public policy

The inequality of factor mobility

PNRJ critique of neoclassical economics, public policy, tribal paradigm , , , , , , , , , , , , , , , , , , ,

Sep 24 JDN 2460212

I’ve written before about how free trade has brought great benefits, but also great costs. It occurred to me this week that there is a fairly simple reason why free trade has never been as good for the world as the models would suggest: Some factors of production are harder to move than others.

To some extent this is due to policy, especially immigration policy. But it isn’t just that.There are certain inherent limitations that render some kinds of inputs more mobile than others.

Broadly speaking, there are five kinds of inputs to production: Land, labor, capital, goods, and—oft forgotten—ideas.

You can of course parse them differently: Some would subdivide different types of labor or capital, and some things are hard to categorize this way. The same product, such as an oven or a car, can be a good or capital depending on how it’s used. (Or, consider livestock: is that labor, or capital? Or perhaps it’s a good? Oddly, it’s often discussed as land, which just seems absurd.) Maybe ideas can be considered a form of capital. There is a whole literature on human capital, which I increasingly find distasteful, because it seems to imply that economists couldn’t figure out how to value human beings except by treating them as a machine or a financial asset.

But this four-way categorization is particularly useful for what I want to talk about today. Because the rate at which those things move is very different.

Ideas move instantly. It takes literally milliseconds to transmit an idea anywhere in the world. This wasn’t always true; in ancient times ideas didn’t move much faster than people, and it wasn’t until the invention of the telegraph that their transit really became instantaneous. But it is certainly true now; once this post is published, it can be read in a hundred different countries in seconds.

Goods move in hours. Air shipping can take a product just about anywhere in less than a day. Sea shipping is a bit slower, but not radically so. It’s never been easier to move goods all around the world, and this has been the great success of free trade.

Capital moves in weeks. Here it might be useful to subdivide different types of capital: It’s surely faster to move an oven or even a car (the more good-ish sort of capital) than it is to move an entire factory (capital par excellence). But all in all, we can move stuff pretty fast these days. If you want to move your factory to China or Indonesia, you can probably get it done in a matter of weeks or at most months.

Labor moves in months. This one is a bit ironic, since it is surely easier to carry a single human person—or even a hundred human people—than all the equipment necessary to run an entire factory. But moving labor isn’t just a matter of physically carrying people from one place to another. It’s not like tourism, where you just pack and go. Moving labor requires uprooting people from where they used to live and letting them settle in a new place. It takes a surprisingly long time to establish yourself in a new environment—frankly even after two years in Edinburgh I’m not sure I quite managed it. And all the additional restrictions we’ve added involving border crossings and immigration laws and visas only make it that much slower.

Land moves never. This one seems perfectly obvious, but is also often neglected. You can’t pick up a mountain, a lake, a forest, or even a corn field and carry it across the border. (Yes, eventually plate tectonics will move our land around—but that’ll be millions of years.) Basically, land stays put—and so do all the natural environments and ecosystems on that land. Land isn’t as important for production as it once was; before industrialization, we were dependent on the land for almost everything. But we absolutely still are dependent on the land! If all the topsoil in the world suddenly disappeared, the economy wouldn’t simply collapse: the human race would face extinction. Moreover, a lot of fixed infrastructure, while technically capital, is no more mobile than land. We couldn’t much more easily move the Interstate Highway System to China than we could move Denali.

So far I have said nothing particularly novel. Yeah, clearly it’s much easier to move a mathematical theorem (if such a thing can even be said to “move”) than it is to move a factory, and much easier to move a factory than to move a forest. So what?

But now let’s consider the impact this has on free trade.

Ideas can move instantly, so free trade in ideas would allow all the world to instantaneously share all ideas. This isn’t quite what happens—but in the Internet age, we’re remarkably close to it. If anything, the world’s governments seem to be doing their best to stop this from happening: One of our most strictly-enforced trade agreements, the TRIPS Accord, is about stopping ideas from spreading too easily. And as far as I can tell, region-coding on media goes against everything free trade stands for, yet here we are. (Why, it’s almost as if these policies are more about corporate profits than they ever were about freedom!)

Goods and capital can move quickly. This is where we have really felt the biggest effects of free trade: Everything in the US says “made in China” because the capital is moved to China and then the goods are moved back to the US.

But it would honestly have made more sense to move all those workers instead. For all their obvious flaws, US institutions and US infrastructure are clearly superior to those in China. (Indeed, consider this: We may be so aware of the flaws because the US is especially transparent.) So, the most absolutely efficient way to produce all those goods would be to leave the factories in the US, and move the workers from China instead. If free trade were to achieve its greatest promises, this is the sort of thing we would be doing.


Of course that is not what we did. There are various reasons for this: A lot of the people in China would rather not have to leave. The Chinese government would not want them to leave. A lot of people in the US would not want them to come. The US government might not want them to come.

Most of these reasons are ultimately political: People don’t want to live around people who are from a different nation and culture. They don’t consider those people to be deserving of the same rights and status as those of their own country.

It may sound harsh to say it that way, but it’s clearly the truth. If the average American person valued a random Chinese person exactly the same as they valued a random other American person, our immigration policy would look radically different. US immigration is relatively permissive by world standards, and that is a great part of American success. Yet even here there is a very stark divide between the citizen and the immigrant.

There are morally and economically legitimate reasons to regulate immigration. There may even be morally and economically legitimate reasons to value those in your own nation above those in other nations (though I suspect they would not justify the degree that most people do). But the fact remains that in terms of pure efficiency, the best thing to do would obviously be to move all the people to the place where productivity is highest and do everything there.

But wouldn’t moving people there reduce the productivity? Yes. Somewhat. If you actually tried to concentrate the entire world’s population into the US, productivity in the US would surely go down. So, okay, fine; stop moving people to a more productive place when it has ceased to be more productive. What this should do is average out all the world’s labor productivity to the same level—but a much higher level than the current world average, and frankly probably quite close to its current maximum.

Once you consider that moving people and things does have real costs, maybe fully equaling productivity wouldn’t make sense. But it would be close. The differences in productivity across countries would be small.

They are not small.

Labor productivity worldwide varies tremendously. I don’t count Ireland, because that’s Leprechaun Economics (this is really US GDP with accounting tricks, not Irish GDP). So the prize for highest productivity goes to Norway, at $100 per worker hour (#ScandinaviaIsBetter). The US is doing the best among large countries, at an impressive $73 per hour. And at the very bottom of the list, we have places like Bangladesh at $4.79 per hour and Cambodia at $3.43 per hour. So, roughly speaking, there is about a 20-to-1 ratio between the most productive and least productive countries.

I could believe that it’s not worth it to move US production at $73 per hour to Norway to get it up to $100 per hour. (For one thing, where would we fit it all?) But I find it far more dubious that it wouldn’t make sense to move most of Cambodia’s labor to the US. (Even all 16 million people is less than what the US added between 2010 and 2020.) Even given the fact that these Cambodian workers are less healthy and less educated than American workers, they would almost certainly be more productive on the other side of the Pacific, quite likely ten times as productive as they are now. Yet we haven’t moved them, and have no plans to.

That leaves the question of whether we will move our capital to them. We have been doing so in China, and it worked (to a point). Before that, we did it in Korea and Japan, and it worked. Cambodia will probably come along sooner or later. For now, that seems to be the best we can do.

