Games as economic simulations—and education tools

Mar 5, JDN 2457818 [Sun]

Moore’s Law is a truly astonishing phenomenon. Now as we are well into the 21st century (I’ve lived more of my life in the 21st century than the 20th now!) it may finally be slowing down a little bit, but it has had quite a run, and even this could be a temporary slowdown due to economic conditions or the lull before a new paradigm (quantum computing?) matures. Since at least 1975, the computing power of an individual processor has doubled approximately every year and a half; that means it has doubled over 25 times—or in other words that it has increased by a factor of over 30 million. I now have in my pocket a smartphone with several thousand times the processing speed of the guidance computer of the Saturn V that landed on the Moon.

This meteoric increase in computing power has had an enormous impact on the way science is done, including economics. Simple theoretical models that could be solved by hand are now being replaced by enormous simulation models that have to be processed by computers. It is now commonplace to devise models with systems of dozens of nonlinear equations that are literally impossible to solve analytically, and just solve them iteratively with computer software.

But one application of this technology that I believe is currently underutilized is video games.

As a culture, we still have the impression that video games are for children; even games like Dragon Age and Grand Theft Auto that are explicitly for adults (and really quite inappropriate for children!) are viewed as in some sense “childish”—that no serious adult would be involved with such frivolities. The same cultural critics who treat Shakespeare’s vagina jokes as the highest form of art are liable to dismiss the poignant critique of war in Call of Duty: Black Ops or the reflections on cultural diversity in Skyrim as mere puerility.

But video games are an art form with a fundamentally greater potential than any other. Now that graphics are almost photorealistic, there is really nothing you can do in a play or a film that you can’t do in a video game—and there is so, so much more that you can only do in a game.
In what other medium can we witness the spontaneous emergence and costly aftermath of a war? Yet EVE Online has this sort of event every year or so—just today there was a surprise attack involving hundreds of players that destroyed thousands of hours’—and dollars’—worth of starships, something that has more or less become an annual tradition. A few years ago there was a massive three-faction war that destroyed over $300,000 in ships and has now been commemorated as “the Bloodbath of B-R5RB”.
Indeed, the immersion and interactivity of games present an opportunity to do nothing less than experimental macroeconomics. For generations it has been impossible, or at least absurdly unethical, to ever experimentally manipulate an entire macroeconomy. But in a video game like EVE Online or Second Life, we can now do so easily, cheaply, and with little or no long-term harm to the participants—and we can literally control everything in the experiment. Forget the natural resource constraints and currency exchange rates—we can change the laws of physics if we want. (Indeed, EVE‘s whole trade network is built around FTL jump points, and in Second Life it’s a basic part of the interface that everyone can fly like Superman.)

This provides untold potential for economic research. With sufficient funding, we could build a game that would allow us to directly test hypotheses about the most fundamental questions of economics: How do governments emerge and maintain security? How is the rule of law sustained, and when can it be broken? What controls the value of money and the rate of inflation? What is the fundamental cause of unemployment, and how can it be corrected? What influences the rate of technological development? How can we maximize the rate of economic growth? What effect does redistribution of wealth have on employment and output? I envision a future where we can directly simulate these questions with thousands of eager participants, varying the subtlest of parameters and carrying out events over any timescale we like from seconds to centuries.

Nor is the potential of games in economics limited to research; it also has enormous untapped potential in education. I’ve already seen in my classes how tabletop-style games with poker chips can teach a concept better in a few minutes than hours of writing algebra derivations on the board; but custom-built video games could be made that would teach economics far better still, and to a much wider audience. In a well-designed game, people could really feel the effects of free trade or protectionism, not just on themselves as individuals but on entire nations that they control—watch their GDP numbers go down as they scramble to produce in autarky what they could have bought for half the price if not for the tariffs. They could see, in real time, how in the absence of environmental regulations and Pigovian taxes the actions of millions of individuals could despoil our planet for everyone.

Of course, games are fundamentally works of fiction, subject to the Fictional Evidence Fallacy and only as reliable as their authors make them. But so it is with all forms of art. I have no illusions about the fact that we will never get the majority of the population to regularly read peer-reviewed empirical papers. But perhaps if we are clever enough in the games we offer them to play, we can still convey some of the knowledge that those papers contain. We could also update and expand the games as new information comes in. Instead of complaining that our students are spending time playing games on their phones and tablets, we could actually make education into games that are as interesting and entertaining as the ones they would have been playing. We could work with the technology instead of against it. And in a world where more people have access to a smartphone than to a toilet, we could finally bring high-quality education to the underdeveloped world quickly and cheaply.

Rapid growth in computing power has given us a gift of great potential. But soon our capacity will widen even further. Even if Moore’s Law slows down, computing power will continue to increase for awhile yet. Soon enough, virtual reality will finally take off and we’ll have even greater depth of immersion available. The future is bright—if we can avoid this corporatist cyberpunk dystopia we seem to be hurtling toward, of course.

Markets value rich people more

Feb 26, JDN 2457811

Competitive markets are optimal at maximizing utility, as long as you value rich people more.

That is literally a theorem in neoclassical economics. I had previously thought that this was something most economists didn’t realize; I had delusions of grandeur that maybe I could finally convince them that this is the case. But no, it turns out this is actually a well-known finding; it’s just that somehow nobody seems to care. Or if they do care, they never talk about it. For all the thousands of papers and articles about the distortions created by minimum wage and capital gains tax, you’d think someone could spare the time to talk about the vastly larger fundamental distortions created by the structure of the market itself.

It’s not as if this is something completely hopeless we could never deal with. A basic income would go a long way toward correcting this distortion, especially if coupled with highly progressive taxes. By creating a hard floor and a soft ceiling on income, you can reduce the inequality that makes these distortions so large.

The basics of the theorem are quite straightforward, so I think it’s worth explaining them here. It’s extremely general; it applies anywhere that goods are allocated by market prices and different individuals have wildly different amounts of wealth.

