public policy

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.

Will hydrogen make air travel sustainable?

PNRJ current events, futurism, public policy , , , , , , ,

Apr 9 JDN 2460042

Air travel is currently one of the most carbon-intensive activities anyone can engage in. Per passenger kilometer, airplanes emit about 8 times as much carbon as ships, 4 times as much as trains, and 1.5 times as much as cars. Living in a relatively eco-friendly city without a car and eating a vegetarian diet, I produce much less carbon than most First World citizens—except when I fly across the Atlantic a couple of times a year.

Until quite recently, most climate scientists believed that this was basically unavoidable, that simply sustaining the kind of power output required to keep an airliner in the air would always require carbon-intensive jet fuel. But in just the past few years, major breakthroughs have been made in using hydrogen propulsion.

The beautiful thing about hydrogen is that burning it simply produces water—no harmful pollution at all. It’s basically the cleanest possible fuel.


The simplest approach, which is actually quite old, but until recently didn’t seem viable, is the use of liquid hydrogen as airplane fuel.

We’ve been using liquid hydrogen as a rocket fuel for decades; so we knew it had enough energy density. (Actually its energy density is higher than conventional jet fuel.)

The problem with liquid hydrogen is that it must be kept extremely cold—it boils at 20 Kelvin. And once liquid hydrogen boils into gas, it builds up pressure very fast and easily permeates through most materials, so it’s extremely hard to contain. This makes it very difficult and expensive to handle.

But this isn’t the only way to use hydrogen, and may turn out to not be the best one.

There are now prototype aircraft that have flown using hydrogen fuel cells. These fuel cells can be fed with hydrogen gas—so no need to cool below 20 Kelvin. But then they can’t directly run the turbines; instead, these planes use electric turbines which are powered by the fuel cell.

Basically these are really electric aircraft. But whereas a lithium battery would be far too heavy, a hydrogen fuel cell is light enough for aviation use. In fact, hydrogen gas up to a certain pressure is lighter than air (it was often used for zeppelins, though, uh, occasionally catastrophically), so potentially the planes could use their own fuel tanks for buoyancy, landing “heavier” than they took off. (On the other hand it might make more sense to pressurize the hydrogen beyond that point, so that it will still be heavier than air—but perhaps still lighter than jet fuel!)

Of course, the technology is currently too untested and too expensive to be used on a wide scale. But this is how all technologies begin. It’s of course possible that we won’t be able to solve the engineering problems that currently make hydrogen-powered aircraft unaffordable; but several aircraft manufacturers are now investing in hydrogen research—suggesting that they at least believe there is a good chance we will.

There’s also the issue of where we get all the hydrogen. Hydrogen is extremely abundant—literally the most abundant baryonic matter in the universe—but most of what’s on Earth is locked up in water or hydrocarbons. Most of the hydrogen we currently make is produced by processing hydrocarbons (particularly methane), but that produces carbon emissions, so it wouldn’t solve the problem.

A better option is electrolysis: Using electricity to separate water into hydrogen and oxyen. But this requires a lot of energy—and necessarily, more energy than you can get out of burning the hydrogen later, since burning it basically is just putting the hydrogen and oxygen back together to make water.

Yet all is not lost, for while energy density is absolutely vital for an aircraft fuel, it’s not so important for a ground-based power plant. As an ultimate fuel source, hydrogen is a non-starter. But as an energy storage medium, it could be ideal.

The idea is this: We take the excess energy from wind and solar power plants, and use that energy to electrolyze water into hydrogen and oxygen. We then store that hydrogen and use it for fuel cells to run aircraft (and potentially other things as well). This ensures that the extra energy that renewable sources can generate in peak times doesn’t go to waste, and also provides us with what we need to produce clean-burning hydrogen fuel.

