The Amazon is burning.

Sep 1 JDN 2458729

As you probably already know, the Amazon rainforest is currently on fire. You can get more details about the fires from The Washington Post, or CNN, or New York magazine, or even The Economist; but I think the best coverage I’ve seen has been these two articles from Al-Jazeera.

I have good news and bad news. Let’s start with the bad news: If we lose the Amazon, we lose everything. The ecological importance of the Amazon is basically impossible to overstate. The Amazon produces 20% of the oxygen on Earth. 25% of the carbon absorbed on land is absorbed by the Amazon. We must protect the Amazon, at almost any cost: Given how vital preserving the rainforest will be to resisting climate change, millions of lives are at stake.

The good news is there is still a lot of Amazon left.

This graph shows the total cumulative deforestation of the Amazon, compared against its current area and its original area. The units are square kilometers; the Amazon rainforest has been reduced from 4.1 million square kilometers (1.6 million square miles) to 3.3 million hectares (1.3 million square miles), a decline of about 20% (21 log points). We still have four-fifths of the rainforest remaining—less than we should, but a lot more than we might.

Amazon_cumulative

This graph shows the annual deforestation of the Amazon, with results that are even more encouraging. While the last few years have had faster deforestation than previously, we are still nowhere near the peak deforestation rates of the early 2000s. At peak deforestation, the Amazon was projected to last no more than 150 years; but at current rates of deforestation, the Amazon would not be completely destroyed in more than 400 years.

Amazon_annual

Of course, any loss of the Amazon is bad. We should actually be trying to restore the Amazon—that extra 800,000 square kilometers of high-density forest would sequester a lot of carbon. We probably can’t actually add the 9 million square kilometers (3.4 million square miles) of forest it would take to stop climate change; but any reforestation we do manage will help.

And a number of ecologists have been sounding the alarm that the Amazon is approaching some sort of tipping point where it will stop being a rainforest and become a savannah. If this happens, it may be irreversible. It sounds crazy to me—80% of the forest is still there!—but that’s what ecologists are saying, and I’ll defer to their expertise.

On the other hand, ecologists have been panicking about “irreversible tipping points” on almost everything for the past century. We really can’t be blamed for not taking their word as gospel: They’ve cried wolf about “population bombs” and shortages of food and water for a very long time now. So far their projections on the rates of temperature rise, species extinction, and deforestation have been quite accurate; but their predictions of dire human consequences have always suspiciously failed to materialize. Humans are quite creative and resilient, as it turns out. This is part of why I’m not actually afraid climate change will cause the collapse of human civilization (much less the utterly laughable claim of human extinction); but tens of millions of deaths is still plenty of reason to take drastic action.

Indeed, I think panicking is precisely what we need to avoid. If we exaggerate the problem to the point where it sounds hopeless, that won’t encourage people to take action; it may actually cause them to throw in the towel.

What do we actually need to do here? We need to restore as many forests as possible, and we need to cut carbon emissions as rapidly as possible.

This doesn’t require a revolution to overthrow capitalism. It doesn’t require exotic new technologies (though fusion power and improved electricity storage would certainly help). It simply requires a real commitment to bear real economic costs today in order to prevent much higher costs in the future.

Bernie Sanders has a climate change plan that is estimated to cost $16 trillion over the next ten years. Make no mistake: This is an enormous amount of money. US GDP is about $20 trillion, growing at about 3% per year, so we’re looking at about 6% of GDP over that interval. This is about twice our current military budget, or about our military budget in the 1980s. Notably, it is nowhere near the levels of military spending we reached in the Second World War, which exceeded 40% of GDP. That’s what happens when America really commits to something.

Would this be enough? The UN seems to think so. They estimate that it would cost about 1% of global GDP to keep global warming below 2 C. Even if that’s an underestimate, 6% of the GDP of the US and EU would by itself account for twice that amount—and I have no doubt that if America committed to climate change mitigation, Europe would gladly follow.

And it’s not as if this money would be set on fire. (Military spending, on the other hand, almost literally is that.) We would spending this money mainly on infrastructure and technology; we would be paying wages and creating millions of jobs.

So far as I know Sanders’s plan doesn’t include paying Brazil to restore the Amazon, but it probably should. Part of why Brazil is currently burning the Amazon is the externalities: The ecological benefit of the Amazon affects us all, but the economic benefit of clear-cutting and cattle ranching directly benefits Brazil. We should set up some sort of payment mechanism to ensure that it is more profitable for Brazil to keep the rainforest where it is than to burn it down. How can we afford such a thing, you ask? No: How can we afford not to?

How much should we value statistical lives?

June 9 JDN 2458644

The very concept of putting a dollar value on a human life offends most people. I understand why: It suggests that human lives are fungible, and also seems to imply that killing people is just fine as long as it produces sufficient profit.

In next week’s post I’ll try to assuage some of those fears: Saying that a life is worth say $5 million doesn’t actually mean that it’s justifiable to kill someone as long as it pays you $5 million.

But for now let me say that we really have no choice but to do this. There are a huge number of interventions we could make in the world that all have the same basic form: They could save lives, but they cost money. We need to be able to say when we are justified in spending more money to save more lives, and when we are not.