Suppose that each person has a certain amount of wealth W to spend. Person 1 has W1, person 2 has W2, and so on. They all have some amount of happiness, defined by a utility function, which I’ll assume is only dependent on wealth; this is a massive oversimplification of course, but it wouldn’t substantially change my conclusions to include other factors—it would just make everything more complicated. (In fact, including altruistic motives would make the whole argument stronger, not weaker.) Thus I can write each person’s utility as a function U(W). The rate of change of this utility as wealth increases, the marginal utility of wealth, is denoted U'(W).

By the law of diminishing marginal utility, the marginal utility of wealth U'(W) is decreasing. That is, the more wealth you have, the less each new dollar is worth to you.

Now suppose people are buying goods. Each good C provides some amount of marginal utility U'(C) to the person who buys it. This can vary across individuals; some people like Pepsi, others Coke. This marginal utility is also decreasing; a house is worth a lot more to you if you are living in the street than if you already have a mansion. Ideally we would want the goods to go to the people who want them the most—but as you’ll see in a moment, markets systematically fail to do this.

If people are making their purchases rationally, each person’s willingness-to-pay P for a given good C will be equal to their marginal utility of that good, divided by their marginal utility of wealth:

P = U'(C)/U'(W)

Now consider this from the perspective of society as a whole. If you wanted to maximize utility, you’d equalize marginal utility across individuals (by the Extreme Value Theorem). The idea is that if marginal utility is higher for one person, you should give that person more, because the benefit of what you give them will be larger that way; and if marginal utility is lower for another person, you should give that person less, because the benefit of what you give them will be smaller. When everyone is equal, you are at the maximum.

But market prices don’t actually do this. Instead they equalize over willingness-to-pay. So if you’ve got two individuals 1 and 2, instead of having this:

U'(C1) = U'(C2)

you have this:

P1 = P2

which translates to:

U'(C1)/U'(W1) = U'(C2)/U'(W2)

If the marginal utilities were the same, U'(W1) = U'(W2), we’d be fine; these would give the same results. But that would only happen if W1 = W2, that is, if the two individuals had the same amount of wealth.

Now suppose we were instead maximizing weighted utility, where each person gets a weighting factor A based on how “important” they are or something. If your A is higher, your utility matters more. If we maximized this new weighted utility, we would end up like this:

A1*U'(C1) = A2*U'(C2)

Because person 1’s utility counts for more, their marginal utility also counts for more. This seems very strange; why are we valuing some people more than others? On what grounds?

Yet this is effectively what we’ve already done by using market prices.
Just set:
A = 1/U'(W)

Since marginal utility of wealth is decreasing, 1/U'(W) is higher precisely when W is higher.

How much higher? Well, that depends on the utility function. The two utility functions I find most plausible are logarithmic and harmonic. (Actually I think both apply, one to other-directed spending and the other to self-directed spending.)

If utility is logarithmic:

U = ln(W)

Then marginal utility is inversely proportional:

U'(W) = 1/W

In that case, your value as a human being, as spoken by the One True Market, is precisely equal to your wealth:

A = 1/U'(W) = W

If utility is harmonic, matters are even more severe.

U(W) = 1-1/W

Marginal utility goes as the inverse square of wealth:

U'(W) = 1/W^2

And thus your value, according to the market, is equal to the square of your wealth:

A = 1/U'(W) = W^2

What are we really saying here? Hopefully no one actually believes that Bill Gates is really morally worth 400 trillion times as much as a starving child in Malawi, as the calculation from harmonic utility would imply. (Bill Gates himself certainly doesn’t!) Even the logarithmic utility estimate saying that he’s worth 20 million times as much is pretty hard to believe.

But implicitly, the market “believes” that, because when it decides how to allocate resources, something that is worth 1 microQALY to Bill Gates (about the value a nickel dropped on the floor to you or I) but worth 20 QALY (twenty years of life!) to the Malawian child, will in either case be priced at $8,000, and since the child doesn’t have $8,000, it will probably go to Mr. Gates. Perhaps a middle-class American could purchase it, provided it was worth some 0.3 QALY to them.

Now consider that this is happening in every transaction, for every good, in every market. Goods are not being sold to the people who get the most value out of them; they are being sold to the people who have the most money.

And suddenly, the entire edifice of “market efficiency” comes crashing down like a house of cards. A global market that quite efficiently maximizes willingness-to-pay is so thoroughly out of whack when it comes to actually maximizing utility that massive redistribution of wealth could enormously increase human welfare, even if it turned out to cut our total output in half—if utility is harmonic, even if it cut our total output to one-tenth its current value.

The only way to escape this is to argue that marginal utility of wealth is not decreasing, or at least decreasing very, very slowly. Suppose for instance that utility goes as the 0.9 power of wealth:

U(W) = W^0.9

Then marginal utility goes as the -0.1 power of wealth:

U'(W) = 0.9 W^(-0.1)

On this scale, Bill Gates is only worth about 5 times as much as the Malawian child, which in his particular case might actually be too small—if a trolley is about to kill either Bill Gates or 5 Malawian children, I think I save Bill Gates, because he’ll go on to save many more than 5 Malawian children. (Of course, substitute Donald Trump or Charles Koch and I’d let the trolley run over him without a second thought if even a single child is at stake, so it’s not actually a function of wealth.) In any case, a 5 to 1 range across the whole range of human wealth is really not that big a deal. It would introduce some distortions, but not enough to justify any redistribution that would meaningfully reduce overall output.

Of course, that commits you to saying that $1 to a Malawian child is only worth about $1.50 to you or I and $5 to Bill Gates. If you can truly believe this, then perhaps you can sleep at night accepting the outcomes of neoclassical economics. But can you, really, believe that? If you had the choice between an intervention that would give $100 to each of 10,000 children in Malawi, and another that would give $50,000 to each of 100 billionaires, would you really choose the billionaires? Do you really think that the world would be better off if you did?