But I still can’t shake the thought that the world is leaving trillions of dollars on the table by refusing to move people. The inequality of factor mobility seems to be a big part of the world’s inequality, period.

The rise and plateau of China’s economy

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

Sep 3 JDN 2460191

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

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

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

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

It happened in South Korea:

It happened in Japan:

It happened in Taiwan:

It even seems to be happening in Botswana:

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

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

From this you can pretty clearly see two things.

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

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

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

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

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

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

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

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

Why are political speeches so vacuous?

PNRJ cognitive science, heuristics and biases, politics, public policy, tribal paradigm , , , , , , , , , ,

Aug 27 JDN 2460184

In last week’s post I talked about how posters for shows at the Fringe seem to be attention-grabbing but almost utterly devoid of useful information.

This brings to mind another sort of content that also fits that description: political speeches.

While there are some exceptions—including in fact some of the greatest political speeches ever made, such as Martin Luther King’s “I have a dream” or Dwight Eisenhower’s “Cross of Iron”—on the whole, most political speeches seem to be incredibly vacuous.

Each country probably has its own unique flavor of vacuousness, but in the US they talk about motherhood, and apple pie, and American exceptionalism. “I love my great country, we are an amazing country, I’m so proud to live here” is basically the extent of the information conveyed within what could well be a full hour-long oration.

This raises a question: Why? Why don’t political speeches typically contain useful information?

It’s not that there’s no useful information to be conveyed: There are all sorts of things that people would like to know about a political candidate, including how honest they are, how competent they are, and the whole range of policies they intend to support or oppose on a variety of issues.

But most of what you’d like to know about a candidate actually comes in one of two varieties: Cheap talk, or controversy.

Cheap talk is the part related to being honest and competent. Basically every voter wants candidates who are honest and competent, and we know all too well that not all candidates qualify. The problem is, how do they show that they are honest and competent? They could simply assert it, but that’s basically meaningless—anybody could assert it. In fact, Donald Trump is the candidate who leaps to mind as the most eager to frequently assert his own honesty and competence, and also the most successful candidate in at least my lifetime who seems to utterly and totally lack anything resembling these qualities.

So unless you are clever enough to find ways to demonstrate your honesty and competence, you’re really not accomplishing anything by asserting it. Most people simply won’t believe you, and they’re right not to. So it doesn’t make much sense to spend a lot of effort trying to make such assertions.

Alternatively, you could try to talk about policy, say what you would like to do regarding climate change, the budget, or the military, or the healthcare system, or any of dozens of other political questions. That would absolutely be useful information for voters, and it isn’t just cheap talk, because different candidates and voters do intend different things and voters would like to know which ones are which.

The problem, then, is that it’s controversial. Not everyone is going to agree with your particular take on any given political issue—even within your own party there is bound to be substantial disagreement.

If enough voters were sufficiently rational about this, and could coolly evaluate a candidate’s policies, accepting the pros and cons, then it would still make sense to deliver this information. I for one would rather vote for someone I know agrees with me 90% of the time than someone who won’t even tell me what they intend to do while in office.

But in fact most voters are not sufficiently rational about this. Voters react much more strongly to negative information than positive information: A candidate you agree with 9 times out of 10 can still make you utterly outraged by their stance on issue number 10. This is a specific form of the more general phenomenon of negativity bias: Psychologically, people just react a lot more strongly to bad things than to good things. Negativity bias has strong effects on how people vote, especially young people.

Rather than a cool-headed, rational assessment of pros and cons, most voters base their decision on deal-breakers: “I could never vote for a Republican” or “I could never vote for someone who wants to cut the military”. Only after they’ve excluded a large portion of candidates based on these heuristics do they even try to look closer at the detailed differences between candidates.

This means that, if you are a candidate, your best option is to avoid offering any deal-breakers. You want to say things that almost nobody will strongly disagree with—because any strong disagreement could be someone’s deal-breaker and thereby hurt your poll numbers.

And what’s the best way to not say anything that will offend or annoy anyone? Not say anything at all. Campaign managers basically need to Mirandize their candidates: You have the right to remain silent. Anything you say can and will be used against you in the court of public opinion.

But in fact you can’t literally remain silent—when running for office, you are expected to make a lot of speeches. So you do the next best thing: You say a lot of words, but convey very little meaning. You say things like “America is great” and “I love apple pie” and “Moms are heroes” that, while utterly vapid, are very unlikely to make anyone particularly angry at you or be any voter’s deal-breaker.

And then we get into a Nash equilibrium where everyone is talking like this, nobody is saying anything, and political speeches become entirely devoid of useful content.

What can we as voters do about this? Individually, perhaps nothing. Collectively, literally everything.

If we could somehow shift the equilibrium so that candidates who are brave enough to make substantive, controversial claims get rewarded for it—even when we don’t entirely agree with them—while those who continue to recite insipid nonsense are punished, then candidates will absolutely change how they speak.

But this would require a lot of people to change, more or less all at once. A sufficiently large critical mass of voters would need to be willing to support candidates specifically because they made detailed policy proposals, even if we didn’t particularly like those policy proposals.

Obviously, if their policy proposals were terrible, we’d have good reason to reject them; but for this to work, we need to be willing to support a lot of things that are just… kind of okay. Because it’s vanishingly unlikely that the first candidates who are brave enough to say what they intend will also be ones whose intentions we entirely agree with. We need to set some kind of threshold of minimum agreement, and reward anyone who exceeds it. We need to ask ourselves if our deal-breakers really need to be deal-breakers.

The unsung success of Bidenomics

PNRJ core principles, current events, macroeconomics, politics, public policy , , , , , , , , , ,

Aug 13 JDN 2460170

I’m glad to see that the Biden administration is finally talking about “Bidenomics”. We tend to give too much credit or blame for economic performance to the President—particularly relative to Congress—but there are many important ways in which a Presidential administration can shift the priorities of public policy in particular directions, and Biden has clearly done that.

The economic benefits for people of color seem to have been particularly large. The unemployment gap between White and Black workers in the US is now only 2.7 percentage points, while just a few years ago it was over 4pp and at the worst of the Great Recession it surpassed 7pp. During lockdown, unemployment for Black people hit nearly 17%; it is now less than 6%.

The (misnamed, but we’re stuck with it) Inflation Reduction Act in particular has been an utter triumph.

In the past year, real private investment in manufacturing structures (essentially, new factories) has risen from $56 billion to $87 billion—an over 50% increase, which puts it the highest it has been since the turn of the century. The Inflation Reduction Act appears to be largely responsible for this change.

Not many people seem to know this, but the US has also been on the right track with regard to carbon emissions: Per-capita carbon emissions in the US have been trending downward since about 2000, and are now lower than they were in the 1950s. The Inflation Reduction act now looks poised to double down on that progress, as it has been forecasted to reduce our emissions all the way down to 40% below their early-2000s peak.

Somehow, this success doesn’t seem to be getting across. The majority of Americans incorrectly believe that we are in a downturn. Biden’s approval rating is still only 40%, barely higher than Trump’s was. When it comes to political beliefs, most American voters appear to be utterly impervious to facts.

Most Americans do correctly believe that inflation is still a bit high (though many seem to think it’s higher than it is); this is weird, seeing as inflation is normally high when the economy is growing rapidly, and gets too low when we are in a recession. This seems to be Halo Effect, rather than any genuine understanding of macroeconomics: downturns are bad and inflation is bad, so they must go together—when in fact, quite the opposite is the case.