No, it simply won’t do to say that “money is no object”. Because money isn’t just money—money is human happiness. A willingness to spend unlimited amounts to save even a single life, if it could be coherently implemented at all, would result in, if not complete chaos or deadlock, a joyless, empty world where we all live to be 100 by being contained in protective foam and fed by machines. It may be uncomfortable to ask a question like “How many people should we be willing to let die to let ourselves have Disneyland?”; but if that answer were zero, we should not have Disneyland. The same is true for almost everything in our lives: From automobiles to chocolate, almost any product you buy, any service you consume, has resulted in some person’s death at some point.

And there is an even more urgent reason, in fact: There are many things we are currently not doing that could save many lives for very little money. Targeted foreign aid or donations to top charities could save lives for as little as $1000 each. Foreign aid is so cost-effective that even if the only thing foreign aid had ever accomplished was curing smallpox, it would be twice as cost-effective as the UK National Health Service (which is one of the best healthcare systems in the world). Tighter environmental regulations save an additional life for about $200,000 in compliance cost, which is less than we would have spent in health care costs; the Clean Air Act added about $12 trillion to the US economy over the last 30 years.

Reduced military spending could literally pay us money to save people’s lives—based on the cost of the Afghanistan War, we are currently paying as much as $1 million per person to kill people that we really have very little reason to kill.

Most of the lives we could save are statistical lives: We can’t point to a particular individual who will or will not die because of the decision, but we can do the math and say approximately how many people will or will not die. We know that approximately 11,000 people will die each year if we loosen regulations on mercury pollution; we can’t say who they are, but they’re out there. Human beings have a lot of trouble thinking this way; it’s just not how our brains evolved to work. But when we’re talking about policy on a national or global scale, it’s quite simply the only way to do things. Anything else is talking nonsense.

Standard estimates of the value of a statistical life range from about $4 million to $9 million. These estimates are based on how much people are willing to pay for reductions in risk. So for instance if people would pay $100 to reduce their chances of dying by 0.01%, we divide the former by the latter to say that a life is worth about $1 million.

It’s a weird question: You clearly can’t just multiply like that. How much would you be willing to accept for a 100% chance of death? Presumably there isn’t really such an amount, because you would be dead. So your willingness-to-accept is undefined. And there’s no particular reason for it to be linear below that: Since marginal utility of wealth is decreasing, the amount you would demand for a 50% chance of death is a lot more than 50 times as much as what you would demand for a 1% chance of death.
Say for instance that utility of wealth is logarithmic. Say your currently lifetime wealth is $1 million, and your current utility is about 70 QALY. Then if we measure wealth in thousands of dollars, we have W = 1000 and U = 10 ln W.

How much would you be willing to accept for a 1% chance of death? Your utility when dead is presumably zero, so we are asking for an amount m such that 0.99 U(W+m) = U(W). 0.99 (10 ln (W+m)) = 10 ln (W) means (W+m)^0.99 = W, so m = W^(1/0.99) – W. We started with W = 1000, so m = 72. You would be willing to accept $72,000 for a 1% chance of death. So we would estimate the value of a statistical life at $7.2 million.

How much for a 0.0001% chance of death? W^(1/0.999999)-W = 0.0069. So you would demand $6.90 for such a risk, and we’d estimate your value of a statistical life at $6.9 million. Pretty close, though not the same.

But how much would you be willing to accept for a 50% chance of death? W^(1/0.5) – W = 999,000. That is, $999 million. So if we multiplied that out, we’d say that your value of a statistical life has now risen to a staggering (and ridiculous) $2 billion.

Mathematically, the estimates are more consistent if we use small probabilities—but all this assumes that people actually know their own utility of wealth and calculate it correctly, which is a very unreasonable assumption.

The much bigger problem with this method is that human beings are terrible at dealing with small probabilities. When asked how much they’d be willing to pay to reduce their chances of dying by 0.01%, most people probably have absolutely no idea and may literally just say a random number.

We need to rethink our entire approach for judging such numbers. Honestly we shouldn’t be trying to put a dollar value on a human life; we should be asking about the dollar cost of saving a human life. We should be asking what else we could do with that money. Indeed, for the time being, I think the best thing to do is actually to compare lives to lives: How many lives could we save for this amount of money?

Thus, if we’re considering starting a war that will cost $1 trillion, we need to ask ourselves: How many innocent people would die if we don’t do that? How many will die if we do? And what else could we do with a trillion dollars? If the war is against Nazi Germany, okay, sure; we’re talking about killing millions to save tens of millions. But if it’s against ISIS, or Iran, those numbers don’t come out so great.

If we have a choice between two policies, each of which will cost $10 billion, and one of them will save 1,000 lives while the other will save 100,000, the obvious answer is to pick the second one. Yet this is exactly the world we live in, and we’re not doing that. We are throwing money at military spending and tax cuts (things that many not save any lives at all) and denying it from climate change adaptation, foreign aid, and poverty relief.