We don’t have precise measurements of marginal utility of wealth, unfortunately. At the moment, I think logarithmic utility is the safest assumption; it’s about the slowest decrease that is consistent with the data we have and it is very intuitive and mathematically tractable. Perhaps I’m wrong and the decrease is even slower than that, say W^(-0.5) (then the market only values billionaires as worth thousands of times as much as starving children). But there’s no way you can go as far as it would take to justify our current distribution of wealth. W^(-0.1) is simply not a plausible value.

And this means that free markets, left to their own devices, will systematically fail to maximize human welfare. We need redistribution—a lot of redistribution. Don’t take my word for it; the math says so.

Caught between nepotism and credentialism

Feb 19, JDN 2457804

One of the more legitimate criticisms out there of we “urban elites” is our credentialismour tendency to decide a person’s value as an employee or even as a human being based solely upon their formal credentials. Randall Collins, an American sociologist, wrote a book called The Credential Society arguing that much of the class stratification in the United States is traceable to this credentialism—upper-middle-class White Anglo-Saxon Protestants go to the good high schools to get into the good colleges to get the good careers, and all along the way maintain subtle but significant barriers to keep everyone else out.

A related concern is that of credential inflation, where more and more people get a given credential (such as a high school diploma or a college degree), and it begins to lose value as a signal of status. It is often noted that a bachelor’s degree today “gets” you the same jobs that a high school diploma did two generations ago, and two generations hence you may need a master’s or even a PhD.

I consider this concern wildly overblown, however. First of all, they’re not actually the same jobs at all. Even our “menial” jobs of today require skills that most people didn’t have two generations ago—not simply those involving electronics and computers, but even quite basic literacy and numeracy. Yes, you could be a banker in the 1920s with a high school diploma, but plenty of bankers in the 1920s didn’t know algebra. What, you think they were arbitraging derivatives based on the Black-Scholes model?

The primary purpose of education should be to actually improve students’ abilities, not to signal their superior status. More people getting educated is good, not bad. If we really do need signals, we can devise better ones than making people pay tens of thousands of dollars in tuition and spending years taking classes. An expenditure of that magnitude should be accomplishing something, not just signaling. (And given the overwhelming positive correlation between a country’s educational attainment and its economic development, clearly education is actually accomplishing something.) Our higher educational standards have directly tied to higher technology and higher productivity. If indeed you need a PhD to be a janitor in 2050, it will be because in 2050 a “janitor” is actually the expert artificial intelligence engineer who commands an army of cleaning robots, not because credentials have “inflated”. Thinking that credentials “inflate” requires thinking that business managers must be very stupid, that they would exclude whole swaths of qualified candidates that they could pay less to do the same work. Only a complete moron would require a PhD to hire you for wielding a mop.

No, what concerns me is an over-emphasis on prestigious credentials over genuine competence. This is definitely a real issue in our society: Almost every US President went to an Ivy League university, yet several of them (George W. Bush, anyone?) clearly would not actually have been selected by such a university if their families had not been wealthy and well-connected. (Harvard’s application literally contains a question asking whether you are a “lineal or collateral descendant” of one of a handful of super-wealthy families.) Papers that contain errors so basic that I would probably get a failing grade as a grad student for them become internationally influential because they were written by famous economists with fancy degrees.

Ironically, it may be precisely because elite universities try not to give grades or special honors that so many of their students try so desperately to latch onto any bits of social status they can get their hands on. In this blog post, a former Yale law student comments on how, without grades or cum laude to define themselves, Yale students became fiercely competitive in the pettiest ways imaginable. Or it might just be a selection effect; to get into Yale you’ve probably got to be pretty competitive, so even if they don’t give out grades once you get there, you can take the student out of the honors track, but you can’t take the honors track out of the student.

But perhaps the biggest problem with credentialism is… I don’t see any viable alternatives!

We have to decide who is going to be hired for technical and professional positions somehow. It almost certainly can’t be everyone. And the most sensible way to do it would be to have a process people go through to get trained and evaluated on their skills in that profession—that is, a credential.

What else would we do? We could decide randomly, I suppose; well, good luck with that. Or we could try to pick people who don’t have qualifications (“anti-credentialism” I suppose), which would be systematically wrong. Or individual employers could hire individuals they know and trust on a personal level, which doesn’t seem quite so ridiculous—but we have a name for that too, and it’s nepotism.

Even anti-credentialism does exist, bafflingly enough. Many people voted for George W. Bush because they said he was “the kind of guy you can have a beer with”. That wasn’t true, of course; he was the spoiled child of a billionaire, a man who had never really worked a day in his life. But even if it had been true, so what? How is that a qualification to be the leader of the free world? And how many people voted for Trump precisely because he had no experience in government? This made sense to them somehow. (And, shockingly, he has no idea what he’s doing. Actually what is shocking is that he admits that.)

Nepotism of course happens all the time. In fact, nepotism is probably the default state for humans. The continual re-emergence of hereditary monarchy and feudalism around the world suggests that this is some sort of attractor state for human societies, that in the absence of strong institutional pressures toward some other system this is what people will generally settle into. And feudalism is nothing if not nepotistic; your position in life is almost entirely determined by your father’s position, and his father’s before that.

Formal credentials can put a stop to that. Of course, your ability to obtain the credential often depends upon your income and social status. But if you can get past those barriers and actually get the credential, you now have a way of pushing past at least some of the competitors who would have otherwise been hired on their family connections alone. The rise in college enrollments—and women actually now exceeding men in college enrollment rates—is one of the biggest reasons why the gender pay gap is rapidly closing among young workers. Nepotism and sexism that would otherwise have hired unqualified men is now overtaken by the superior credentials of qualified women.

Credentialism does still seem suboptimal… but from where I’m sitting, it seems like a second-best solution. We can’t actually observe people’s competence and ability directly, so we need credentials to provide an approximate measurement. We can certainly work to improve credentials—and for example, I am fiercely opposed to multiple-choice testing because it produces such meaningless credentials—but ultimately I don’t see any alternative to credentials.