People generally feel better about their own prospects than they do about the economy as a whole:

Sixty-four percent of Americans say the economy is worse off compared to 2020, while seventy-three percent of Americans say the economy is worse off compared to five years ago. About two in five of Americans say they feel worse off from five years ago generally (38%) and a similar number say they feel worse off compared to 2020 (37%).

(Did you really have to write out ‘seventy-three percent’? I hate that convention. 73% is so much clearer and quicker to read.)

I don’t know what the Biden administration should do about this. Trying to sell themselves harder might backfire. (And I’m pretty much the last person in the world you should ask for advice about selling yourself.) But they’ve been doing really great work for the US economy… and people haven’t noticed. Thousands of factories are being built, millions of people are getting jobs, and the collective response has been… “meh”.

How much should we give of ourselves?

PNRJ core principles, ethics, inequality, public policy, tribal paradigm , , , , , , , , , , , , , , , , ,

Jul 23 JDN 2460149

This is a question I’ve written about before, but it’s a very important one—perhaps the most important question I deal with on this blog—so today I’d like to come back to it from a slightly different angle.

Suppose you could sacrifice all the happiness in the rest of your life, making your own existence barely worth living, in exchange for saving the lives of 100 people you will never meet.

  1. Would it be good for you do so?
  2. Should you do so?
  3. Are you a bad person if you don’t?
  4. Are all of the above really the same question?

Think carefully about your answer. It may be tempting to say “yes”. It feels righteous to say “yes”.

But in fact this is not hypothetical. It is the actual situation you are in.

This GiveWell article is entitled “Why is it so expensive to save a life?” but that’s incredibly weird, because the actual figure they give is astonishingly, mind-bogglingly, frankly disgustingly cheap: It costs about $4500 to save one human life. I don’t know how you can possibly find that expensive. I don’t understand how anyone can think, “Saving this person’s life might max out a credit card or two; boy, that sure seems expensive!“

The standard for healthcare policy in the US is that something is worth doing if it is able to save one quality-adjusted life year for less than $50,000. That’s one year for ten times as much. Even accounting for the shorter lifespans and worse lives in poor countries, saving someone from a poor country for $4500 is at least one hundred times as cost-effective as that.

To put it another way, if you are a typical middle-class person in the First World, with an after-tax income of about $25,000 per year, and you were to donate 90% of that after-tax income to high-impact charities, you could be expected to save 5 lives every year. Over the course of a 30-year career, that’s 150 lives saved.

You would of course be utterly miserable for those 30 years, having given away all the money you could possibly have used for any kind of entertainment or enjoyment, not to mention living in the cheapest possible housing—maybe even a tent in a homeless camp—and eating the cheapest possible food. But you could do it, and you would in fact be expected to save over 100 lives by doing so.

So let me ask you again:

  1. Would it be good for you do so?
  2. Should you do so?
  3. Are you a bad person if you don’t?
  4. Are all of the above really the same question?

Peter Singer often writes as though the answer to all these questions is “yes”. But even he doesn’t actually live that way. He gives a great deal to charity, mind you; no one seems to know exactly how much, but estimates range from at least 10% to up to 50% of his income. My general impression is that he gives about 10% of his ordinary income and more like 50% of big prizes he receives (which are in fact quite numerous). Over the course of his life he has certainly donated at least a couple million dollars. Yet he clearly could give more than he does: He lives a comfortable, upper-middle-class life.

Peter Singer’s original argument for his view, from his essay “Famine, Affluence, and Morality”, is actually astonishingly weak. It involves imagining a scenario where a child is drowning in a lake and you could go save them, but only at the cost of ruining your expensive suit.

Obviously, you should save the child. We all agree on that. You are in fact a terrible person if you wouldn’t save the child.

But Singer tries to generalize this into a principle that requires us to donate all most of our income to international charities, and that just doesn’t follow.

First of all, that suit is not worth $4500. Not if you’re a middle-class person. That’s a damn Armani. No one who isn’t a millionaire wears suits like that.

Second, in the imagined scenario, you’re the only one who can help the kid. All I have to do is change that one thing and already the answer is different: If right next to you there is a trained, certified lifeguard, they should save the kid, not you. And if there are a hundred other people at the lake, and none of them is saving the kid… probably there’s a good reason for that? (It could be bystander effect, but actually that’s much weaker than a lot of people think.) The responsibility doesn’t uniquely fall upon you.

Third, the drowning child is a one-off, emergency scenario that almost certainly will never happen to you, and if it does ever happen, will almost certainly only happen once. But donation is something you could always do, and you could do over and over and over again, until you have depleted all your savings and run up massive debts.

Fourth, in the hypothetical scenario, there is only one child. What if there were ten—or a hundred—or a thousand? What if you couldn’t possibly save them all by yourself? Should you keep going out there and saving children until you become exhausted and you yourself drown? Even if there is a lifeguard and a hundred other bystanders right there doing nothing?

And finally, in the drowning child scenario, you are right there. This isn’t some faceless stranger thousands of miles away. You can actually see that child in front of you. Peter Singer thinks that doesn’t matter—actually his central point seems to be that it doesn’t matter. But I think it does.

Singer writes:

It makes no moral difference whether the person I can help is a neighbor’s child ten yards away from me or a Bengali whose name I shall never know, ten thousand miles away.

That’s clearly wrong, isn’t it? Relationships mean nothing? Community means nothing? There is no moral value whatsoever to helping people close to us rather than random strangers on the other side of the planet?

One answer might be to say that the answer to question 4 is “no”. You aren’t a bad person for not doing everything you should, and even though something would be good if you did it, that doesn’t necessarily mean you should do it.

Perhaps some things are above and beyond the call of duty: Good, perhaps even heroic, if you’re willing to do them, but not something we are all obliged to do. The formal term for this is supererogatory. While I think that overall utilitarianism is basically correct and has done great things for human society, one thing I think most utilitarians miss is that they seem to deny that supererogatory actions exist.

Even then, I’m not entirely sure it is good to be this altruistic.

Someone who really believed that we owe as much to random strangers as we do to our friends and family would never show up to any birthday parties, because any time spent at a birthday party would be more efficiently spent earning-to-give to some high-impact charity. They would never visit their family on Christmas, because plane tickets are expensive and airplanes burn a lot of carbon.

They also wouldn’t concern themselves with whether their job is satisfying or even not totally miserable; they would only care whether the total positive impact they can have on the world is positive, either directly through their work or by raising as much money as possible and donating it all to charity.

They would rest only the minimum amount they require to remain functional, eat only the barest minimum of nutritious food, and otherwise work, work, work, constantly, all the time. If their body was capable of doing the work, they would continue doing the work. For there is not a moment to waste when lives are on the line!

A world full of people like that would be horrible. We would all live our entire lives in miserable drudgery trying to maximize the amount we can donate to faceless strangers on the other side of the planet. There would be no joy or friendship in that world, only endless, endless toil.

When I bring this up in the Effective Altruism community, I’ve heard people try to argue otherwise, basically saying that we would never need everyone to devote themselves to the cause at this level, because we’d soon solve all the big problems and be able to go back to enjoying our lives. I think that’s probably true—but it also kind of misses the point.

Yes, if everyone gave their fair share, that fair share wouldn’t have to be terribly large. But we know for a fact that most people are not giving their fair share. So what now? What should we actually do? Do you really want to live in a world where the morally best people are miserable all the time sacrificing themselves at the altar of altruism?