The basic technology for doing all this already exists. The current problem is cost. Under current conditions, it’s far more expensive to make hydrogen fuel than to make conventional jet fuel. Since fuel is one of the largest costs for airlines, even small increases in fuel prices matter a lot for the price of air travel; and these are not even small differences. Currently hydrogen costs over 10 times as much per kilogram, and its higher energy density isn’t enough to make up for that. For hydrogen aviation to be viable, that ratio needs to drop to more like 2 or 3—maybe even all the way to 1, since hydrogen is also more expensive to store than jet fuel (the gas needs high-pressure tanks, the liquid needs cryogenic cooling systems).

This means that, for the time being, it’s still environmentally responsible to reduce your air travel. Fly less often, always fly economy (more people on the plane means less carbon per passenger), and buy carbon offsets (they’re cheaper than you may think).

But in the long run, we may be able to have our cake and eat it too: If hydrogen aviation does become viable, we may not need to give up the benefits of routine air travel in order to reduce our carbon emissions.

What happens when a bank fails

PNRJ critique of neoclassical economics, current events, inequality, macroeconomics, market failure, public policy , , , , , , , , , , , , , , , ,

Mar 19 JDN 2460023

As of March 9, Silicon Valley Bank (SVB) has failed and officially been put into receivership under the FDIC. A bank that held $209 billion in assets has suddenly become insolvent.

This is the second-largest bank failure in US history, after Washington Mutual (WaMu) in 2008. In fact it will probably have more serious consequences than WaMu, for two reasons:

1. WaMu collapsed as part of the Great Recession, so there was already a lot of other things going on and a lot of policy responses already in place.

2. WaMu was mostly a conventional commercial bank that held deposits and loans for consumers, so its assets were largely protected by the FDIC, and thus its bankruptcy didn’t cause contagion the spread out to the rest of the system. (Other banks—shadow banks—did during the crash, but not so much WaMu.) SVB mostly served tech startups, so a whopping 89% of its deposits were not protected by FDIC insurance.

You’ve likely heard of many of the companies that had accounts at SVB: Roku, Roblox, Vimeo, even Vox. Stocks of the US financial industry lost $100 billion in value in two days.

The good news is that this will not be catastrophic. It probably won’t even trigger a recession (though the high interest rates we’ve been having lately potentially could drive us over that edge). Because this is commercial banking, it’s done out in the open, with transparency and reasonably good regulation. The FDIC knows what they are doing, and even though they aren’t covering all those deposits directly, they intend to find a buyer for the bank who will, and odds are good that they’ll be able to cover at least 80% of the lost funds.

In fact, while this one is exceptionally large, bank failures are not really all that uncommon. There have been nearly 100 failures of banks with assets over $1 billion in the US alone just since the 1970s. The FDIC exists to handle bank failures, and generally does the job well.

Then again, it’s worth asking whether we should really have a banking system in which failures are so routine.

The reason banks fail is kind of a dark open secret: They don’t actually have enough money to cover their deposits.

Banks loan away most of their cash, and rely upon the fact that most of their depositors will not want to withdraw their money at the same time. They are required to keep a certain ratio in reserves, but it’s usually fairly small, like 10%. This is called fractional-reserve banking.

As long as less than 10% of deposits get withdrawn at any given time, this works. But if a bunch of depositors suddenly decide to take out their money, the bank may not have enough to cover it all, and suddenly become insolvent.

In fact, the fear that a bank might become insolvent can actually cause it to become insolvent, in a self-fulfilling prophecy. Once depositors get word that the bank is about to fail, they rush to be the first to get their money out before it disappears. This is a bank run, and it’s basically what happened to SVB.

The FDIC was originally created to prevent or mitigate bank runs. Not only did they provide insurance that reduced the damage in the event of a bank failure; by assuring depositors that their money would be recovered even if the bank failed, they also reduced the chances of a bank run becoming a self-fulfilling prophecy.


Indeed, SVB is the exception that proves the rule, as they failed largely because their assets were mainly not FDIC insured.

Fractional-reserve banking effectively allows banks to create money, in the form of credit that they offer to borrowers. That credit gets deposited in other banks, which then go on to loan it out to still others; the result is that there is more money in the system than was ever actually printed by the central bank.