Is intellectual property justified?

Feb 12, JDN 2457797

I had hoped to make this week’s post more comprehensive, but as I’ve spent the last week suffering from viral bronchitis I think I will keep this one short and revisit the topic in a few weeks.

Intellectual property underlies an increasingly large proportion of the world’s economic activity, more so now than ever before. We don’t just patent machines anymore; we patent drugs, and software programs, and even plants. Compared to that, copyrights on books, music, and movies seem downright pedestrian.

Though surely not the only cause, this is almost certainly contributing to the winner-takes-all effect; if you own the patent to something important, you can appropriate a huge amount of wealth to yourself with very little effort.

Moreover, this is not something that happened automatically as a natural result of market forces or autonomous human behavior. This is a policy, one that requires large investments in surveillance and enforcement to maintain. Intellectual property is probably the single largest market intervention that our government makes, and it is in a very strange direction: With antitrust law, the government seeks to undermine monopolies; but with intellectual property, the government seeks to protect monopolies.

So it’s important to ask: What is the justification for intellectual property? Do we actually have a good reason for doing this?

The basic argument goes something like this:

Many intellectual endeavors, such as research, invention, and the creation of art, require a large up-front investment of resources to complete, but once completed it costs almost nothing to disseminate the results. There is a very large fixed cost that makes it difficult to create these goods at all, but once they exist, the marginal cost of producing more of them is minimal.

If we didn’t have any intellectual property, once someone created an invention or a work of art, someone else could simply copy it and sell it at a much lower price. If enough competition emerged to drive price down to marginal cost, the original creator of the good would not only not profit, but would actually take an enormous loss, as they paid that large fixed cost but none of their competitors did.

Thus, knowing that they will take a loss if they do, individuals will not create inventions or works of art in the first place. Without intellectual property, all research, invention, and art would grind to a halt.

 

That last sentence sounds terrible, right? What would we do without research, invention, or art? But then if you stop and think about it for a minute, it becomes clear that this can’t possibly be the outcome of eliminating intellectual property. Most societies throughout the history of human civilization have not had a system of intellectual property, and yet they have all had art, and most of them have had research and invention as well.

If intellectual property is to be defended, it can’t be because we would have none of these things without it—it must be that we would have less, and so much less that it offsets the obvious harms of concentrating so much wealth and power in a handful of individuals.

I had hoped to get into the empirical results of different intellectual property regimes, but due to my illness I’m going to save that for another day.

Instead I’m just going to try to articulate what the burden of proof here really needs to be.

First of all, showing that we spend a lot of money on patents contributes absolutely nothing useful to defending them. Yes, we all know patents are expensive. The question is whether they are worth it. To show that this is not a strawman, here’s an article by IP Watchdog that takes the fact that “a new study showing that academic patent licensing contributed more than $1 trillion to the U.S. economy over eighteen years” is some kind of knockdown argument in favor of patents. If you actually showed that this economic activity would not exist without patents, then that would be an argument for patents. But all this study actually does is shows that we spend that much on patents, which says nothing about whether this is a good use of resources. It’s like when people try to defend the F-35 boondoggle by saying “it supports thousands of jobs!”; well, yes, but what about the millions of jobs we could be supporting instead if we used that money for something more efficient? (And indeed, the evidence is quite clear that spending on the F-35 destroys more jobs than it creates.) So any serious of estimate of economic benefits of intellectual property must also come with an estimate of the economic cost of intellectual property, or it is just propaganda.
It’s not enough to show some non-negligible (much less “statistically significant”) increase in innovation as a result of intellectual property. The effect size is critical; the increase in innovation needs to be large enough that it justifies having world-spanning monopolies that concentrate the world’s wealth in the hands of a few individuals. Because we already know that intellectual property concentrates wealth; they are monopolies, and monopolies concentrate wealth. It’s not enough to show that there is a benefit; that benefit must be greater than the cost, and there must be no alternative methods that allow us to achieve a greater net benefit.
It’s also important to be clear what we mean by “innovation”; this can be a very difficult thing to measure. But in principle what we really want to know is whether we are supporting important innovation—whether we will get more Mona Lisas and more polio vaccines, not simply whether we will get more Twilight and more Viagra. And one of the key problems with intellectual property as a method of funding innovation is that there is only a vague link between the profits that can be extracted and the benefits of the innovation. (Though to be fair, this is actually a more general problem; it is literally a mathematical theorem that competitive markets only maximize utility if you value rich people more, in inverse proportion to their marginal utility of wealth.)

Innovation is certainly important. Indeed, it is no exaggeration to say that innovation is the foundation of economic development and civilization itself. Defenders of intellectual property often want you to stop the conversation there: “Innovation is important!” Don’t let them. It’s not enough to say that innovation is important; intellectual property must also be the best way of achieving that innovation.

Is it? Well, in a few weeks I’ll get back to what the data actually says on this. There is some evidence supporting intellectual property—but the case is a lot weaker than you have probably been led to believe.

The urban-rural divide runs deep

Feb 5, JDN 2457790

Are urban people worth less than rural people?

That probably sounds like a ridiculous thing to ask; of course not, all people are worth the same (other things equal of course—philanthropists are worth more than serial murderers). But then, if you agree with that, you’re probably an urban person, as I’m sure most of my readers are (and as indeed most people in highly-developed countries are).

A disturbing number of rural people, however, honestly do seem to believe this. They think that our urban lifestyles (whatever they imagine those to be) devalue us as citizens and human beings.

