that teachers aren’t paid the way professional athletes are. I for one am extremely grateful that this is the case. If teachers were paid like athletes, yes, 0.1% would be millionaires, but only 4.9% would make a decent living, and the remaining 95% would be utterly broke. Indeed, this is precisely what might happen if MOOCs really take off, and a handful of superstar teachers are able to produce all the content while the vast majority of teaching mostly amounts to showing someone else’s slideshows. Teachers are much better off in a world where they almost all make a decent living even though none of them ever get spectacularly rich. (Are many teachers still underpaid? Sure. How do I know this? Because there are teacher shortages. A chronic shortage of something is a surefire sign that its price is too low.) And clearly the idea that we could make all teachers millionaires is just ludicrous: Do you want to pay $1 million a year for your child’s education?
Is there a way that we could change this perverse pattern? Could we somehow make it feel more inspiring to choose a career that isn’t so risky? Well, I doubt we’ll ever get children to dream of being accountants or middle managers. But there are a wide range of careers that are fulfilling and meaningful while still making a decent living—like, well, teaching. Even working in creative arts can be like this: While very few authors are millionaires, the median income for an author is quite respectable. (On the other hand there’s some survivor bias here: We don’t count you as an author if you can’t get published at all.) Software engineers are generally quite satisfied with their jobs, and they manage to get quite high incomes with low risk. I think the real answer here is to spend less time glorifying obscene hoards of wealth and more time celebrating lives that are rich and meaningful.
I don’t know if Jeff Bezos is truly happy. But I do know that you and I are more likely to be happy if instead of trying to emulate him, we focus on making our own lives meaningful.
Perhaps because of the board game (the popularity of which honestly baffles me; it’s really not a very good game!), the concept of monopoly is familiar to most people: A market with one seller and many buyers can command high prices and high profits for the seller.
But the opposite situation, a market with many sellers and one buyer, is equally problematic, yet far less well-known. This is called monopsony. Whereas in a monopoly prices are too high, in a monopsony prices are too low.
I have long suspected, but the data now confirms, that the most widespread form of monopsony occurs in labor markets. This is a particularly bad place for monopsony, because it means that instead of consumer prices being lower, wages will be lower. Monopsonistic labor markets are bad in two ways: They lower wages and they increase unemployment.
This map is color-coded by commuting zone, based on whether the average labor market (different labor markets weighted by their number of employees) is monopsonistic. Commuting zones with only a few major employers are colored red, while those with many employers are colored green. In between are shaded orange and yellow. (Not a very colorblind-friendly coding scheme, I’m afraid.)
Basically you can see that the only places where labor markets are not monopsonistic are in major metro areas. Suburban areas are typically yellow, and rural areas are almost all orange or red.
It seems then that we have two choices for where we want to live: We can live in rural areas and have monopsonistic labor markets with low wages and competitive real estate markets with low housing prices, or we can live in urban areas and have competitive labor markets with high wages and monopolistic real estate markets with high housing prices. There’s hardly anywhere we can live where both wages and housing prices are fair.
Of course, student loans are denominated in nominal terms, so you might actually be able to pay off your student loans faster living in San Francisco than you could in Detroit. Say taxes are 20%, so these become after-tax incomes of $25,000 and $83,000. Even if you spend only a third of your income on housing in Detroit and spend two-thirds in San Francisco, that leaves you with $16,600 in Detroit but $27,600 in San Francisco. Of course other prices are different too, but it seems quite likely that being able to pay $5,000 per year on your student loans is easier living in San Francisco than it is in Detroit.
What can be done about monopsony in labor markets? First, we could try to split up employers—the FTC already doesn’t do enough to break up monopolies, but it basically does nothing to break up monopsonies. But that may not always be feasible, particularly in rural areas. And there are genuine economies of scale that can make larger firms more efficient in certain ways; we don’t want to lose those.
At first glance, labor unions seem anti-competitive: They act like a monopoly. But when you currently have a monopsony, adding a monopoly can actually be a good thing. Instead of one seller and many buyers, resulting in prices that are too low, you can have one seller and one buyer, resulting in prices that are negotiated and can, at least potentially, be much fairer. This market structure is called a bilateral monopoly, and while it’s not as good as perfect competition, it’s considerably more efficient than either monopsony or monopoly alone.