In most economies this commercial bank money is a far larger quantity than the central bank money actually printed by the central bank—often nearly 10 to 1. This ratio is called the money multiplier.

Indeed, it’s not a coincidence that the reserve ratio is 10% and the multiplier is 10; the theoretical maximum multiplier is always the inverse of the reserve ratio, so if you require reserves of 10%, the highest multiplier you can get is 10. Had we required 20% reserves, the multiplier would drop to 5.

Most countries have fractional-reserve banking, and have for centuries; but it’s actually a pretty weird system if you think about it.

Back when we were on the gold standard, fractional-reserve banking was a way of cheating, getting our money supply to be larger than the supply of gold would actually allow.

But now that we are on a pure fiat money system, it’s worth asking what fractional-reserve banking actually accomplishes. If we need more money, the central bank could just print more. Why do we delegate that task to commercial banks?

David Friedman of the Cato Institute had some especially harsh words on this, but honestly I find them hard to disagree with:

Before leaving the subject of fractional reserve systems, I should mention one particularly bizarre variant — a fractional reserve system based on fiat money. I call it bizarre because the essential function of a fractional reserve system is to reduce the resource cost of producing money, by allowing an ounce of reserves to replace, say, five ounces of currency. The resource cost of producing fiat money is zero; more precisely, it costs no more to print a five-dollar bill than a one-dollar bill, so the cost of having a larger number of dollars in circulation is zero. The cost of having more bills in circulation is not zero but small. A fractional reserve system based on fiat money thus economizes on the cost of producing something that costs nothing to produce; it adds the disadvantages of a fractional reserve system to the disadvantages of a fiat system without adding any corresponding advantages. It makes sense only as a discreet way of transferring some of the income that the government receives from producing money to the banking system, and is worth mentioning at all only because it is the system presently in use in this country.

Our banking system evolved gradually over time, and seems to have held onto many features that made more sense in an earlier era. Back when we had arbitrarily tied our central bank money supply to gold, creating a new money supply that was larger may have been a reasonable solution. But today, it just seems to be handing the reins over to private corporations, giving them more profits while forcing the rest of society to bear more risk.

The obvious alternative is full-reserve banking, where banks are simply required to hold 100% of their deposits in reserve and the multiplier drops to 1. This idea has been supported by a number of quite prominent economists, including Milton Friedman.

It’s not just a right-wing idea: The left-wing organization Positive Money is dedicated to advocating for a full-reserve banking system in the UK and EU. (The ECB VP’s criticism of the proposal is utterly baffling to me: it “would not create enough funding for investment and growth.” Um, you do know you can print more money, right? Hm, come to think of it, maybe the ECB doesn’t know that, because they think inflation is literally Hitler. There are legitimate criticisms to be had of Positive Money’s proposal, but “There won’t be enough money under this fiat money system” is a really weird take.)

There’s a relatively simple way to gradually transition from our current system to a full-reserve sytem: Simply increase the reserve ratio over time, and print more central bank money to keep the total money supply constant. If we find that it seems to be causing more problems than it solves, we could stop or reverse the trend.

Krugman has pointed out that this wouldn’t really fix the problems in the banking system, which actually seem to be much worse in the shadow banking sector than in conventional commercial banking. This is clearly right, but it isn’t really an argument against trying to improve conventional banking. I guess if stricter regulations on conventional banking push more money into the shadow banking system, that’s bad; but really that just means we should be imposing stricter regulations on the shadow banking system first (or simultaneously).

We don’t need to accept bank runs as a routine part of the financial system. There are other ways of doing things.

The role of police in society

PNRJ core principles, current events, politics, public policy, tribal paradigm , , , , , , , , , ,

Feb12 JDN 2459988

What do the police do? Not in theory, in practice. Not what are they supposed to do—what do they actually do?

Ask someone right-wing and they’ll say something like “uphold the law”. Ask someone left-wing and they’ll say something like “protect the interests of the rich”. Both of these are clearly inaccurate. They don’t fit the pattern of how the police actually behave.