That is the key subtext to understand in the terrifying phenomenon that is Donald Trump. Most of the people who voted for him can’t possibly have thought he was actually trustworthy, and many probably didn’t actually support his policies of bigotry and authoritarianism (though he was very popular among bigots and authoritarians). From speaking with family members and acquaintances who proudly voted for Trump, one thing came through very clearly: This was a gigantic middle finger pointed at cities. They didn’t even really want Trump; they just knew we didn’t, and so they voted for him out of spite as much as anything else. They also have really confused views about free trade, so some of them voted for him because he promised to bring back jobs lost to trade (that weren’t lost to trade, can’t be brought back, and shouldn’t be even if they could). Talk with a Trump voter for a few minutes, and sneers of “latte-sipping liberal” (I don’t even like coffee) and “coastal elite” (I moved here to get educated; I wasn’t born here) are sure to follow.

There has always been some conflict between rural and urban cultures, for as long as there have been urban cultures for rural cultures to be in conflict with. It is found not just in the US, but in most if not all countries around the world. It was relatively calm during the postwar boom in the 20th century, as incomes everywhere (or at least everywhere within highly-developed countries) were improving more or less in lockstep. But the 21st century has brought us much more unequal growth, concentrated on particular groups of people and particular industries. This has brought more resentment. And that divide, above all else, is what brought us Trump; the correlation between population density and voting behavior is enormous.

Of course, “urban” is sometimes a dog-whistle for “Black”; but sometimes I think it actually really means “urban”—and yet there’s still a lot of hatred embedded in it. Indeed, perhaps that’s why the dog-whistle works; a White man from a rural town can sneer at “urban” people and it’s not entirely clear whether he’s being racist or just being anti-urban.

The assumption that rural lifestyles are superior runs so deep in our culture that even in articles by urban people (like this one from the LA Times) supposedly reflecting about how to resolve this divide, there are long paeans to the world of “hard work” and “sacrifice” and “autonomy” of rural life, and mocking “urban elites” for their “disproportionate” (by which you can only mean almost proportionate) power over government.

Well, guess what? If you want to live in a rural area, go live in a rural area. Don’t pine for it. Don’t tell me how great farm life is. If you want to live on a farm, go live on a farm. I have nothing against it; we need farmers, after all. I just want you to shut up about how great it is, especially if you’re not going to actually do it. Pining for someone else’s lifestyle when you could easily take on that lifestyle if you really wanted it just shows that you think the grass is greener on the other side.

Because the truth is, farm living isn’t so great for most people. The world’s poorest people are almost all farmers. 70% of people below the UN poverty line live in rural areas, even as more and more of the world’s population moves into cities. If you use a broader poverty measure, as many as 85% of the world’s poor live in rural areas.

The kind of “autonomy” that means defending your home with a shotgun is normally what we would call anarchy—it’s a society that has no governance, no security. (Of course, in the US that’s pure illusion; crime rates in general are low and falling, and lower in rural areas than urban areas. But in some parts of the world, that anarchy is very real.) One of the central goals of global economic development is to get people away from subsistence farming into far more efficient manufacturing and service jobs.

At least in the US, farm life is a lot better than it used to be, now that agricultural technology has improved so that one farmer can now do the work of hundreds. Despite increased population and increased food consumption per person, the number of farmers in the US is now the smallest it has been since before the Civil War. The share of employment devoted to agriculture has fallen from over 80% in 1800 to under 2% today. Even just since the 1960s labor productivity of US farms has more than tripled.

But the reason that some 80% of Americans have chosen to live in cities—and yes, I can clearly say “chosen”, because cities are more expensive and therefore urban living is a voluntary activity. Most people who live in the city right now could move to the country if we really wanted to. We choose not to, because we know our life would be worse if we did.

Indeed, I dare say that a lot of the hatred of city-dwellers has got to be envy. Our (median) incomes are higher and our (mean) lifespans are longer. Fewer of our children are in poverty. Life is better here—we know it, and deep down, they know it too.

We also have better Internet access, unsurprisingly—though rural areas are only a few years behind, and the technology improves so rapidly that twice as many rural homes in the US have Internet access than urban homes did in 1998.

Now, a rational solution to this problem would be either to improve the lives of people in rural areas or else move everyone to urban areas—and both of those things have been happening, not only in the US but around the world. But in order to do that, you need to be willing to change things. You have to give up the illusion that farm life is some wonderful thing we should all be emulating, rather than the necessary toil that humanity was forced to go through for centuries until civilization could advance beyond it. You have to be willing to replace farmers with robots, so that people who would have been farmers can go do something better with their lives. You need to give up the illusion that there is something noble or honorable about hard labor on a farm—indeed, you need to give up the illusion that there is anything noble or honorable about hard work in general. Work is not a benefit; work is a cost. Work is what we do because we have to—and when we no longer have to do it, we should stop. Wanting to escape toil and suffering doesn’t make you lazy or selfish—it makes you rational.

We could surely be more welcoming—but cities are obviously more welcoming to newcomers than rural areas are. Our housing is too expensive, but that’s in part because so many people want to live here—supply hasn’t been able to keep up with demand.

I may seem to be presenting this issue as one-sided; don’t urban people devalue rural people too? Sometimes. Insults like “hick” and “yokel” and “redneck” do of course exist. But I’ve never heard anyone from a city seriously argue that people who live in rural areas should have votes that systematically count for less than those of people who live in cities—yet the reverse is literally what people are saying when they defend the Electoral College. If you honestly think that the Electoral College deserves to exist in anything like its present form, you must believe that some Americans are worth more than others, and the people who are worth more are almost all in rural areas while the people who are worth less are almost all in urban areas.

No, National Review, the Electoral College doesn’t “save” America from California’s imperial power; it gives imperial power to a handful of swing states. The only reason California would be more important than any other state is that more Americans live here. Indeed, a lot of Republicans in California are disenfranchised, because they know that their votes will never overcome the overwhelming Democratic majority for the state as a whole and the system is winner-takes-all. Indeed, about 30% of California votes Republican (well, not in the last election, because that was Trump—Orange County went Democrat for the first time in decades), so the number of disenfranchised Republicans alone in California is larger than the population of Michigan, which in turn is larger than the population of Wyoming, North Dakota, South Dakota, Montana, Nebraska, West Virginia, and Kansas combined. Indeed, there are more people in California than there are in Canada. So yeah, I’m thinking maybe we should get a lot of votes?