Instead of asking whether a given intervention is cost-effective based upon some notion of a dollar value of a human life, we should be asking what the current cost of saving a human life is, and we should devote all available resources into whatever means saves the most lives for the least money. Most likely that means some sort of foreign aid, public health intervention, or poverty relief in Third World countries. It clearly does not mean cutting taxes on billionaires or starting another war in the Middle East.

MSRP is tacit collusion

Oct 7 JDN 2458399

It’s been a little while since I’ve done a really straightforward economic post. It feels good to get back to that.

You are no doubt familiar with the “Manufacturer’s Suggested Retail Price” or MSRP. It can be found on everything from books to dishwashers to video games.

The MSRP is a very simple concept: The manufacturer suggests that all retailers sell it (at least the initial run) at precisely this price.

Why would they want to do that? There is basically only one possible reason: They are trying to sustain tacit collusion.

The game theory of this is rather subtle: It requires that both manufacturers and retailers engage in long-term relationships with one another, and can pick and choose who to work with based on the history of past behavior. Both of these conditions hold in most real-world situations—indeed, the fact that they don’t hold very well in the agriculture industry is probably why we don’t see MSRP on produce.

If pricing were decided by random matching with no long-term relationships or past history, MSRP would be useless. Each firm would have little choice but to set their own optimal price, probably just slightly over their own marginal cost. Even if the manufacturer suggested an MSRP, retailers would promptly and thoroughly ignore it.

This is because the one-shot Bertrand pricing game has a unique Nash equilibrium, at pricing just above marginal cost. The basic argument is as follows: If I price cheaper than you, I can claim the whole market. As long as it’s profitable for me to do that, I will. The only time it’s not profitable for me to undercut you in this way is if we are both charging just slightly above marginal cost—so that is what we shall do, in Nash equilibrium. Human beings don’t always play according to the Nash equilibrium, but for-profit corporations do so quite consistently. Humans have limited attention and moral values; corporations have accounting departments and a fanatical devotion to the One True Profit.

But the iterated Bertrand pricing game is quite different. If instead of making only one pricing decision, we make many pricing decisions over time, always with a high probability of encountering the same buyers and sellers again in the future, then I may not want to undercut your price, for fear of triggering a price war that will hurt both of our firms.

Much like how the Iterated Prisoner’s Dilemma can sustain cooperation in Nash equilibrium while the one-shot Prisoner’s Dilemma cannot, the iterated Bertrand game can sustain collusion as a Nash equilibrium.

There is in fact a vast number of possible equilibria in the iterated Bertrand game. If prices were infinitely divisible, there would be an infinite number of equilibria. In reality, there are hundreds or thousands of equilibria, depending on how finely divisible the price may be.

This makes the iterated Bertrand game a coordination gamethere are many possible equilibria, and our task is to figure out which one to coordinate on.

If we had perfect information, we could deduce what the monopoly price would be, and then all choose the monopoly price; this would be what we call “payoff dominant”, and it’s often what people actually try to choose in real-world coordination games.

But in reality, the monopoly price is a subtle and complicated thing, and might not even be the same between different retailers. So if we each try to compute a monopoly price, we may end up with different results, and then we could trigger a price war and end up driving all of our profits down. If only there were some way to communicate with one another, and say what price we all want to set?

Ah, but there is: The MSRP. Most other forms of price communication are illegal: We certainly couldn’t send each other emails and say “Let’s all charge $59.99, okay?” (When banks tried to do that with the LIBOR, it was the largest white-collar crime in history.) But for some reason economists (particularly, I note, the supposed “free market” believers of the University of Chicago) have convinced antitrust courts that MSRP is somehow different. Yet it’s obviously hardly different at all: You’ve just made the communication one-way from manufacturers to retailers, which makes it a little less reliable, but otherwise exactly the same thing.

There are all sorts of subtler arguments about how MSRP is justifiable, but as far as I can tell they all fall flat. If you’re worried about retailers not promoting your product enough, enter into a contract requiring them to promote. Proposing a suggested price is clearly nothing but an attempt to coordinate tacit—frankly not even that tacit—collusion.

MSRP also probably serves another, equally suspect, function, which is to manipulate consumers using the anchoring heuristic: If the MSRP is $59.99, then when it does go on sale for $49.99 you feel like you are getting a good deal; whereas, if it had just been priced at $49.99 to begin with, you might still have felt that it was too expensive. I see no reason why this sort of crass manipulation of consumers should be protected under the law either, especially when it would be so easy to avoid.

There are all sorts of ways for firms to tacitly collude with one another, and we may not be able to regulate them all. But the MSRP is literally printed on the box. It’s so utterly blatant that we could very easily make it illegal with hardly any effort at all. The fact that we allow such overt price communication makes a mockery of our antitrust law.

How we can actually solve the housing shortage

Sep 16 JDN 2458378

In previous posts I’ve talked about the housing crisis facing most of the world’s major cities. (Even many cities in Africa are now facing a housing crisis!) In this post, I’m going to look at the empirical data to see if we can find a way to solve this crisis.

Most of the answer, it turns out, is really not that complicated: Build more housing.