What is that pattern? Well, let’s consider some examples.

If you rob a bank, the police will definitely arrest you. That would be consistent with either upholding the law or protecting the interests of the rich, so it’s not a very useful example.

If you run a business with unsafe, illegal working conditions, and someone tells the police about it, the police will basically ignore it and do nothing. At best they might forward it to some regulatory agency who might at some point get around to issuing a fine.

If you strike against your unsafe working conditions and someone calls the police to break up your picket line, they’ll immediately come in force and break up your picket line.

So that definitively refutes the “uphold the law” theory; by ignoring OSHA violations and breaking up legal strikes, the police are actively making it harder to enforce the law. It seems to fit the “protect the interests of the rich” theory. Let’s try some other examples.

If you run a fraudulent business that cons people out of millions of dollars, the police might arrest you, eventually, if they ever actually bother to get around to investigating the fraud. That certainly doesn’t look like upholding the law—but you can get very rich and they’ll still arrest you, as Bernie Madoff discovered. So being rich doesn’t grant absolute immunity from the police.

If your negligence in managing the safety systems of your factory or oil rig kills a dozen people, the police will do absolutely nothing. Some regulatory agency may eventually get around to issuing you a fine. That also looks like protecting the interests of the rich. So far the left-wing theory is holding up.

If you are homeless and camping out on city property, the police will often come to remove you. Sometimes there’s a law against such camping, but there isn’t always; and even when there is, the level of force used often seems wildly disproportionate to the infraction. This also seems to support the left-wing account.

But now suppose you go out and murder several homeless people. That is, if anything, advancing the interests of the rich; it’s certainly not harming them. Yet the police would in fact investigate. It might be low on their priorities, especially if they have a lot of other homicides; but they would, in fact, investigate it and ultimately arrest you. That doesn’t look like advancing the interests of the rich. It looks a lot more like upholding the law, in fact.

Or suppose you are the CEO of a fraudulent company that is about to be revealed and thus collapse, and instead of accepting the outcome or absconding to the Carribbean (as any sane rich psychopath would), you decide to take some SEC officials hostage and demand that they certify your business as legitimate. Are the police going to take that lying down? No. They’re going to consider you a terrorist, and go in guns blazing. So they don’t just protect the interests of the rich after all; that also looks a lot like they’re upholding the law.

I didn’t even express this as the left-wing view earlier, because I’m trying to use the woodman argument; but there are also those on the left who would say that the primary function of the police is to uphold White supremacy. I’d be a fool to deny that there are a lot of White supremacist cops; but notice that in the above scenarios I didn’t even specify the race of the people involved, and didn’t have to. The cops are no more likely to arrest a fraudulent banker because he’s Black, and no more likely to let a hostage-taker go free because he’s White. (They might be less likely to shoot the White hostage-taker—maybe, the data on that actually isn’t as clear-cut as people think—but they’d definitely still arrest him.) While racism is a widespread problem in the police, it doesn’t dictate their behavior all the time—and it certainly isn’t their core function.

What does categorically explain how the police react in all these scenarios?

The police uphold order.

Not law. Order. They don’t actually much seem to care whether what you’re doing is illegal or harmful or even deadly. They care whether it violates civil order.

This is how we can explain the fact that police would investigate murders, but ignore oil rig disasters—even if the latter causes more deaths. The former is a violation of civil order, the latter is not.

It also explains why they would be so willing to tear apart homeless camps and break up protests and strikes. Those are actually often legal, or at worst involve minor infractions; but they’re also disruptive and disorderly.

The police seem to see their core mission as keeping the peace. It could be an unequal, unjust peace full of illegal policies that cause grievous harm and death—but what matters to them is that it’s peace. They will stomp out any violence they see with even greater violence of their own. They have a monopoly on the use of force, and they intend to defend it.