But it’s easy for you to drum up fear over “imperial rule” by California in particular, because we’re so liberal—and so urban, indeed an astonishing 95% urban, the most of any US state (or frankly probably any major regional entity on the planet Earth! To beat that you have to be something like Singapore, which literally just is a single city).

In fact, while insults thrown at urban people get thrown at basically all of us regardless of what we do, most of the insults that are thrown at rural people are mainly thrown at uneducated rural people. (And statistically, while many people in rural areas are educated and many people in urban areas are not, there’s definitely a positive correlation between urbanization and education.) It’s still unfair in many ways, not least because education isn’t entirely a choice, not in a society where tuition at an average private university costs more than the median individual income. Many of the people we mock as being stupid were really just born poor. It may not be their fault, but they can’t believe that the Earth is only 10,000 years old and not have some substantial failings in their education. I still don’t think mockery is the right answer; it’s really kicking them while they’re down. But clearly there is something wrong with our society when 40% of people believe something so obviously ludicrous—and those beliefs are very much concentrated in the same Southern states that have the most rural populations. “They think we’re ignorant just because we believe that God made the Earth 6,000 years ago!” I mean… yes? I’m gonna have to own up to that one, I guess. I do in fact think that people who believe things that were disproven centuries ago are ignorant.

So really this issue is one-sided. We who live in cities are being systematically degraded and disenfranchised, and when we challenge that system we are accused of being selfish or elitist or worse. We are told that our lifestyles are inferior and shameful, and when we speak out about the positive qualities of our lives—our education, our acceptance of diversity, our flexibility in the face of change—we are again accused of elitism and condescension.

We could simply stew in that resentment. But we can do better. We can reach out to people in rural areas, show them not just that our lives are better—as I said, they already know this—but that they can have these lives too. And we can make policy so that this really can happen for people. Envy doesn’t automatically lead to resentment; that only happens when combined with a lack of mobility. The way urban people pine for the countryside is baffling, since we could go there any time; but the way that country people long for the city is perfectly understandable, as our lives really are better but our rent is too high for them to afford. We need to bring that rent down, not just for the people already living in cities, but also for the people who want to but can’t.

And of course we don’t want to move everyone to cities, either. Many people won’t want to live in cities, and we need a certain population of farmers to make our food after all. We can work to improve infrastructure in rural areas—particularly when it comes to hospitals, which are a basic necessity that is increasingly underfunded. We shouldn’t stop using cost-effectiveness calculations, but we need to compare against the right things. If that hospital isn’t worth building, it should be because there’s another, better hospital we could make for the same amount or cheaper—not because we think that this town doesn’t deserve to have a hospital. We can expand our public transit systems over a wider area, and improve their transit speeds so that people can more easily travel to the city from further away.

We should seriously face up to the costs that free trade has imposed upon many rural areas. We can’t give up on free trade—but that doesn’t mean we need to keep our trade policy exactly as it is. We can do more to ensure that multinational corporations don’t have overwhelming bargaining power against workers and small businesses. We can establish a tax system that would redistribute more of the gains from free trade to the people and places most hurt by the transition. Right now, poor people in the US are often the most fiercely opposed to redistribution of wealth, because somehow they perceive that wealth will be redistributed from them when it would in fact be redistributed to them. They are in a scarcity mindset, their whole worldview shaped by the fact that they struggle to get by. They see every change as a threat, every stranger as an enemy.

Somehow we need to fight that mindset, get them to see that there are many positive changes that can be made, many things that we can achieve together that none of us could achieve along.

Why do so many Americans think that crime is increasing?

Jan 29, JDN 2457783

Since the 1990s, crime in United States has been decreasing, and yet in every poll since then most Americans report that they believe that crime is increasing.

It’s not a small decrease either. The US murder rate is down to the lowest it has been in a century. There are now a smaller absolute number (by 34 log points) of violent crimes per year in the US than there were 20 years ago, despite a significant increase in total population (19 log points—and the magic of log points is that, yes, the rate has decreased by precisely 53 log points).

It isn’t geographically uniform, of course; some states have improved much more than others, and a few states (such as New Mexico) have actually gotten worse.

The 1990s were a peak of violent crime, so one might say that we are just regressing to the mean. (Even that would be enough to make it baffling that people think crime is increasing.) But in fact overall crime in the US is now the lowest it has been since the 1970s, and still decreasing.

Indeed, this decrease has been underestimated, because we are now much better about reporting and investigating crimes than we used to be (which may also be part of why they are decreasing, come to think of it). If you compare against surveys of people who say they have been personally victimized, we’re looking at a decline in violent crime rates of two thirds—109 log points.

Just since 2008 violent crime has decreased by 26% (30 log points)—but of course we all know that Obama is “soft on crime” because he thinks cops shouldn’t be allowed to just shoot Black kids for no reason.

And yet, over 60% of Americans believe that overall crime in the US has increased in the last 10 years (though only 38% think it has increased in their own community!). These figures are actually down from 2010, when 66% thought crime was increasing nationally and 49% thought it was increasing in their local area.

The proportion of people who think crime is increasing does seem to decrease as crime rates decrease—but it still remains alarmingly high. If people were half as rational as most economists seem to believe, the proportion of people who think crime is increasing should drop to basically zero whenever crime rates decrease, since that’s a really basic fact about the world that you can just go look up on the Web in a couple of minutes. There’s no deep ambiguity, not even much “rational ignorance” given the low cost of getting correct answers. People just don’t bother to check, or don’t feel they need to.
What’s going on? How can crime fall to half what it was 20 years ago and yet almost two-thirds of people think it’s actually increasing?

Well, one hint is that news coverage of crime doesn’t follow the same pattern as actual crime.