As I write this I am suffering from some sort of sinus infection, most likely some strain of rhinovirus. So far it has just been basically a bad cold, so there isn’t much to do aside from resting and waiting it out. But it did get me thinking about healthcare—we’re so focused on the costs of providing it that we often forget the costs of not providing it.
Of course this result relies upon the disability weights; it’s not so obvious how we should be comparing across different conditions. How many years would you be willing to trade of normal life to avoid ten years of Alzheimer’s? But it’s probably not too far off to say that if we could somehow wave a magic wand and cure all disease, we would really increase our GDP by something like 30%. This would be over $6 trillion in the US, and over $26 trillion worldwide.
Of course, we can’t actually do that. But we can ask what kinds of policies are most likely to promote health in a cost-effective way.
Unsurprisingly, the biggest improvements to be made are in the poorest countries, where it can be astonishingly cheap to improve health. Malaria prevention has a cost of around $30 per DALY—by donating to the Against Malaria Foundation you can buy a year of life for less than the price of a new video game. Compare this to the standard threshold in the US of $50,000 per QALY: Targeting healthcare in the poorest countries can increase cost-effectiveness a thousandfold. In humanitarian terms, it would be well worth diverting spending from our own healthcare to provide public health interventions in poor countries. (Fortunately, we have even better options than that, like raising taxes on billionaires or diverting military spending instead.)
The obvious answer here is to make our own healthcare system more like those of other First World countries. There are a variety of universal health care systems in the world that we could model ourselves on, ranging from the single-payer government-run system in the UK to the universal mandate system of Switzerland. The amazing thing is that it almost doesn’t matter which one we choose: We could copy basically any other First World country and get better healthcare for less spending. Obamacare was in many ways similar to the Swiss system, but we never fully implemented it and the Republicans have been undermining it every way they can. Under President Trump, they have made significant progress in undermining it, and as a result, there are now 3 million more Americans without health insurance than there were before Trump took office. The Republican Party is intentionally increasing the harm of disease.
The average daily commute time in the United States is about 26 minutes each way—for a total of 52 minutes every weekday. Public transit commute times are substantially longer in most states than driving commute times: In California, the average driving commute is 28 minutes each way, while the average public transit commute is 51 minutes each way. Adding this up over 5 workdays per week, working 50 weeks per year, means that on average Americans spend over 216 hours each year commuting.
Median annual income in the US is about $33,000. Assuming about 2000 hours of work per year for a full-time job, that’s a wage of $16.50 per hour. This makes the total cost of commute time in the United States over $3500 per worker per year. Multiplied by a labor force of 205 million, this makes the total cost of commute time over $730 billion per year. That’s not even counting the additional carbon emissions and road fatalities. This is all pure waste. The optimal commute time is zero minutes; the closer we can get to that, the better. Telecommuting might finally make this a reality, at least for a large swath of workers. Already over 40% of US workers telecommute at least some of the time.
Not that buying a home solves the problem: In many US cities the price-to-rent ratio of homes is over 20 to 1, and in Manhattan and San Francisco it’s as high as 50 to 1. If you already bought your home years ago, this is great for you; for the rest of us, not so much. Interestingly, high rents seem to correlate with higher price-to-rent ratios, so it seems like purchase prices are responding even more to whatever economic pressure is driving up rents.
This suggests that a more efficient housing market would probably cut prices in California by 50% and prices in New York by 25%. Since about 40% of all spending in California is on housing, this price change would effectively free up 20% of California’s GDP—and 20% of $3 trillion is $600 billion per year. The additional 8% of New York’s GDP gets us another $130 billion, and we’re already at that $730 billion I calculated for the total cost of commuting, only considering New York and California alone.
Christmas is coming soon, and it is a season of giving: Not only gifts to those we love, but also to charities that help people around the world. It’s a theme of some of our most classic Christmas stories, like A Christmas Carol. (I do have to admit: Scrooge really isn’t wrong for not wanting to give to some random charity without any chance to evaluate it. But I also get the impression he wasn’t giving a lot to evaluated charities either.) And people do really give more around this time of year: Charitable donation rates peak in November and December (though that may also have something to do with tax deductions).