I think that realizing this can help us take a nuanced view of the police. They aren’t monsters or tools of oppression. But they also aren’t brave heroes who uphold the law and keep us safe. They are instruments of civil order.

We do need civil order; there are a lot of very important things in society that simply can’t function if civil order collapses. In places where civil order does fall apart, life becomes entirely about survival; the security that civil order provides is necessary not only for economic activity, but also for much of what gives our lives value.

But nor is civil order all that matters. And sometimes injustice truly does become so grave that it’s worth sacrificing some order in order to redress it. Strikes and protests genuinely are disruptive; society couldn’t function if they were happening everywhere all the time. But sometimes we need to disrupt the way things are going in order to get people to clearly see the injustice around them and do something about it.

I hope that this more realistic, nuanced assessment of the role police play in society may help to pull people away from both harmful political extremes.We can’t simply abolish the police; we need some system for maintaining civil order, and whatever system we have is probably going to end up looking a lot like police. (#ScandinaviaIsBetter, truly, but there are still cops in Norway.) But we also can’t afford to lionize the police or ignore their failures and excesses. When they fight to maintain civil order at the expense of social justice, they become part of the problem.

Home price targeting

PNRJ inequality, public policy , , , , , , , , , , ,

Jan 29 JDN 2459973

One of the largest divides in opinion between economists and the general population concerns the question of rent control. While the general public mostly supports rent control (and often votes for it in referenda), economists almost universally oppose it. It’s hard to get a consensus among economists on almost anything, and yet here we have one; but people don’t seem to care.

Why? I think it’s because high rents are a genuine and serious problem, which economists have invested remarkably little effort in trying to solve. Housing prices are one of the chief drivers of long-term inflation, and with most people spending over a third of their income on housing, even relatively small increases in housing prices can cause a lot of suffering.

One thing we do know is that rent control does not work as a long-term solution. Maybe in response to some short-term shock it would make sense. Maybe you do it for awhile as you wait for better long-term solutions to take effect. But simply putting an arbitrary cap on prices will create shortages in the long run—and it is not a coincidence that cities with strict rent control have the worst housing shortages and the greatest rates of homelessness. Rent control doesn’t even do a good job of helping the people who need it most.

Price ceilings in general are just… not a good idea. If people are selling something at a price that you think is too high and you just insist that they aren’t allowed to, they don’t generally sell at a lower price—they just don’t sell at all. There are a few exceptions; in a very monopolistic market, a well-targeted price ceiling might actually work. And short-run housing supply is inelastic enough that rent control isn’t the worst kind of price ceiling. But as a general strategy, price ceilings just aren’t an effective way of making things cheaper.

This is why we so rarely use them as a policy intervention. When the Federal Reserve wants to achieve a certain interest rate on bonds, do they simply demand that people buy the bonds at that price? No. They adjust the supply of bonds in the market until the market price goes to what they want it to be.

Prices aren’t set in a vacuum by the fiat of evil corporations. They are an equilibrium outcome of a market system. There are things you can do to intervene and shift that equilibrium, but if you just outlaw certain prices, it will result in a new equilibrium—it won’t simply be the same amount sold at the new price you wanted.

Maybe some graphs would help explain this. In each graph, the red line is the demand and the blue line is the supply.

Here is what the market looks like before intervention: The price is $6. We’ll say that’s too high; people can’t afford it.

[no_intervention.png]

Now suppose we impose a price ceiling at $4 (the green line). You aren’t allowed to charge more than $4. What will happen? Companies will charge $4. But they will also produce and sell a smaller quantity than before.

Far better would be to increase the supply of the good, shifting to a new supply curve (the purple line). Then you would reduce the price and increase the amount of the good available.

[supply_intervention.png]

This is precisely what we do with government bonds when we want to raise interest rates. (A greater supply of bonds makes their prices lower, which makes their yields higher.) And when we want to lower interest rates, we do the opposite.

Of course, with bonds, it’s easy to control the supply; it’s all just numbers in a network. Increasing the supply of housing is a much greater undertaking; you actually need to build new housing. But ultimately, the only way to ensure that housing is available and affordable for everyone is in fact to build more housing.