There is a little bit more to it than that, but only a little bit. The basic problem is simply that there are more households than there are houses to hold them.

One of the biggest hurdles to fixing the housing crisis comes ironically from the left, in resistance to so-called “gentrification”. Local resistance to new construction is one of the greatest obstacles to keeping housing affordable. State and federal regulations are generally quite sensible: No industrial waste near the playgrounds. It’s the local regulations that make new housing so difficult.

I can understand why people fight “gentrification”: They see new housing going in as housing prices increase, and naturally assume that new houses cause higher prices. But it’s really the other way around: High prices cause new construction, which brings prices down. By its nature, new housing is almost always more expensive than existing housing. Building new housing still brings down the overall price of housing, even when the new housing is expensive. Building luxury condos does make existing apartments more affordable—and not building anything most certainly does not.

California’s housing crisis is particularly severe: California has been building less than half the units needed to sustain its current population trend since the crash in 2008. It’s worst of all in the Bay Area, where 500,000 jobs were added since 2009—and only 50,000 homes. California also has a big problem with delays in the permit process: Typically it takes as long as three or four years between approval and actual breaking ground.

We are seeing this in Oakland currently: The government has approved an actually reasonable amount of housing for once (vastly more than what they usually do), and as a result they may have a chance at keeping Oakland affordable even as it grows its population and economy. And yet we still get serious journalists saying utter nonsense like The building boom and resulting gentrification are squeezing the city’s most vulnerable.” Building booms don’t cause gentrification. Building booms are the best response to gentrification. When you say things like that, you sound to an economist like you’re saying “Pizza is so expensive; we need to stop people from making pizza!”

Homeowners who want to increase their property values may actually be rational—if incredibly selfish and monopolistic—in trying to block new construction. But activists who oppose “gentrification” need to stop shooting themselves in the foot by fighting the very same development that would have made housing cheaper.

The simplest thing we can do is make it easier to build housing. Streamline the permit process, provide subsidies, remove unnecessary regulations. Housing is one of the few markets where I can actually see a lot of unnecessary regulations. We don’t need to require parking; we should provide better public transit instead. And while requiring solar panels (as the whole state is now doing) sounds nice, it makes everything a lot more expensive—and by only requiring it on new housing, you are effectively saying you don’t want any new housing. I love solar panels, but what you should be doing is subsidizing solar panels, not requiring them. Does that cost the state budget more? Yes. Raise taxes on something else (a particularly good idea: electricity consumption) if you have to. But by mandating solar panels without any subsidies to support them, you are effectively putting a tax on new housing—which is exactly what California does not need.

It’s still a good idea to create incentives to build not simply housing, but affordable housing. There are ways to do this as well. Denver did an excellent job in creating an Affordable Housing Fund that they immediately spent in converting vacant apartments into affordable housing units.

There are also good reasons to try to fight foreign ownership of housing (and really, speculative ownership of housing in general). There is a strong correlation between current account deficits and housing appreciation, which makes sense if foreign investors are buying up our housing and making it more expensive. If Trump could actually reduce our trade deficit, that would drive down our current account deficit and quite likely make our housing more affordable. Of course, he has absolutely no idea how to do that.

Victor Duggan has a pretty good plan for lowering housing prices in Ireland which includes a land tax (as I’ve discussed previously) and a tax on foreign ownership of real estate. I disagree with him about the “Help-to-Buy” program, however; I actually think that was a fine idea, since the goal is not simply to keep housing cheap but to get people into houses. That wealth transfer is going to raise prices at the producer side—increasing production—but not at the consumer side—because people get compensated by the tax rebate. The net result should be more housing without more cost for buyers. You could have done the same thing by subsidizing construction, but I actually like the idea of putting the money directly in the pockets of homeowners. The tax incidence shouldn’t be much different in the long run, but it makes for a much more appealing and popular program.

For labor day, thoughts on socialism

Planned Post 255: Sep 9 JDN 2458371

This week includes Labor Day, the holiday where we are perhaps best justified in taking the whole day off from work and doing nothing. Labor Day is sort of the moderate social democratic counterpart to the explicitly socialist holiday May Day.

The right wing in this country has done everything in their power to expand the definition of “socialism”, which is probably why most young people now have positive views of socialism. There was a time when FDR was seen as an alternative to socialism; but now I’m pretty sure he’d just be called a socialist.

Because of this, I am honestly not sure whether I should be considered a socialist. I definitely believe in the social democratic welfare state epitomized by Scandinavia, but I definitely don’t believe in total collectivization of all means of production.

I am increasingly convinced that shareholder capitalism is a terrible system (the renowned science fiction author Charles Stross actually gave an excellent talk on this subject), but I would not want to abandon free markets.
The best answer might be worker-owned cooperatives. The empirical data is actually quite consistent in showing worker co-ops to be as efficient if not more efficient than conventional corporations, and by construction their pay systems produce less inequality than corporations.

Indeed, I think there is reason to believe that a worker co-op is a much more natural outcome for free markets under a level playing field than a conventional corporation, and the main reason we have corporations is actually that capitalism arose out of (and in response to) feudalism.