Yes, clearly, most people don’t do enough. In fact, most people give basically nothing to high-impact charities. We should be trying to fix that. But if I am already giving far more than my fair share, far more than I would have to give if everyone else were pitching in as they should—isn’t there some point at which I’m allowed to stop? Do I have to give everything I can or else I’m a monster?

The conclusion that we ought to make ourselves utterly miserable in order to save distant strangers feels deeply unsettling. It feels even worse if we say that we ought to do so, and worse still if we feel we are bad people if we don’t.

One solution would be to say that we owe absolutely nothing to these distant strangers. Yet that clearly goes too far in the opposite direction. There are so many problems in this world that could be fixed if more people cared just a little bit about strangers on the other side of the planet. Poverty, hunger, war, climate change… if everyone in the world (or really even just everyone in power) cared even 1% as much about random strangers as they do about themselves, all these would be solved.

Should you donate to charity? Yes! You absolutely should. Please, I beseech you, give some reasonable amount to charity—perhaps 5% of your income, or if you can’t manage that, maybe 1%.

Should you make changes in your life to make the world better? Yes! Small ones. Eat less meat. Take public transit instead of driving. Recycle. Vote.

But I can’t ask you to give 90% of your income and spend your entire life trying to optimize your positive impact. Even if it worked, it would be utter madness, and the world would be terrible if all the good people tried to do that.

I feel quite strongly that this is the right approach: Give something. Your fair share, or perhaps even a bit more, because you know not everyone will.

Yet it’s surprisingly hard to come up with a moral theory on which this is the right answer.

It’s much easier to develop a theory on which we owe absolutely nothing: egoism, or any deontology on which charity is not an obligation. And of course Singer-style utilitarianism says that we owe virtually everything: As long as QALYs can be purchased cheaper by GiveWell than by spending on yourself, you should continue donating to GiveWell.

I think part of the problem is that we have developed all these moral theories as if we were isolated beings, who act in a world that is simply beyond our control. It’s much like the assumption of perfect competition in economics: I am but one producer among thousands, so whatever I do won’t affect the price.

But what we really needed was a moral theory that could work for a whole society. Something that would still make sense if everyone did it—or better yet, still make sense if half the people did it, or 10%, or 5%. The theory cannot depend upon the assumption that you are the only one following it. It cannot simply “hold constant” the rest of society.

I have come to realize that the Effective Altruism movement, while probably mostly good for the world as a whole, has actually been quite harmful to the mental health of many of its followers, including myself. It has made us feel guilty for not doing enough, pressured us to burn ourselves out working ever harder to save the world. Because we do not give our last dollar to charity, we are told that we are murderers.

But there are real murderers in this world. While you were beating yourself up over not donating enough, Vladmir Putin was continuing his invasion of Ukraine, ExxonMobil was expanding its offshore drilling, Daesh was carrying out hundreds of terrorist attacks, Qanon was deluding millions of people, and the human trafficking industry was making $150 billion per year.

In other words, by simply doing nothing you are considerably better than the real monsters responsible for most of the world’s horror.

In fact, those starving children in Africa that you’re sending money to help? They wouldn’t need it, were it not for centuries of colonial imperialism followed by a series of corrupt and/or incompetent governments ruled mainly by psychopaths.

Indeed the best way to save those people, in the long run, would be to fix their governments—as has been done in places like Namibia and Botswana. According to the World Development Indicators, the proportion of people living below the UN extreme poverty line (currently $2.15 per day at purchasing power parity) has fallen from 36% to 16% in Namibia since 2003, and from 42% to 15% in Botswana since 1984. Compare this to some countries that haven’t had good governments over that time: In Cote d’Ivoire the same poverty rate was 8% in 1985 but is 11% today (and was actually as high as 33% in 2015), while in Congo it remains at 35%. Then there are countries that are trying, but just started out so poor it’s a long way to go: Burkina Faso’s extreme poverty rate has fallen from 82% in 1994 to 30% today.

In other words, if you’re feeling bad about not giving enough, remember this: if everyone in the world were as good as you, you wouldn’t need to give a cent.

Of course, simply feeling good about yourself for not being a psychopath doesn’t accomplish very much either. Somehow we have to find a balance: Motivate people enough so that they do something, get them to do their share; but don’t pressure them to sacrifice themselves at the altar of altruism.

I think part of the problem here—and not just here—is that the people who most need to change are the ones least likely to listen. The kind of person who reads Peter Singer is already probably in the top 10% of most altruistic people, and really doesn’t need much more than a slight nudge to be doing their fair share. And meanwhile the really terrible people in the world have probably never picked up an ethics book in their lives, or if they have, they ignored everything it said.

I don’t quite know what to do about that. But I hope I can least convince you—and myself—to take some of the pressure off when it feels like we’re not doing enough.

Why we need critical thinking

PNRJ cognitive science, core principles, education, financial fraud, politics, public policy, science and academia , , , , , , , , , , , , , , , , ,

Jul 9 JDN 2460135

I can’t find it at the moment, but awhile ago I read a surprisingly compelling post on social media (I think it was Facebook, but it could also have been Reddit) questioning the common notion that we should be teaching more critical thinking in school.

I strongly believe that we should in fact be teaching more critical thinking in school—actually I think we should replace large chunks of the current math curriculum with a combination of statistics, economics and critical thinking—but it made me realize that we haven’t done enough to defend why that is something worth doing. It’s just become a sort of automatic talking point, like, “obviously you would want more critical thinking, why are you even asking?”

So here’s a brief attempt to explain why critical thinking is something that every citizen ought to be good at, and hence why it’s worthwhile to teach it in primary and secondary school.

Critical thinking, above all, allows you to detect lies. It teaches you to look past the surface of what other people are saying and determine whether what they are saying is actually true.

And our world is absolutely full of lies.

We are constantly lied to by advertising. We are constantly lied to by spam emails and scam calls. Day in and day out, people with big smiles promise us the world, if only we will send them five easy payments of $19.99.

We are constantly lied to by politicians. We are constantly lied to by religious leaders (it’s pretty much their whole job actually).

We are often lied to by newspapers—sometimes directly and explicitly, as in fake news, but more often in subtler ways. Most news articles in the mainstream press are true in the explicit facts they state, but are missing important context; and nearly all of them focus on the wrong things—exciting, sensational, rare events rather than what’s actually important and likely to affect your life. If newspapers were an accurate reflection of genuine risk, they’d have more articles on suicide than homicide, and something like one million articles on climate change for every one on some freak accident (like that submarine full of billionaires).

We are even lied to by press releases on science, which likewise focus on new, exciting, sensational findings rather than supported, established, documented knowledge. And don’t tell me everyone already knows it; just stating basic facts about almost any scientific field will shock and impress most of the audience, because they clearly didn’t learn this stuff in school (or, what amounts to the same thing, don’t remember it). This isn’t just true of quantum physics; it’s even true of economics—which directly affects people’s lives.

Critical thinking is how you can tell when a politician has distorted the views of his opponent and you need to spend more time listening to that opponent speak. Critical thinking could probably have saved us from electing Donald Trump President.

Critical thinking is how you tell that a supplement which “has not been evaluated by the FDA” (which is to say, nearly all of them) probably contains something mostly harmless that maybe would benefit you if you were deficient in it, but for most people really won’t matter—and definitely isn’t something you can substitute for medical treatment.