There are various ways we might accomplish that; one of the simplest would be to simply relax zoning restrictions that make it difficult to build high-density housing in cities. Those are bad laws anyway; they only benefit a small number of people a little bit while harming a large number of people a lot. (The problem is that the people they benefit are the local homeowners who show up to city council meetings.)

But we could do much more. I propose that we really use interest-rate targeting as our model and introduce home price targeting. I want the federal government to exercise eminent domain and order the construction of new high-density housing in any city that has rents above a certain threshold—if you like, the same threshold you were thinking of setting the rent control at.

Is this an extreme solution? Perhaps. But housing affordability is an extreme problem. And I keep hearing from the left wing that economists aren’t willing to consider “radical enough” solutions to housing (by which they always seem to mean the tried-and-failed strategy of rent control). So here’s a radical solution for you. If cities refuse to build enough housing for their people, make them do it. Buy up and bulldoze their “lovely” “historic” suburban neighborhoods that are ludicrous wastes of land (and also environmentally damaging), and replace them with high-rise apartments. (Get rid of the golf courses while you’re at it.)

This would be expensive, of course; we have to pay to build all those new apartments. But hardly so expensive as living in a society where people can’t afford to live where they want.

In fact, estimates suggest that we are losing over one trillion dollars per year in unrealized productivity because people can’t afford to live in the highest-rent cities. Average income per worker in the US has been reduced by nearly $7000 per year because of high housing prices. So that’s the budget you should be comparing against. Keeping things as they are is like taxing our whole population about 9%. (And it’s probably regressive, so more than that for poor people.)

Would this destroy the “charm” of the city? I dunno, maybe a little. But if the only thing your city had going for it was some old houses that are clearly not an efficient use of space, that’s pretty sad. And it is quite possible to build a city at high density and have it still be beautiful and a major draw for tourists; Paris is a lot denser than far-less-picturesque Houston. (Though I’ll admit, Houston is far more affordable than Paris. It’s not just about density.) And is the “charm” of your city really worth making it so unaffordable that people can’t move there without risking becoming homeless?

There are a lot of details to be worked out: How serious must things get before the federal government steps in? (Wherever we draw the line, San Francisco is surely well past it.) It takes a long time to build houses and let prices adjust, so how do we account for that time-lag? Where does the money come from, actually? Debt? Taxes? But these could all be resolved.

Of course, it’s a pipe dream; we’re never going to implement this policy, because homeowners dread the idea of their home values going down (even though it would actually make their property taxes cheaper!). I’d even be willing to consider some kind of program that would let people refinance underwater mortgages to write off the lost equity, if that’s what it takes to actually build enough housing.

Because there is really only one thing that’s ever going to solve the (global!) housing crises:

Build more homes.

PNRJ core principles, market failure, public policy , , , , , , , , , , , , , , , , ,

There should be a glut of nurses.

Jan 15 JDN 2459960

It will not be news to most of you that there is a worldwide shortage of healthcare staff, especially nurses and emergency medical technicians (EMTs). I would like you to stop and think about the utterly terrible policy failure this represents. Maybe if enough people do, we can figure out a way to fix it.

It goes without saying—yet bears repeating—that people die when you don’t have enough nurses and EMTs. Indeed, surely a large proportion of the 2.6 million (!) deaths each year from medical errors are attributable to this. It is likely that at least one million lives per year could be saved by fixing this problem worldwide. In the US alone, over 250,000 deaths per year are caused by medical errors; so we’re looking at something like 100,000 lives we could safe each year by removing staffing shortages.

Precisely because these jobs have such high stakes, the mere fact that we would ever see the word “shortage” beside “nurse” or “EMT” was already clear evidence of dramatic policy failure.