Think about it: Why should most things be owned by the top 1%? (Okay, not quite “most”: to be fair, the top 1% only owns 40% of all US net wealth.) Why is 80% of the value of the stock market held by the top 10% of the population?

Most things aren’t done by the top 1%. There are a handful of individuals (namely, scientists who make seminal breakthroughs: Charles Darwin, Marie Curie, Albert Einstein, Rosalind Franklin, Alan Turing, Jonas Salk) who are so super-productive that they might conceivably deserve billionaire-level compensation—but they are almost never the ones who are actually billionaires. If markets were really distributing capital to those who would use it most productively, there’s no reason to think that inequality would be so self-sustaining—much less self-enhancing as it currently seems to be.

But when you realize that capitalism emerged out of a system where the top 1% (or less) already owned most things, and did so by a combination of “divine right” ideology and direct, explicit violence, this inequality becomes a lot less baffling. We never had a free market on a level playing field. The closest we’ve ever gotten has always been through social-democratic reforms (like the New Deal and Scandinavia).

How does this result in corporations? Well, when all the wealth is held by a small fraction of individuals, how do you start a business? You have to borrow money from the people who have it. Borrowing makes you beholden to your creditors, and puts you at great risk if your venture fails (especially back in the days when there were debtor’s prisons—and we’re starting to go back that direction!). Equity provides an alternative: In exchange for giving them the downside risk if your venture fails, you also give your creditors—now shareholders—the upside risk if your venture succeeds. But at the end of the day when your business has succeeded, where did most of the profits go? Into the hands of the people who already had money to begin with, who did nothing to actually contribute to society. The world would be better off if those people had never existed and their wealth had simply been shared with everyone else.

Compare this to what would happen if we all started with similar levels of wealth. (How much would each of us have? Total US wealth of about $44 trillion, spread among a population of 328 million, is about $130,000 each. I don’t know about you, but I think I could do quite a bit with that.) When starting a business, you wouldn’t go heavily into debt or sign away ownership of your company to some billionaire; you’d gather a group of dedicated partners, each of whom would contribute money and effort into building the business. As you added on new workers, it would make sense to pool their assets, and give them a share of the company as well. The natural structure for your business would be not a shareholder corporation, but a worker-owned cooperative.

I think on some level the super-rich actually understand this. If you look closely at the sort of policies they fight for, they really aren’t capitalist. They don’t believe in free, unfettered markets where competition reigns. They believe in monopoly, lobbying, corruption, nepotism, and above all, low taxes. (There’s actually nothing in the basic principles of capitalism that says taxes should be low. Taxes should be as high as they need to be to cover public goods—no higher, and no lower.) They don’t want to provide nationalized healthcare, not because they believe that private healthcare competition is more efficient (no one who looks at the data for even a few minutes can honestly believe that—US healthcare is by far the most expensive in the world), but because they know that it would give their employees too much freedom to quit and work elsewhere. Donald Trump doesn’t want a world where any college kid with a brilliant idea and a lot of luck can overthrow his empire; he wants a world where everyone owes him and his family personal favors that he can call in to humiliate them and exert his power. That’s not capitalism—it’s feudalism.

Crowdfunding also provides an interesting alternative; we might even call it the customer-owned cooperative. Kickstarter and Patreon provide a very interesting new economic model—still entirely within the realm of free markets—where customers directly fund production and interact with producers to decide what will be produced. This might turn out to be even more efficient—and notice that it would run a lot more smoothly if we had all started with a level playing field.

Establishing such a playing field, of course, requires a large amount of redistribution of wealth. Is this socialism? If you insist. But I think it’s more accurate to describe it as reparations for feudalism (not to mention colonialism). We aren’t redistributing what was fairly earned in free markets; we are redistributing what was stolen, so that from now on, wealth can be fairly earned in free markets.

Is a job guarantee better than a basic income?

Aug 5 JDN 2458336

In previous posts I’ve written about both the possibilities and challenges involved in creating a universal basic income. Today I’d like to address what I consider the most serious counter-argument against a basic income, an alternative proposal known as a job guarantee.

Whereas a basic income is literally just giving everyone free money, a job guarantee entails offering everyone who wants to work a job paid by the government. They’re not necessarily contradictory, but I’ve noticed a clear pattern: While basic income proponents are generally open to the idea of a job guarantee on the side, job guarantee proponents are often vociferously opposed to a basic income—even calling it “sinister”. I think the reason for this is that we see jobs as irrelevant, so we’re okay with throwing them in if you feel you must, while they see jobs as essential, so they meet any attempt to remove them with overwhelming resistance.

Where a basic income is extremely simple and could be implemented by a single act of the legislature, a job guarantee is considerably more complicated. The usual proposal for a job guarantee involves federal funding but local implementation, which is how most of our social welfare system is implemented—and why social welfare programs are so much better in liberal states like California than in conservative states like Mississippi, because California actually believes in what it’s implementing and Mississippi doesn’t. Anyone who wants a job guarantee needs to take that aspect seriously: In the places where poverty is worst, you’re offering control over the policy to the very governments that made poverty worst—and whether it is by malice or incompetence, what makes you think that won’t continue?