Critical thinking is how you recognize that much of the history you were taught as a child was a sanitized, simplified, nationalist version of what actually happened. But it’s also how you recognize that simply inverting it all and becoming the sort of anti-nationalist who hates your own country is at least as ridiculous. Thomas Jefferson was both a pioneer of democracy and a slaveholder. He was both a hero and a villain. The world is complicated and messy—and nothing will let you see that faster than critical thinking.


Critical thinking tells you that whenever a new “financial innovation” appears—like mortgage-backed securities or cryptocurrency—it will probably make obscene amounts of money for a handful of insiders, but will otherwise be worthless if not disastrous to everyone else. (And maybe if enough people had good critical thinking skills, we could stop the next “innovation” from getting so far!)

More widespread critical thinking could even improve our job market, as interviewers would no longer be taken in by the candidates who are best at overselling themselves, and would instead pay more attention to the more-qualified candidates who are quiet and honest.

In short, critical thinking constitutes a large portion of what is ordinarily called common sense or wisdom; some of that simply comes from life experience, but a great deal of it is actually a learnable skill set.

Of course, even if it can be learned, that still raises the question of how it can be taught. I don’t think we have a sound curriculum for teaching critical thinking, and in my more cynical moments I wonder if many of the powers that be like it that way. Knowing that many—not all, but many—politicians make their careers primarily from deceiving the public, it’s not so hard to see why those same politicians wouldn’t want to support teaching critical thinking in public schools. And it’s almost funny to me watching evangelical Christians try to justify why critical thinking is dangerous—they come so close to admitting that their entire worldview is totally unfounded in logic or evidence.

But at least I hope I’ve convinced you that it is something worthwhile to know, and that the world would be better off if we could teach it to more people.

We do seem to have better angels after all

PNRJ book reviews, core principles, development economics, ethics, futurism, inequality, public policy , , , , , , , , , , ,

Jun 18 JDN 2460114

A review of The Darker Angels of Our Nature

(I apologize for not releasing this on Sunday; I’ve been traveling lately and haven’t found much time to write.)

Since its release, I have considered Steven Pinker’s The Better Angels of our Nature among a small elite category of truly great books—not simply good because enjoyable, informative, or well-written, but great in its potential impact on humanity’s future. Others include The General Theory of Employment, Interest, and Money, On the Origin of Species, and Animal Liberation.

But I also try to expose myself as much as I can to alternative views. I am quite fearful of the echo chambers that social media puts us in, where dissent is quietly hidden from view and groupthink prevails.

So when I saw that a group of historians had written a scathing critique of The Better Angels, I decided I surely must read it and get its point of view. This book is The Darker Angels of Our Nature.

The Darker Angels is written by a large number of different historians, and it shows. It’s an extremely disjointed book; it does not present any particular overall argument, various sections differ wildly in scope and tone, and sometimes they even contradict each other. It really isn’t a book in the usual sense; it’s a collection of essays whose only common theme is that they disagree with Steven Pinker.

In fact, even that isn’t quite true, as some of the best essays in The Darker Angels are actually the ones that don’t fundamentally challenge Pinker’s contention that global violence has been on a long-term decline for centuries and is now near its lowest in human history. These essays instead offer interesting insights into particular historical eras, such as medieval Europe, early modern Russia, and shogunate Japan, or they add additional nuances to the overall pattern, like the fact that, compared to medieval times, violence in Europe seems to have been less in the Pax Romana (before) and greater in the early modern period (after), showing that the decline in violence was not simple or steady, but went through fluctuations and reversals as societies and institutions changed. (At this point I feel I should note that Pinker clearly would not disagree with this—several of the authors seem to think he would, which makes me wonder if they even read The Better Angels.)

Others point out that the scale of civilization seems to matter, that more is different, and larger societies and armies more or less automatically seem to result in lower fatality rates by some sort of scaling or centralization effect, almost like the square-cube law. That’s very interesting if true; it would suggest that in order to reduce violence, you don’t really need any particular mode of government, you just need something that unites as many people as possible under one banner. The evidence presented for it was too weak for me to say whether it’s really true, however, and there was really no theoretical mechanism proposed whatsoever.

Some of the essays correct genuine errors Pinker made, some of which look rather sloppy. Pinker clearly overestimated the death tolls of the An Lushan Rebellion, the Spanish Inquisition, and Aztec ritual executions, probably by using outdated or biased sources. (Though they were all still extremely violent!) His depiction of indigenous cultures does paint with a very broad brush, and fails to recognize that some indigenous societies seem to have been quite peaceful (though others absolutely were tremendously violent).

One of the best essays is about Pinker’s cavalier attitude toward mass incarceration, which I absolutely do consider a deep flaw in Pinker’s view. Pinker presents increased incarceration rates along with decreased crime rates as if they were an unalloyed good, while I can at best be ambivalent about whether the benefit of decreasing crime is worth the cost of greater incarceration. Pinker seems to take for granted that these incarcerations are fair and impartial, when we have a great deal of evidence that they are strongly biased against poor people and people of color.

There’s another good essay about the Enlightenment, which Pinker seems to idealize a little too much (especially in his other book Enlightenment Now). There was no sudden triumph of reason that instantly changed the world. Human knowledge and rationality gradually improved over a very long period of time, with no obvious turning point and many cases of backsliding. The scientific method isn’t a simple, infallible algorithm that suddenly appeared in the brain of Galileo or Bayes, but a whole constellation of methods and concepts of rationality that took centuries to develop and is in fact still developing. (Much as the Tao that can be told is not the eternal Tao, the scientific method that can be written in a textbook is not the true scientific method.)

Several of the essays point out the limitations of historical and (especially) archaeological records, making it difficult to draw any useful inferences about rates of violence in the past. I agree that Pinker seems a little too cavalier about this; the records really are quite sparse and it’s not easy to fill in the gaps. Very small samples can easily distort homicide rates; since only about 1% of deaths worldwide are homicide, if you find 20 bodies, whether or not one of them was murdered is the difference between peaceful Japan and war-torn Colombia.

On the other hand, all we really can do is make the best inferences we have with the available data, and for the time periods in which we do have detailed records—surely true since at least the 19th century—the pattern of declining violence is very clear, and even the World Wars look like brief fluctuations rather than fundamental reversals. Contrary to popular belief, the World Wars do not appear to have been especially deadly on a per-capita basis, compared to various historic wars. The primary reason so many people died in the World Wars was really that there just were more people in the world. A few of the authors don’t seem to consider this an adequate reason, but ask yourself this: Would you rather live in a society of 100 in which 10 people are killed, or a society of 1 billion in which 1 million are killed? In the former case your chances of being killed are 10%; in the latter, 0.1%. Clearly, per-capita measures of violence are the correct ones.

Some essays seem a bit beside the point, like one on “environmental violence” which quite aptly details the ongoing—terrifying—degradation of our global ecology, but somehow seems to think that this constitutes violence when it obviously doesn’t. There is widespread violence against animals, certainly; slaughterhouses are the obvious example—and unlike most people, I do not consider them some kind of exception we can simply ignore. We do in fact accept levels of cruelty to pigs and cows that we would never accept against dogs or horses—even the law makes such exceptions. Moreover, plenty of habitat destruction is accompanied by killing of the animals who lived in that habitat. But ecological degradation is not equivalent to violence. (Nor is it clear to me that our treatment of animals is more violent overall today than in the past; I guess life is probably worse for a beef cow today than it was in the medieval era, but either way, she was going to be killed and eaten. And at least we no longer do cat-burning.) Drilling for oil can be harmful, but it is not violent. We can acknowledge that life is more peaceful now than in the past without claiming that everything is better now—in fact, one could even say that overall life isn’t better, but I think they’d be hard-pressed to argue that.