This is not like other jobs. A shortage of accountants or baristas or even teachers, while a bad thing, is something that market forces can be expected to correct in time, and it wouldn’t be unreasonable to simply let them do so—meaning, let wages rise on their own until the market is restored to equilibrium. A “shortage” of stockbrokers or corporate lawyers would in fact be a boon to our civilization. But a shortage of nurses or EMTs or firefighters (yes, there are those too!) is a disaster.

Partly this is due to the COVID pandemic, which has been longer and more severe than any but the most pessimistic analysts predicted. But there shortages of nurses before COVID. There should not have been. There should have been a massive glut.

Even if there hadn’t been a shortage of healthcare staff before the pandemic, the fact that there wasn’t a glut was already a problem.

This is what a properly-functioning healthcare policy would look like: Most nurses are bored most of the time. They are widely regarded as overpaid. People go into nursing because it’s a comfortable, easy career with very high pay and usually not very much work. Hospitals spend most of their time with half their beds empty and half of their ambulances parked while the drivers and EMTs sit around drinking coffee and watching football games.

Why? Because healthcare, especially emergency care, involves risk, and the stakes couldn’t be higher. If the number of severely sick people doubles—as in, say, a pandemic—a hospital that usually runs at 98% capacity won’t be able to deal with them. But a hospital that usually runs at 50% capacity will.

COVID exposed to the world what a careful analysis would already have shown: There was not nearly enough redundancy in our healthcare system. We had been optimizing for a narrow-minded, short-sighted notion of “efficiency” over what we really needed, which was resiliency and robustness.

I’d like to compare this to two other types of jobs.

The first is stockbrokers.Set aside for a moment the fact that most of what they do is worthless is not actively detrimental to human society. Suppose that their most adamant boosters are correct and what they do is actually really important and beneficial.

Their experience is almost like what I just said nurses ought to be. They are widely regarded (correctly) as very overpaid. There is never any shortage of them; there are people lining up to be hired. People go into the work not because they care about it or even because they are particularly good at it, but because they know it’s an easy way to make a lot of money.

The one thing that seems to be different from my image may not be as different as it seems. Stockbrokers work long hours, but nobody can really explain why. Frankly most of what they do can be—and has been—successfully automated. Since there simply isn’t that much work for them to do, my guess is that most of the time they spend “working” 60-80 hour weeks is actually not actually working, but sitting around pretending to work. Since most financial forecasters are outperformed by a simple diversified portfolio, the most profitable action for most stock analysts to take most of the time would be nothing.

It may also be that stockbrokers work hard at sales—trying to convince people to buy and sell for bad reasons in order to earn sales commissions. This would at least explain why they work so many hours, though it would make it even harder to believe that what they do benefits society. So if we imagine our “ideal” stockbroker who makes the world a better place, I think they mostly just use a simple algorithm and maybe adjust it every month or two. They make better returns than their peers, but spend 38 hours a week goofing off.

There is a massive glut of stockbrokers. This is what it looks like when a civilization is really optimized to be good at something.

The second is soldiers. Say what you will about them, no one can dispute that their job has stakes of life and death. A lot of people seem to think that the world would be better off without them, but that’s at best only true if everyone got rid of them; if you don’t have soldiers but other countries do, you’re going to be in big trouble. (“We’ll beat our swords into liverwurst / Down by the East Riverside; / But no one wants to be the first!”) So unless and until we can solve that mother of all coordination problems, we need to have soldiers around.

What is life like for a soldier? Well, they don’t seem overpaid; if anything, underpaid. (Maybe some of the officers are overpaid, but clearly not most of the enlisted personnel. Part of the problem there is that “pay grade” is nearly synonymous with “rank”—it’s a primate hierarchy, not a rational wage structure. Then again, so are most industries; the military just makes it more explicit.) But there do seem to be enough of them. Military officials may lament of “shortages” of soldiers, but they never actually seem to want for troops to deploy when they really need them. And if a major war really did start that required all available manpower, the draft could be reinstated and then suddenly they’d have it—the authority to coerce compliance is precisely how you can avoid having a shortage while keeping your workers underpaid. (Russia’s soldier shortage is genuine—something about being utterly outclassed by your enemy’s technological superiority in an obviously pointless imperialistic war seems to hurt your recruiting numbers.)