News coverage in general is a terrible source of information, not simply because news organizations can be biased, make glaring mistakes, and sometimes outright lie—but actually for a much more fundamental reason: Even a perfect news channel, qua news channel, would report what is surprising—and what is surprising is, by definition, improbable. (Indeed, there is a formal mathematical concept in probability theory called surprisal that is simply the logarithm of 1 over the probability.) Even assuming that news coverage reports only the truth, the probability of seeing something on the news isn’t proportional to the probability of the event occurring—it’s more likely proportional to the entropy, which is probability times surprisal.

Now, if humans were optimal information processing engines, that would be just fine, actually; reporting events proportional to their entropy is actually a very efficient mechanism for delivering information (optimal, under certain types of constraints), provided that you can then process the information back into probabilities afterward.

But of course, humans aren’t optimal information processing engines. We don’t recompute the probabilities from the given entropy; instead we use the availability heuristic, by which we simply use the number of times we can think of something happening as our estimate of the probability of that event occurring. If you see more murders on TV news than you used you, you assume that murders must be more common than they used to be. (And when I put it like that, it really doesn’t sound so unreasonable, does it? Intuitively the availability heuristic seems to make sense—which is part of why it’s so insidious.)

Another likely reason for the discrepancy between perception and reality is nostalgia. People almost always have a more positive view of the past than it deserves, particularly when referring to their own childhoods. Indeed, I’m quite certain that a major reason why people think the world was much better when they were kids was that their parents didn’t tell them what was going on. And of course I’m fine with that; you don’t need to burden 4-year-olds with stories of war and poverty and terrorism. I just wish people would realize that they were being protected from the harsh reality of the world, instead of thinking that their little bubble of childhood innocence was a genuinely much safer world than the one we live in today.

Then take that nostalgia and combine it with the availability heuristic and the wall-to-wall TV news coverage of anything bad that happens—and almost nothing good that happens, certainly not if it’s actually important. I’ve seen bizarre fluff pieces about puppies, but never anything about how world hunger is plummeting or air quality is dramatically improved or cars are much safer. That’s the one thing I will say about financial news; at least they report it when unemployment is down and the stock market is up. (Though most Americans, especially most Republicans, still seem really confused on those points as well….) They will attribute it to anything from sunspots to the will of Neptune, but at least they do report good news when it happens. It’s no wonder that people are always convinced that the world is getting more dangerous even as it gets safer and safer.

The real question is what we do about it—how do we get people to understand even these basic facts about the world? I still believe in democracy, but when I see just how painfully ignorant so many people are of such basic facts, I understand why some people don’t. The point of democracy is to represent everyone’s interests—but we also end up representing everyone’s beliefs, and sometimes people’s beliefs just don’t line up with reality. The only way forward I can see is to find a way to make people’s beliefs better align with reality… but even that isn’t so much a strategy as an objective. What do I say to someone who thinks that crime is increasing, beyond showing them the FBI data that clearly indicates otherwise? When someone is willing to override all evidence with what they feel in their heart to be true, what are the rest of us supposed to do?

In defense of slacktivism

Jan 22, JDN 2457776

It’s one of those awkward portmanteaus that people often make to try to express a concept in fewer syllables, while also implicitly saying that the phenomenon is specific enough to deserve its own word: “Slacktivism”, made of “slacker” and “activism”, not unlike “mansplain” is made of “man” and “explain” or “edutainment” was made of “education” and “entertainment”—or indeed “gerrymander” was made of “Elbridge Gerry” and “salamander”. The term seems to be particularly popular on Huffington Post, which has a whole category on slacktivism. There is a particular subcategory of slacktivism that is ironically against other slacktivism, which has been dubbed “snarktivism”.

It’s almost always used as a pejorative; very few people self-identify as “slacktivists” (though once I get through this post, you may see why I’m considering it myself). “Slacktivism” is activism that “isn’t real” somehow, activism that “doesn’t count”.

Of course, that raises the question: What “counts” as legitimate activism? Is it only protest marches and sit-ins? Then very few people have ever been or will ever be activists. Surely donations should count, at least? Those have a direct, measurable impact. What about calling your Congressman, or letter-writing campaigns? These have been staples of activism for decades.
If the term “slacktivism” means anything at all, it seems to point to activities surrounding raising awareness, where the goal is not to enact a particular policy or support a particular NGO but to simply get as much public attention to a topic as possible. It seems to be particularly targeted at blogging and social media—and that’s important, for reasons I’ll get to shortly. If you gather a group of people in your community and give a speech about LGBT rights, you’re an activist. If you send out the exact same speech on Facebook, you’re a slacktivist.

One of the arguments against “slacktivism” is that it can be used to funnel resources at the wrong things; this blog post makes a good point that the Kony 2012 campaign doesn’t appear to have actually accomplished anything except profits for the filmmakers behind it. (Then again: A blog post against slacktivism? Are you sure you’re not doing right now the thing you think you are against?) But is this problem unique to slacktivism, or is it a more general phenomenon that people simply aren’t all that informed about how to have the most impact? There are an awful lot of inefficient charities out there, and in fact the most important waste of charitable funds involves people giving to their local churches. Fortunately, this is changing, as people become more secularized; churches used to account for over half of US donations, and now they only account for less than a third. (Naturally, Christian organizations are pulling out their hair over this.) The 60 million Americans who voted for Trump made a horrible mistake and will cause enormous global damage; but they weren’t slacktivists, were they?

Studies do suggest that traditionally “slacktivist” activities like Facebook likes aren’t a very strong predictor of future, larger actions, and more private modes of support (like donations and calling your Congressman) tend to be stronger predictors. But so what? In order for slacktivism to be a bad thing, they would have to be a negative predictor. They would have to substitute for more effective activism, and there’s no evidence that this happens.

In fact, there’s even some evidence that slacktivism has a positive effect (normally I wouldn’t cite Fox News, but I think in this case we should expect a bias in the opposite direction, and you can read the full Georgetown study if you want):

A study from Georgetown University in November entitled “Dynamics of Cause Engagement” looked how Americans learned about and interacted with causes and other social issues, and discovered some surprising findings on Slacktivism.