These are the relatively good essays, which correct minor errors or add interesting nuances. There are also some really awful essays in the mix.

A common theme of several of the essays seems to be “there are still bad things, so we can’t say anything is getting better”; they will point out various forms of violence that undeniably still exist, and treat this as a conclusive argument against the claim that violence has declined. Yes, modern slavery does exist, and it is a very serious problem; but it clearly is not the same kind of atrocity that the Atlantic slave trade was. Yes, there are still murders. Yes, there are still wars. Probably these things will always be with us to some extent; but there is a very clear difference between 500 homicides per million people per year and 50—and it would be better still if we could bring it down to 5.

There’s one essay about sexual violence that doesn’t present any evidence whatsoever to contradict the claim that rates of sexual violence have been declining while rates of reporting and prosecution have been increasing. (These two trends together often result in reported rapes going up, but most experts agree that actual rapes are going down.) The entire essay is based on anecdote, innuendo, and righteous anger.

There are several essays that spend their whole time denouncing neoliberal capitalism (not even presenting any particularly good arguments against it, though such arguments do exist), seeming to equate Pinker’s view with some kind of Rothbardian anarcho-capitalism when in fact Pinker is explictly in favor of Nordic-style social democracy. (One literally dismisses his support for universal healthcare as “Well, he is Canadian”.) But Pinker has on occasion said good things about capitalism, so clearly, he is an irredeemable monster.

Right in the introduction—which almost made me put the book down—is an astonishingly ludicrous argument, which I must quote in full to show you that it is not out of context:

What actually is violence (nowhere posed or answered in The Better Angels)? How do people perceive it in different time-place settings? What is its purpose and function? What were contemporary attitudes toward violence and how did sensibilities shift over time? Is violence always ‘bad’ or can there be ‘good’ violence, violence that is regenerative and creative?

The Darker Angels of Our Nature, p.16

Yes, the scare quotes on ‘good’ and ‘bad’ are in the original. (Also the baffling jargon “time-place settings” as opposed to, say, “times and places”.) This was clearly written by a moral relativist. Aside from questioning whether we can say anything about anything, the argument seems to be that Pinker’s argument is invalid because he didn’t precisely define every single relevant concept, even though it’s honestly pretty obvious what the world “violence” means and how he is using it. (If anything, it’s these authors who don’t seem to understand what the word means; they keep calling things “violence” that are indeed bad, but obviously aren’t violence—like pollution and cyberbullying. At least talk of incarceration as “structural violence” isn’t obvious nonsense—though it is still clearly distinct from murder rates.)

But it was by reading the worst essays that I think I gained the most insight into what this debate is really about. Several of the essays in The Darker Angels thoroughly and unquestioningly share the following inference: if a culture is superior, then that culture has a right to impose itself on others by force. On this, they seem to agree with the imperialists: If you’re better, that gives you a right to dominate everyone else. They rightly reject the claim that cultures have a right to imperialistically dominate others, but they cannot deny the inference, and so they are forced to deny that any culture can ever be superior to another. The result is that they tie themselves in knots trying to justify how greater wealth, greater happiness, less violence, and babies not dying aren’t actually good things. They end up talking nonsense about “violence that is regenerative and creative”.

But we can believe in civilization without believing in colonialism. And indeed that is precisely what I (along with Pinker) believe: That democracy is better than autocracy, that free speech is better than censorship, that health is better than illness, that prosperity is better than poverty, that peace is better than war—and therefore that Western civilization is doing a better job than the rest. I do not believe that this justifies the long history of Western colonial imperialism. Governing your own country well doesn’t give you the right to invade and dominate other countries. Indeed, part of what makes colonial imperialism so terrible is that it makes a mockery of the very ideals of peace, justice, and freedom that the West is supposed to represent.

I think part of the problem is that many people see the world in zero-sum terms, and believe that the West’s prosperity could only be purchased by the rest of the world’s poverty. But this is untrue. The world is nonzero-sum. My happiness does not come from your sadness, and my wealth does not come from your poverty. In fact, even the West was poor for most of history, and we are far more prosperous now that we have largely abandoned colonial imperialism than we ever were in imperialism’s heyday. (I do occasionally encounter British people who seem vaguely nostalgic for the days of the empire, but real median income in the UK has doubled just since 1977. Inequality has also increased during that time, which is definitely a problem; but the UK is undeniably richer now than it ever was at the peak of the empire.)

In fact it could be that the West is richer now because of colonalism than it would have been without it. I don’t know whether or not this is true. I suspect it isn’t, but I really don’t know for sure. My guess would be that colonized countries are poorer, but colonizer countries are not richer—that is, colonialism is purely destructive. Certain individuals clearly got richer by such depredation (Leopold II, anyone?), but I’m not convinced many countries did.

Yet even if colonialism did make the West richer, it clearly cannot explain most of the wealth of Western civilization—for that wealth simply did not exist in the world before. All these bridges and power plants, laptops and airplanes weren’t lying around waiting to be stolen. Surely, some of the ingredients were stolen—not least, the land. Had they been bought at fair prices, the result might have been less wealth for us (then again it might not, for wealthier trade partners yield greater exports). But this does not mean that the products themselves constitute theft, nor that the wealth they provide is meaningless. Perhaps we should find some way to pay reparations; undeniably, we should work toward greater justice in the future. But we do not need to give up all we have in order to achieve that justice.

There is a law of conservation of energy. It is impossible to create energy in one place without removing it from another. There is no law of conservation of prosperity. Making the world better in one place does not require making it worse in another.

Progress is real. Yes, it is flawed, uneven, and it has costs of its own; but it is real. If we want to have more of it, we best continue to believe in it. And The Better Angels of Our Nature does have some notable flaws, but it still retains its place among truly great books.

Voting Your Dollars

PNRJ politics, public policy , , , , , , , , , , , , ,

May 28 JDN 2460093

It’s no secret that Americans don’t like to pay taxes. It’s almost a founding principle of our country, really, going all the way back to the Boston Tea Party. This is likely part of why the US has one of the lowest tax-to-GDP ratios in the First World; our taxes are barely half what they pay in Scandinavia. And this in turn surely contributes to our ongoing budget issues and our stingy social welfare spending. (Speaking of budget issues: As of this writing, the debt ceiling debacle is still unresolved.)

Why don’t Americans like to pay taxes? Why does no one really like to pay taxes (though some seem more willing than others)?

It surely has something to do with the fact that taxes are so coercive: You have to pay them, you get no choice. And you also have very little choice as to how that money is used; yes, you can vote for politicians who will in theory at some point enact budgets that might possibly reflect the priorities they expressed in their campaigns—but the actual budget invariably ends up quite far removed from the campaign promises you could vote based on.

What if we could give you more choice? We can’t let people choose how much to pay—then most people would choose to pay less and we’d be in even more trouble. (If you want to pay more than you’re required to, the IRS will actually let you right now. You can just refuse your refund.) But perhaps we could let people choose where the money goes?

I call this program Vote Your Dollars. I would initially limit it to a small fraction of the budget, tied to a tax increase: Say, raise taxes enough to increase revenue by 5% and use that 5% for the program.