What is life like for a typical soldier? The answer may surprise you. The overwhelming answer in surveys and interviews (which also fits with the experiences I’ve heard about from friends and family in the military) is that life as a soldier is boring. “All you do is wake up in the morning and push rubbish around camp.” “Bosnia was scary for about 3 months. After that it was boring. That is pretty much day to day life in the military. You are bored.”

This isn’t new, nor even an artifact of not being in any major wars: Union soldiers in the US Civil War had the same complaint. Even in World War I, a typical soldier spent only half the time on the front, and when on the front only saw combat 1/5 of the time. War is boring.

In other words, there is a massive glut of soldiers. Most of them don’t even know what to do with themselves most of the time.

This makes perfect sense. Why? Because an army needs to be resilient. And to be resilient, you must be redundant. If you only had exactly enough soldiers to deploy in a typical engagement, you’d never have enough for a really severe engagement. If on average you had enough, that means you’d spend half the time with too few. And the costs of having too few soldiers are utterly catastrophic.

This is probably an evolutionary outcome, in fact; civilizations may have tried to have “leaner” militaries that didn’t have so much redundancy, and those civilizations were conquered by other civilizations that were more profligate. (This is not to say that we couldn’t afford to cut military spending at all; it’s one thing to have the largest military in the world—I support that, actually—but quite another to have more than the next 10 combined.)

What’s the policy solution here? It’s actually pretty simple.

Pay nurses and EMTs more. A lot more. Whatever it takes to get to the point where we not only have enough, but have so many people lining up to join we don’t even know what to do with them all. If private healthcare firms won’t do it, force them to—or, all the more reason to nationalize healthcare. The stakes are far too high to leave things as they are.

Would this be expensive? Sure.

Removing the shortage of EMTs wouldn’t even be that expensive. There are only about 260,000 EMTs in the US, and they get paid the apallingly low median salary of $36,000. That means we’re currently spending only about $9 billion per year on EMTs. We could double their salaries and double their numbers for only an extra $27 billion—about 0.1% of US GDP.

Nurses would cost more. There are about 5 million nurses in the US, with an average salary of about $78,000, so we’re currently spending about $390 billion a year on nurses. We probably can’t afford to double both salary and staffing. But maybe we could increase both by 20%, costing about an extra $170 billion per year.

Altogether that would cost about $200 billion per year. To save one hundred thousand lives.

That’s $2 million per life saved, or about $40,000 per QALY. The usual estimate for the value of a statistical life is about $10 million, and the usual threshold for a cost-effective medical intervention is $50,000-$100,000 per QALY; so we’re well under both. This isn’t as efficient as buying malaria nets in Africa, but it’s more efficient than plenty of other things we’re spending on. And this isn’t even counting additional benefits of better care that go beyond lives saved.

In fact if we nationalized US healthcare we could get more than these amounts in savings from not wasting our money on profits for insurance and drug companies—simply making the US healthcare system as cost-effective as Canada’s would save $6,000 per American per year, or a whopping $1.9 trillion. At that point we could double the number of nurses and their salaries and still be spending less.

No, it’s not because nurses and doctors are paid much less in Canada than the US. That’s true in some countries, but not Canada. The median salary for nurses in Canada is about $95,500 CAD, which is $71,000 US at current exchange rates. Doctors in Canada can make anywhere from $80,000 to $400,000 CAD, which is $60,000 to $300,000 US. Nor are healthcare outcomes in Canada worse than the US; if anything, they’re better, as Canadians live an average of four years longer than Americans. No, the radical difference in cost—a factor of 2 to 1—between Canada and the US comes from privatization. Privatization is supposed to make things more efficient and lower costs, but it has absolutely not done that in US healthcare.

And if our choice is between spending more money and letting hundreds of thousands or millions of people die every year, that’s no choice at all.