Another argument that I think job guarantee proponents don’t take seriously enough is the concern about “make-work”. They insist that a job guarantee is not “make-work”, but real work that’s just somehow not being done. They seem to think that there are a huge number of jobs that we could just create at the snap of a finger, which would be both necessary and useful on the one hand, and a perfect match for the existing skills of the unemployed population on the other hand. If that were the case, we would already be creating those jobs. It doesn’t even require a particularly strong faith in capitalism to understand this: If there is a profit to be made at hiring people to do something, there is probably already a business hiring people to do that. I don’t think of myself as someone with an overriding faith in capitalism, but a lot of the socialist arguments for job guarantees make me feel that way by comparison: They seem to think that there’s this huge untapped reserve of necessary work that the market is somehow failing to provide, and I’m just not seeing it.

There are public goods projects which aren’t profitable but would still be socially beneficial, like building rail lines and cleaning up rivers. But proponents of a job guarantee don’t seem to understand that these are almost all highly specialized jobs at our level of technology. We don’t need a bunch of people with shovels. We need engineers and welders and ecologists.

If you propose using people with shovels where engineers would be more efficient, that is make-work, whether you admit it or not. If you’re making people work in a less-efficient way in order to create jobs, then the jobs you are creating are fake jobs that aren’t worth creating. The line is often credited to Milton Friedman, but actually said first by William Aberhart in 1935:

Taking up the policy of a public works program as a solution for unemployment, it was criticized as a plan that took no account of the part that machinery played in modern construction, with a road-making machine instanced as an example. He saw, said Mr. Aberhart, work in progress at an airport and was told that the men were given picks and shovels in order to lengthen the work, to which he replied why not give them spoons and forks instead of picks and shovels if the object was to lengthen out the task.

I’m all for spending more on building rail lines and cleaning up rivers, but that’s not an anti-poverty program. The people who need the most help are precisely the ones who are least qualified to work on these projects: Children, old people, people with severe disabilities. Job guarantee proponents either don’t understand this fact or intentionally ignore it. If you aren’t finding jobs for 7-year-olds with autism and 70-year-olds with Parkinson’s disease, this program will not end poverty. And if you are, I find it really hard to believe that these are real, productive jobs and not useless “make-work”. A basic income would let the 7-year-olds stay in school and the 70-year-olds live in retirement homes—and keep them both out of poverty.

Another really baffling argument for a job guarantee over basic income is that a basic income would act as a wage subsidy, encouraging employers to reduce wages. That’s not how a basic income works. Not at all. A basic income would provide a pure income effect, necessarily increasing wage demands. People would not be as desperate for work, so they’d be more comfortable turning down unreasonable wage offers. A basic income would also incentivize some people to leave the labor force by retiring or going back to school; the reduction in labor supply would further increase wages. The Earned Income Tax Credit is in many respects similar to a wage subsidy. While superficially it might seem similar, a basic income would have the exact opposite effect.

One reasonable argument against a basic income is the possibility that it could cause inflation. This is something that can’t really be tested with small-scale experiments, so we really won’t know for sure until we try it. But there is reason to think that the inflation would be small, as the people removed from the labor force will largely be the ones who are least-productive to begin with. There is a growing body of empirical evidence suggesting that inflationary effects of a basic income would be small. For example, data on cash transfer programs in Mexico show only a small inflationary effect despite large reductions in poverty. The whole reason a basic income looks attractive is that automation technology is now so advanced is that we really don’t need everyone to be working anymore. Productivity is so high now that a policy of universal 40-hour work weeks just doesn’t make sense in the 21st century.

Probably the best argument for a job guarantee over a basic income concerns cost. A basic income is very expensive, there’s no doubt about that; and a job guarantee could be much cheaper. That is something I take very seriously: Saving $1.5 trillion a year is absolutely a good reason. Indeed, I don’t really object to this argument; the calculations are correct. I merely think that a basic income is enough better that its higher cost is justifiable. A job guarantee can eliminate unemployment, but not poverty.

But the argument for a job guarantee that most people seem to be find most compelling concerns meaning. The philosopher John Danaher expressed this one most cogently. Unemployment is an extremely painful experience for most people, far beyond what could be explained simply by their financial circumstances. Most people who win large sums of money in the lottery cut back their hours, but continue working—so work itself seems to have some value. What seems to happen is that when people lose the chance to work, they feel that they have lost a vital source of meaning in their lives.

Yet this raises two more questions:

First, would a job guarantee actually solve that problem?
Second, are there ways we could solve it under a basic income?

With regard to the first question, I want to re-emphasize the fact that a large proportion of these guaranteed jobs necessarily cannot be genuinely efficient production. If efficient production would have created these jobs, we would most likely already have created them. Our society does not suffer from an enormous quantity of necessary work that could be done with the skills already possessed by the unemployed population, which is somehow not getting done—indeed, it is essentially impossible for a capitalist economy with a highly-liquid financial system to suffer such a malady. If the work is so valuable, someone will probably take out a loan to hire someone to do it. If that’s not happening, either the unemployed people don’t have the necessary skills, or the work really can’t be all that productive. There are some public goods projects that would be beneficial but aren’t being done, but that’s a different problem, and the match between the public goods projects that need done and the skills of the unemployed population is extremely poor. Displaced coal miners aren’t useful for maintaining automated photovoltaic factories. Truckers who get replaced by robot trucks won’t be much good for building maglev rails.