While the traditional forms of activism like donating money or volunteering far outpaces slacktivism, those who engage in social issues online are twice as likely as their traditional counterparts to volunteer and participate in events. In other words, slacktivists often graduate to full-blown activism.

At worst, most slacktivists are doing nothing for positive social change, and that’s what the vast majority of people have been doing for the entirety of human history. We can bemoan this fact, but that won’t change it. Most people are simply too uniformed to know what’s going on in the world, and too broke and too busy to do anything about it.

Indeed, slacktivism may be the one thing they can do—which is why I think it’s worth defending.

From an economist’s perspective, there’s something quite odd about how people’s objections to slacktivism are almost always formulated. The rational, sensible objection would be to their small benefits—this isn’t accomplishing enough, you should do something more effective. But in fact, almost all the objections to slacktivism I have ever read focus on their small costs—you’re not a “real activist” because you don’t make sacrifices like I do.

Yet it is a basic principle of economic rationality that, all other things equal, lower cost is better. Indeed, this is one of the few principles of economic rationality that I really do think is unassailable; perfect information is unrealistic and total selfishness makes no sense at all. But cost minimization is really very hard to argue with—why pay more, when you can pay less and get the same benefit?

From an economist’s perspective, the most important thing about an activity is its cost-effectiveness, measured either by net benefitbenefit minus cost—or rate of returnbenefit divided by cost. But in both cases, a lower cost is always better; and in fact slacktivism has an astonishing rate of return, precisely because its cost is so small.

Suppose that a campaign of 10 million Facebook likes actually does have a 1% chance of changing a policy in a way that would save 10,000 lives, with a life expectancy of 50 years each. Surely this is conservative, right? I’m only giving it a 1% chance of success, on a policy with a relatively small impact (10,000 lives could be a single clause in an EPA regulatory standard), with a large number of slacktivist participants (10 million is more people than the entire population of Switzerland). Yet because clicking “like” and “share” only costs you maybe 10 seconds, we’re talking about an expected cost of (10 million)(10/86,400/365) = 0.32 QALY for an expected benefit of (10,000)(0.01)(50) = 5000 QALY. That is a rate of return of 1,500,000%—that’s 1.5 million percent.

Let’s compare this to the rate of return on donating to a top charity like UNICEF, Oxfam, the Against Malaria Foundation, or the Schistomoniasis Control Initiative, for which donating about $300 would save the life of 1 child, adding about 50 QALY. That $300 most likely cost you about 0.01 QALY (assuming an annual income of $30,000), so we’re looking at a return of 500,000%. Now, keep in mind that this is a huge rate of return, far beyond what you can ordinarily achieve, that donating $300 to UNICEF is probably one of the best things you could possibly be doing with that money—and yet slacktivism may still exceed it in efficiency. Maybe slacktivism doesn’t sound so bad after all?

Of course, the net benefit of your participation is higher in the case of donation; you yourself contribute 50 QALY instead of only contributing 0.0005 QALY. Ultimately net benefit is what matters; rate of return is a way of estimating what the net benefit would be when comparing different ways of spending the same amount of time or money. But from the figures I just calculated, it begins to seem like maybe the very best thing you could do with your time is clicking “like” and “share” on Facebook posts that will raise awareness of policies of global importance. Now, you have to include all that extra time spent poring through other Facebook posts, and consider that you may not be qualified to assess the most important issues, and there’s a lot of uncertainty involved in what sort of impact you yourself will have… but it’s almost certainly not the worst thing you could be doing with your time, and frankly running these numbers has made me feel a lot better about all the hours I have actually spent doing this sort of thing. It’s a small benefit, yes—but it’s an even smaller cost.

Indeed, the fact that so many people treat low cost as bad, when it is almost by definition good, and the fact that they also target their ire so heavily at blogging and social media, says to me that what they are really trying to accomplish here has nothing to do with actually helping people in the most efficient way possible.

Rather, it’s two things.

The obvious one is generational—it’s yet another chorus in the unending refrain that is “kids these days”. Facebook is new, therefore it is suspicious. Adults have been complaining about their descendants since time immemorial; some of the oldest written works we have are of ancient Babylonians complaining that their kids are lazy and selfish. Either human beings have been getting lazier and more selfish for thousands of years, or, you know, kids are always a bit more lazy and selfish than their parents or at least seem so from afar.

The one that’s more interesting for an economist is signaling. By complaining that other people aren’t paying enough cost for something, what you’re really doing is complaining that they aren’t signaling like you are. The costly signal has been made too cheap, so now it’s no good as a signal anymore.

“Anyone can click a button!” you say. Yes, and? Isn’t it wonderful that now anyone with a smartphone (and there are more people with access to smartphones than toilets, because #WeLiveInTheFuture) can contribute, at least in some small way, to improving the world? But if anyone can do it, then you can’t signal your status by doing it. If your goal was to make yourself look better, I can see why this would bother you; all these other people doing things that look just as good as what you do! How will you ever distinguish yourself from the riffraff now?

This is also likely what’s going on as people fret that “a college degree’s not worth anything anymore” because so many people are getting them now; well, as a signal, maybe not. But if it’s just a signal, why are we spending so much money on it? Surely we can find a more efficient way to rank people by their intellect. I thought it was supposed to be an education—in which case the meteoric rise in global college enrollments should be cause for celebration. (In reality of course a college degree can serve both roles, and it remains an open question among labor economists as to which effect is stronger and by how much. But the signaling role is almost pure waste from the perspective of social welfare; we should be trying to maximize the proportion of real value added.)

For this reason, I think I’m actually prepared to call myself a slacktivist. I aim for cost-effective awareness-raising; I want to spread the best ideas to the most people for the lowest cost. Why, would you prefer I waste more effort, to signal my own righteousness?