Where should we give? This is not an easy question, but it’s one that we now have tools to answer: There are various independent charity evaluation agencies, like GiveWell and Charity Navigator, which can at least provide some idea of which charities are most cost-effective.
How much should we give? This question is a good deal harder.
Perhaps a perfect being would determine their own precise marginal utility of wealth, and the marginal utility of spending on every possible charity, and give of your wealth to the best possible charity up until those two marginal utilities are equal. Since $1 to UNICEF or the Against Malaria Foundation saves about 0.02 QALY, and (unless you’re a billionaire) you don’t have enough money to meaningfully affect the budget of UNICEF, you’d probably need to give until you are yourself at the UN poverty level of $1.90 per day.
I don’t know of anyone who does this. Even Peter Singer, who writes books that essentially tell us to do this, doesn’t do this. I’m not sure it’s humanly possible to do this. Indeed, I’m not even so sure that a perfect being would do it, since it would require destroying their own life and their own future potential.
How about we all give 10%? In other words, how about we tithe? Yes, it sounds arbitrary—because it is. It could just as well have been 8% or 11%. Perhaps one-tenth feels natural to a base-10 culture made of 10-fingered beings, and if we used a base-12 numeral system we’d think in terms of giving one-twelfth instead. But 10% feels reasonable to a lot of people, it has a lot of cultural support behind it already, and it has become a Schelling point for coordination on this otherwise intractable problem. We need to draw the line somewhere, and it might as well be there.
It’s ten percent because that’s the standard decreed by Giving What We Can and the effective altruist community. Why should we believe their standard? I think we should believe it because if we reject it in favor of “No, you are a bad person unless you give all of it,” then everyone will just sit around feeling very guilty and doing nothing. But if we very clearly say “You have discharged your moral duty if you give ten percent or more,” then many people will give ten percent or more. The most important thing is having a Schelling point, and ten percent is nice, round, divinely ordained, and – crucially – the Schelling point upon which we have already settled. It is an active Schelling point. If you give ten percent, you can have your name on a nice list and get access to a secret forum on the Giving What We Can site which is actually pretty boring.
It’s ten percent because definitions were made for Man, not Man for definitions, and if we define “good person” in a way such that everyone is sitting around miserable because they can’t reach an unobtainable standard, we are stupid definition-makers. If we are smart definition-makers, we will define it in whichever way which makes it the most effective tool to convince people to give at least that much.
I think it would be also reasonable to adjust this proportion according to your household income. If you are extremely poor, give a token amount: Perhaps 1% or 2%. (As it stands, most poor people already give more than this, and most rich people give less.) If you are somewhat below the median household income, give a bit less: Perhaps 6% or 8%. (I currently give 8%; I plan to increase to 10% once I get a higher-paying job after graduation.) If you are somewhat above, give a bit more: Perhaps 12% or 15%. If you are spectacularly rich, maybe you should give as much as 25%.
Is 10% enough? Well, actually, if everyone gave, even 1% would probably be enough. The total GDP of the First World is about $40 trillion; 1% of that is $400 billion per year, which is more than enough to end world hunger. But since we know that not everyone will give, we need to adjust our standard upward so that those who do give will give enough. (There’s actually an optimization problem here which is basically equivalent to finding a monopoly’s profit-maximizing price.) And just ending world hunger probably isn’t enough; there is plenty of disease to cure, education to improve, research to do, and ecology to protect. If say a third of First World people give 10%, that would be about $1.3 trillion, which would be enough money to at least make a huge difference in all those areas.
You can decide for yourself where you think you should draw the line. But 10% is a pretty good benchmark, and above all—please, give something. If you give anything, you are probably already above average. A large proportion of people give nothing at all. (Only 24% of US tax returns include a charitable deduction—though, to be fair, a lot of us donate but don’t itemize deductions. Even once you account for that, only about 60% of US households give to charity in any given year.)