With this in mind, it’s not clear to me that people would really be able to find much meaning in a guaranteed job. You can’t be fired, so the fact that you have the job doesn’t mean anyone is impressed by the quality of your work. Your work wasn’t actually necessary, or the private sector would already have hired someone to do it. The government went out of its way to find a job that precisely matched what you happen to be good at, regardless of whether that job was actually accomplishing anything to benefit society. How is that any better than not working at all? You are spending hours of drudgery to accomplish… what, exactly? If our goal was simply to occupy people’s time, we could do that with Netflix or video games.

With regard to the second question, note that a basic income is quite different from other social welfare programs in that everyone gets it. So it’s very difficult to attach a social stigma to receiving basic income payments—it would require attaching the stigma to literally everyone. Much of the lost meaning, I suspect, from being unemployed comes from the social stigma attached.

Now, it’s still possible to attach social stigma to people who only get the basic income—there isn’t much we can do to prevent that. But in the worst-case scenario, this means unemployed people get the same stigma as before but more money. Moreover, it’s much harder to detect a basic income recipient than, say, someone who eats at a soup kitchen or buys food using EBT; since it goes in your checking account, all everyone else sees is you spending money from your debit card, just like everyone else. People who know you personally would probably know; but people who know you personally are also less likely to destroy your well-being by imposing a high stigma. Maybe they’ll pressure you to get off the couch and get a job, but they’ll do so because they genuinely want to help you, not because they think you are “one of those lazy freeloaders”.

And, as BIEN points out, think about retired people: They don’t seem to be so unhappy. Being on basic income is more like being retired than like being unemployed. It’s something everyone gets, not some special handout for “those people”. It’s permanent, so it’s not like you need to scramble to get a job before it goes away. You just get money automatically, so you don’t have to navigate a complex bureaucracy to get it. Controlling for income, retired people don’t seem to be any less happy than working people—so maybe work doesn’t actually provide all that much meaning after all.

I guess I can’t rule out the possibility that people need jobs to find meaning in their lives, but I both hope and believe that this is not generally the case. You can find meaning in your family, your friends, your community, your hobbies. You can still work even if you don’t need to work for a living: Build a shed, mow your lawn, tune up your car, upgrade your computer, write a story, learn a musical instrument, or try your hand at painting.

If you need to be taking orders from a corporation five days a week in order to have meaning in your life, you have bigger problems. I think what has happened to many people is that employment has so drained their lives of the real sources of meaning that they cling to it as the only thing they have left. But in fact work is not the cure to your ennui—it is the cause of it. Finally being free of the endless toil that has plagued humanity since the dawn of our species will give you the chance to reconnect with what really matters in life. Show your children that you love them in person, to their faces, instead of in this painfully indirect way of “providing for” them by going to work every day. Find ways to apply your skills in volunteering or creating works of art, instead of in endless drudgery for the profit of some faceless corporation.

How (not) to destroy an immoral market

Jul 29 JDN 2458329

In this world there are people of primitive cultures, with a population that is slowly declining, trying to survive a constant threat of violence in the aftermath of colonialism. But you already knew that, of course.

What you may not have realized is that some of these people are actively hunted by other people, slaughtered so that their remains can be sold on the black market.

I am referring of course to elephants. Maybe those weren’t the people you first had in mind?

Elephants are not human in the sense of being Homo sapiens; but as far as I am concerned, they are people in a moral sense.

Elephants take as long to mature as humans, and spend most of their childhood learning. They are born with brains only 35% of the size of their adult brains, much as we are born with brains 28% the size of our adult brains. Their encephalization quotients range from about 1.5 to 2.4, comparable to chimpanzees.

Elephants have problem-solving intelligence comparable to chimpanzees, cetaceans, and corvids. Elephants can pass the “mirror test” of self-identification and self-awareness. Individual elephants exhibit clearly distinguishable personalities. They exhibit empathy toward humans and other elephants. They can think creatively and develop new tools.

Elephants distinguish individual humans or elephants by sight or by voice, comfort each other when distressed, and above all mourn their dead. The kind of mourning behaviors elephants exhibit toward the remains of their dead family members have only been observed in humans and chimpanzees.

On a darker note, elephants also seek revenge. In response to losing loved ones to poaching or collisions with trains, elephants have orchestrated organized counter-attacks against human towns. This is not a single animal defending itself, as almost any will do; this is a coordinated act of vengeance after the fact. Once again, we have only observed similar behaviors in humans, great apes, and cetaceans.

Huffington Post backed off and said “just kidding” after asserting that elephants are people—but I won’t. Elephants are people. They do not have an advanced civilization, to be sure. But as far as I am concerned they display all the necessary minimal conditions to be granted the fundamental rights of personhood. Killing an elephant is murder.