Under Vote Your Dollars, on your tax return, you are given a survey, asking you how you want to divide up your additional money toward various categories. I think they should be fairly broad categories, such as ‘healthcare’, ‘social security’, ‘anti-poverty programs’, ‘defense’, ‘foreign aid’. If we make them too specific, it would be more work for the voters and also more likely to lead to foolish allocations. We want them to basically reflect a voter’s priorities, rather than ask them to make detailed economic management decisions. Most voters are not qualified to properly allocate a budget; the goal here is to get people to weight how much they care about different programs.

As only a small portion of the budget, Vote Your Dollars would initially have very little real fiscal impact. Money is fungible, so any funds that were expected to go somewhere else than where voters put them could easily be reallocated as needed. But I suspect that most voters would fail to appreciate this effect, and thus actually feel like they have more control than they really do. (If voters understood fungibility and inframarginal transfers, they’d never have supported food stamps over just giving poor people cash.)

Moreover, it would still provide useful information, namely: What happens when voters are given this power? Do they make decisions that seem to make sense and reflect their interests and beliefs? Does the resulting budget actually seem like one that could be viable? Could it even be better than what we currently have in some ways?

I suspect that the result would be better than most economists and political scientists imagine. There seems to be a general sense that voters are too foolish or apathetic to usefully participate in politics, which of course would raise the very big question: Why does democracy work?

I don’t think that most voters would choose a perfect budget; indeed, I already said I wouldn’t trust them with the fine details of how to allocate the funds. But I do think most people have at least some reasonable idea of how important they think healthcare is relative to defense, and it would be good to at least gather that information in a more direct way.

If it goes well and Vote Your Dollars seems to result in reasonable budgets even for that extra 5%, we could start expanding it to a larger portion of the overall budget. Try 10% for the next election, then 15% for the next. There should always be some part that remains outside direct voter control, because voters would almost certainly underspend on certain categories (such as administration and national debt payments) and likely overspend on others.

This would allow us to increase taxes—which we clearly must do, because we need to improve government services, but we don’t want to go further into debt—while giving voters more choice, and thus making taxes feel less coercive. Being forced to pay a certain amount each year might not sting as much if you get to say where a significant portion of that money goes.

To give voters even more control over their money, I think I would also include a provision whereby you can deduct the full amount of your charitable contributions to certain high-impact charities (we would need to come up with a good list, but clear examples include UNICEF, Oxfam, and GiveWell) from your tax payment. Currently, you deduct charitable contributions from your income, which means you don’t pay taxes on those donations; but you still end up with less money after donating than you did before. If we let you deduct the full amount, then you would have the same amount after donating, and effectively the government would pay the full cost of your donation. Presumably this would lead to people donating a great deal; this might hurt tax revenues, but its overall positive impact on the world would be so large that it is obviously worth it. By the time we have given enough to UNICEF to meaningfully impact the US federal budget, we have ended world hunger.

Of course, it’s very unlikely that anything like Vote Your Dollars would ever be implemented. There are already ways we could make paying taxes less painful that we haven’t done—such as sending you a bill, as they do in Denmark, rather than making you file a tax form. And we could already increase revenue with very little real cost by simply expanding the IRS and auditing rich people more. These simple, obvious reforms have been repeatedly obstructed by powerful lobbies, who personally benefit from the current system even though it’s obviously a bad system. I guess I can’t think of anyone in particular who would want to lobby against Vote Your Dollars, but I feel like Republicans might just because they want taxes to hurt as much as possible so that they have an excuse to cut spending.

But still, I thought I’d put the idea out there.

Reckoning costs in money distorts them

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

May 7 JDN 2460072

Consider for a moment what it means when an economic news article reports “rising labor costs”. What are they actually saying?

They’re saying that wages are rising—perhaps in some industry, perhaps in the economy as a whole. But this is not a cost. It’s a price. As I’ve written about before, the two are fundamentally distinct.

The cost of labor is measured in effort, toil, and time. It’s the pain of having to work instead of whatever else you’d like to do with your time.

The price of labor is a monetary amount, which is delivered in a transaction.

This may seem perfectly obvious, but it has important and oft-neglected implications. A cost, one paid, is gone. That value has been destroyed. We hope that it was worth it for some benefit we gained. A price, when paid, is simply transferred: One person had that money before, now someone else has it. Nothing was gained or lost.

So in fact when reports say that “labor costs have risen”, what they are really saying is that income is being transferred from owners to workers without any change in real value taking place. They are framing as a loss what is fundamentally a zero-sum redistribution.

In fact, it is disturbingly common to see a fundamentally good redistribution of income framed in the press as a bad outcome because of its expression as “costs”; the “cost” of chocolate is feared to go up if we insist upon enforcing bans on forced labor—when in fact it is only the price that goes up, and the cost actually goes down: chocolate would no longer include complicity in an atrocity. The real suffering of making chocolate would be thereby reduced, not increased. Even when they aren’t literally enslaved, those workers are astonishingly poor, and giving them even a few more cents per hour would make a real difference in their lives. But God forbid we pay a few cents more for a candy bar!

If labor costs were to rise, that would mean that work had suddenly gotten harder, or more painful; or else, that some outside circumstance had made it more difficult to work. Having a child increases your labor costs—you now have the opportunity cost of not caring for the child. COVID increased the cost of labor, by making it suddenly dangerous just to go outside in public. That could also increase prices—you may demand a higher wage, and people do seem to have demanded higher wages after COVID. But these are two separate effects, and you can have one without the other. In fact, women typically see wage stagnation or even reduction after having kids (but men largely don’t), despite their real opportunity cost of labor having obviously greatly increased.

On an individual level, it’s not such a big mistake to equate price and cost. If you are buying something, its cost to you basically just is its price, plus a little bit of transaction cost for actually finding and buying it. But on a societal level, it makes an enormous difference. It distorts our policy priorities and can even lead to actively trying to suppress things that are beneficial—such as rising wages.

This false equivalence between price and costs seems to be at least as common among economists as it is among laypeople. Economists will often justify it on the grounds that in an ideal perfect competitive market the two would be in some sense equated. But of course we don’t live in that ideal perfect market, and even if we did, they would only beproportional at the margin, not fundamentally equal across the board. It would still be obviously wrong to characterize the total value or cost of work by the price paid for it; only the last unit of effort would be priced so that marginal value equals price equals marginal cost. The first 39 hours of your work would cost you less than what you were paid, and produce more than you were paid; only that 40th hour would set the three equal.

Once you account for all the various market distortions in the world, there’s no particular relationship between what something costs—in terms of real effort and suffering—and its price—in monetary terms. Things can be expensive and easy, or cheap and awful. In fact, they often seem to be; for some reason, there seems to be a pattern where the most terrible, miserable jobs (e.g. coal mining) actually pay the leastand the easiest, most pleasant jobs (e.g. stock trading) pay the most. Some jobs that benefit society pay well (e.g. doctors) and others pay terribly or not at all (e.g. climate activists). Some actions that harm the world get punished (e.g. armed robbery) and others get rewarded with riches (e.g. oil drilling). In the real world, whether a job is good or bad and whether it is paid well or poorly seem to be almost unrelated.

In fact, sometimes they seem even negatively related, where we often feel tempted to “sell out” and do something destructive in order to get higher pay. This is likely due to Berkson’s paradox: If people are willing to do jobs if they are either high-paying or beneficial to humanity, then we should expect that, on average, most of the high-paying jobs people do won’t be beneficial to humanity. Even if there were inherently no correlation or a small positive one, people’s refusal to do harmful low-paying work removes those jobs from our sample and results in a negative correlation in what remains.