And yet, the ivory trade continues to be profitable. Most of this is black-market activity, though it was legal in some places until very recently; China only restored their ivory trade ban this year, and Hong Kong’s ban will not take full effect until 2021. Some places are backsliding: A proposal (currently on hold) by the US Fish and Wildlife Service under the Trump administration would also legalize some limited forms of ivory trade.
With this in mind, I can understand why people would support the practice of ivory-burning, symbolically and publicly destroying ivory by fire so that no one can buy it. Two years ago, Kenya organized a particularly large ivory-burning that set ablaze 105 tons of elephant tusk and 1.35 tons of rhino horn.

But as economist, when I first learned about ivory-burning, it seemed like a really, really bad idea.

Why? Supply and demand. By destroying supply, you have just raised the market price of ivory. You have therefore increased the market incentives for poaching elephants and rhinos.

Yet it turns out I was wrong about this, as were many other economists. I looked at the empirical research, and changed my mind substantially. Ivory-burning is not such a bad idea after all.

Here was my reasoning before: If I want to reduce the incentives to produce something, what do I need to do? Lower the price. How do I do that? I need to increase the supply. Economists have made several proposals for how to do that, and until I looked at the data I would have expected them to work; but they haven’t.

The best way to increase supply is to create synthetic ivory that is cheap and very difficult to tell apart from the real thing. This has been done, but it didn’t work. For some reason, sellers try to hide the expensive real ivory in with the cheap synthetic ivory. I admit I actually have trouble understanding this; if you can’t sell it at full price, why even bother with the illegal real ivory? Maybe their customers have methods of distinguishing the two that the regulators don’t? If so, why aren’t the regulators using those methods? Another concern with increasing the supply of ivory is that it might reduce the stigma of consuming ivory, thereby also increasing the demand.

A similar problem has arisen with so-called “ghost ivory”; for obvious reasons, existing ivory products were excluded from the ban imposed in 1947, lest the government be forced to confiscate millions of billiard balls and thousands of pianos. Yet poachers have learned ways to hide new, illegal ivory and sell it as old, legal ivory.

Another proposal was to organize “sustainable ivory harvesting”, which based on past experience with similar regulations is unlikely to be enforceable. Moreover, this is not like sustainable wood harvesting, where our only concern is environmental. I for one care about the welfare of individual elephants, and I don’t think they would want to be “harvested”, sustainably or otherwise.
There is one way of doing “sustainable harvesting” that might not be so bad for the elephants, which would be to set up a protected colony of elephants, help them to increase their population, and then when elephants die of natural causes, take only the tusks and sell those as ivory, stamped with an official seal as “humanely and sustainably produced”. Even then, elephants are among a handful of species that would be offended by us taking their ancestors’ remains. But if it worked, it could save many elephant lives. The bigger problem is how expensive such a project would be, and how long it would take to show any benefit; elephant lifespans are about half as long as ours, (except in zoos, where their mortality rate is much higher!) so a policy that might conceivably solve a problem in 30 to 40 years doesn’t really sound so great. More detailed theoretical and empirical analysis has made this clear: you just can’t get ivory fast enough to meet existing demand this way.

In any case, China’s ban on all ivory trade had an immediate effect at dropping the price of ivory, which synthetic ivory did not. Before that, strengthened regulations in the US (particularly in New York and California) had been effective at reducing ivory sales. The CITES treaty in 1989 that banned most international ivory trade was followed by an immediate increase in elephant populations.

The most effective response to ivory trade is an absolutely categorical ban with no loopholes. To fight “ghost ivory”, we should remove exceptions for old ivory, offering buybacks for any antiques with a verifiable pedigree and a brief period of no-penalty surrender for anything with no such records. The only legal ivory must be for medical and scientific purposes, and its sourcing records must be absolutely impeccable—just as we do with human remains.

Even synthetic ivory must also be banned, at least if it’s convincing enough that real ivory could be hidden in it. You can make something you call “synthetic ivory” that serves a similar consumer function, but it must be different enough that it can be easily verified at customs inspections.

We must give no quarter to poachers; Kenya was right to impose a life sentence for aggravated poaching. The Tanzanian proposal to “shoot to kill” was too extreme; summary execution is never acceptable. But if indeed someone currently has a weapons pointed at an elephant and refuses to drop it, I consider it justifiable to shoot them, just as I would if that weapon were aimed at a human.

The need for a categorical ban is what makes the current US proposal dangerous. The particular exceptions it carves out are not all that large, but the fact that it carves out exceptions at all makes enforcement much more difficult. To his credit, Trump himself doesn’t seem very keen on the proposal, which may mean that it is dead in the water. I don’t get to say this often, but so far Trump seems to be making the right choice on this one.

Though the economic theory predicted otherwise, the empirical data is actually quite clear: The most effective way to save elephants from poaching is an absolutely categorical ban on ivory.

Ivory-burning is a signal of commitment to such a ban. Any ivory we find being sold, we will burn. Whoever was trying to sell it will lose their entire investment. Find more, and we will burn that too.