I think that the best solution, ultimately, is to stop reckoning costs in money entirely. We should reckon them in happiness.

This is of course much more difficult than simply using prices; it’s not easy to say exactly how many QALY are sacrificed in the extraction of cocoa beans or the drilling of offshore oil wells. But if we actually did find a way to count them, I strongly suspect we’d find that it was far more than we ought to be willing to pay.

A very rough approximation, surely flawed but at least a start, would be to simply convert all payments into proportions of their recipient’s income: For full-time wages, this would result in basically everyone being counted the same, as 1 hour of work if you work 40 hours per week, 50 weeks per year is precisely 0.05% of your annual income. So we could say that whatever is equivalent to your hourly wage constitutes 50 microQALY.

This automatically implies that every time a rich person pays a poor person, QALY increase, while every time a poor person pays a rich person, QALY decrease. This is not an error in the calculation. It is a fact of the universe. We ignore it only at out own peril. All wealth redistributed downward is a benefit, while all wealth redistributed upward is a harm. That benefit may cause some other harm, or that harm may be compensated by some other benefit; but they are still there.

This would also put some things in perspective. When HSBC was fined £70 million for its crimes, that can be compared against its £1.5 billion in net income; if it were an individual, it would have been hurt about 50 milliQALY, which is about what I would feel if I lost $2000. Of course, it’s not a person, and it’s not clear exactly how this loss was passed through to employees or shareholders; but that should give us at least some sense of how small that loss was for them. They probably felt it… a little.

When Trump was ordered to pay a $1.3 million settlement, based on his $2.5 billion net wealth (corresponding to roughly $125 million in annual investment income), that cost him about 10 milliQALY; for me that would be about $500.

At the other extreme, if someone goes from making $1 per day to making $1.50 per day, that’s a 50% increase in their income—500 milliQALY per year.

For those who have no income at all, this becomes even trickier; for them I think we should probably use their annual consumption, since everyone needs to eat and that costs something, though likely not very much. Or we could try to measure their happiness directly, trying to determine how much it hurts to not eat enough and work all day in sweltering heat.

Properly shifting this whole cultural norm will take a long time. For now, I leave you with this: Any time you see a monetary figure, ask yourself: “How much is that worth to them?” The world will seem quite different once you get in the habit of that.

The idiocy of the debt ceiling

PNRJ current events, politics, public policy , , , , , , , , , ,

Apr 23 JDN 2460058

I thought we had put this behind us. I guess I didn’t think the Republicans would stop using the tactic once they saw it worked, but I had hoped that the Democrats would come up with a better permanent solution so that it couldn’t be used again. But they did not, and here we are again: Republicans are refusing to raise the debt ceiling, we have now hit that ceiling, and we are running out of time before we have to start shutting down services or defaulting on debt. There are talks ongoing that may yet get the ceiling raised in time, but we’re now cutting it very close. Already the risk that we might default or do something crazy is causing turmoil in financial markets.

Because US Treasury bonds are widely regarded as one of the world’s most secure assets, and the US dollar is the most important global reserve currency, the entire world’s financial markets get disrupted every time there is an issue with the US national debt, and the debt ceiling creates such disruptions on the regular for no good reason.

I will try to offer some of my own suggestions for what to do here, but first, I want to make something very clear: The debt ceiling should not exist. I don’t think most people understand just how truly idiotic the entire concept of a debt ceiling is. It seems practically designed to make our government dysfunctional.

This is not like a credit card limit, where your bank imposes a limit on how much you can borrow based on how much they think you are likely to be able to repay. A lot of people have been making that analogy, and I can see why it’s tempting; but as usual, it’s important to remember that government debt is not like personal debt.

As I said some years ago, US government debt is about as close as the world is ever likely to come to a perfect credit market: with no effort at all, borrow as much as you want at low, steady interest rates, and everyone will always be sure that you will pay it back on time. The debt ceiling is a limit imposed by the government itself—it is not imposed by our creditors, who would be more than happy to lend us more.

Also, I’d like to remind you that some of the US national debt is owned by the US government itself (is that really even “debt”?) and most of what’s left is owned by US individuals or corporations—only about a third is owed to foreign powers. Here is a detailed breakdown of who owns US national debt.

There is no reason to put an arbitrary cap on the amount the US government can borrow. The only reason anyone is at all worried about a default on the US national debt is because of this stupid arbitrary cap. If it didn’t exist, they would simply roll over more Treasury bonds to make the payments and everything would run smoothly. And this is normally what happens, when the Republicans aren’t playing ridiculous brinkmanship games.

As it is, they could simply print money to pay it—and at this point, maybe that’s what needs to happen. Mint the Coin already: Mint a $1 trillion platinum coin and deposit it in the Federal Reserve, and there you go, you’ve paid off a chunk of the debt. Sometimes stupid problems require stupid solutions.

Aren’t there reasons to be worried about the government borrowing too much? Yes, a little. The amount of concern most people have about this is wildly disproportionate to the actual problem, but yes, there are legitimate concerns about high national debt resulting in high interest rates and eventually forcing us to raise taxes or cut services. This is a slow-burn, long-term problem that by its very nature would never require a sudden, immediate solution; but it is a genuine concern we should be aware of.

But here’s the thing: That’s a conversation we should be having when we vote on the budget. Whenever we pass a government budget, it already includes detailed projections of tax revenue and spending that yield precise, accurate forecasts of the deficit and the debt. If Republicans are genuinely concerned that we are overspending on certain programs, they should propose budget cuts to those programs and get those cuts passed as part of the budget.

Once a budget is already passed, we have committed to spend that money. It has literally been signed into law that $X will be spend on program Y. At that point, you can’t simply cut the spending. If you think we’re spending too much, you needed to say that before we signed it into law. It’s too late now.

I’m always dubious of analogies between household spending and government spending, but if you really want one, think of it this way: Say your credit card company is offering to raise your credit limit, and you just signed a contract for some home improvements that would force you to run up your credit card past your current limit. Do you call the credit card company and accept the higher limit, or not? If you don’t, why don’t you? And what’s your plan for paying those home contractors? Even if you later decide that the home improvements were a bad idea, you already signed the contract! You can’t just back out!

This is why the debt ceiling is so absurd: It is a self-imposed limit on what you’re allowed to spend after you have already committed to spending it. The only sensible thing to do is to raise the debt ceiling high enough to account for the spending you’ve already committed to—or better yet, eliminate the ceiling entirely.

I think that when they last had a majority in both houses, the Democrats should have voted to make the debt ceiling ludicrously high—say $100 trillion. Then, at least for the foreseeable future, we wouldn’t have to worry about raising it, and could just pass budgets normally like a sane government. But they didn’t do that; they only raised it as much as was strictly necessary, thus giving the Republicans an opening now to refuse to raise it again.

And that is what the debt ceiling actually seems to accomplish: It gives whichever political party is least concerned about the public welfare a lever they can pull to disrupt the entire system whenever they don’t get things the way they want. If you absolutely do not care about the public good—and it’s quite clear at this point that most of the Republican leadership does not—then whenever you don’t get your way, you can throw a tantrum that threatens to destabilize the entire global financial system.

We need to stop playing their game. Do what you have to do to keep things running for now—but then get rid of the damn debt ceiling before they can use it to do even more damage.