Bigotry is more powerful than the market

Nov 20, JDN 2457683

If there’s one message we can take from the election of Donald Trump, it is that bigotry remains a powerful force in our society. A lot of autoflagellating liberals have been trying to explain how this election result really reflects our failure to help people displaced by technology and globalization (despite the fact that personal income and local unemployment had negligible correlation with voting for Trump), or Hillary Clinton’s “bad campaign” that nonetheless managed the same proportion of Democrat turnout that re-elected her husband in 1996.

No, overwhelmingly, the strongest predictor of voting for Trump was being White, and living in an area where most people are White. (Well, actually, that’s if you exclude authoritarianism as an explanatory variable—but really I think that’s part of what we’re trying to explain.) Trump voters were actually concentrated in areas less affected by immigration and globalization. Indeed, there is evidence that these people aren’t racist because they have anxiety about the economy—they are anxious about the economy because they are racist. How does that work? Obama. They can’t believe that the economy is doing well when a Black man is in charge. So all the statistics and even personal experiences mean nothing to them. They know in their hearts that unemployment is rising, even as the BLS data clearly shows it’s falling.

The wide prevalence and enormous power of bigotry should be obvious. But economists rarely talk about it, and I think I know why: Their models say it shouldn’t exist. The free market is supposed to automatically eliminate all forms of bigotry, because they are inefficient.

The argument for why this is supposed to happen actually makes a great deal of sense: If a company has the choice of hiring a White man or a Black woman to do the same job, but they know that the market wage for Black women is lower than the market wage for White men (which it most certainly is), and they will do the same quality and quantity of work, why wouldn’t they hire the Black woman? And indeed, if human beings were rational profit-maximizers, this is probably how they would think.

More recently some neoclassical models have been developed to try to “explain” this behavior, but always without daring to give up the precious assumption of perfect rationality. So instead we get the two leading neoclassical theories of discrimination, which are statistical discrimination and taste-based discrimination.

Statistical discrimination is the idea that under asymmetric information (and we surely have that), features such as race and gender can act as signals of quality because they are correlated with actual quality for various reasons (usually left unspecified), so it is not irrational after all to choose based upon them, since they’re the best you have.

Taste-based discrimination is the idea that people are rationally maximizing preferences that simply aren’t oriented toward maximizing profit or well-being. Instead, they have this extra term in their utility function that says they should also treat White men better than women or Black people. It’s just this extra thing they have.

A small number of studies have been done trying to discern which of these is at work.
The correct answer, of course, is neither.

Statistical discrimination, at least, could be part of what’s going on. Knowing that Black people are less likely to be highly educated than Asians (as they definitely are) might actually be useful information in some circumstances… then again, you list your degree on your resume, don’t you? Knowing that women are more likely to drop out of the workforce after having a child could rationally (if coldly) affect your assessment of future productivity. But shouldn’t the fact that women CEOs outperform men CEOs be incentivizing shareholders to elect women CEOs? Yet that doesn’t seem to happen. Also, in general, people seem to be pretty bad at statistics.

The bigger problem with statistical discrimination as a theory is that it’s really only part of a theory. It explains why not all of the discrimination has to be irrational, but some of it still does. You need to explain why there are these huge disparities between groups in the first place, and statistical discrimination is unable to do that. In order for the statistics to differ this much, you need a past history of discrimination that wasn’t purely statistical.

Taste-based discrimination, on the other hand, is not a theory at all. It’s special pleading. Rather than admit that people are failing to rationally maximize their utility, we just redefine their utility so that whatever they happen to be doing now “maximizes” it.

This is really what makes the Axiom of Revealed Preference so insidious; if you really take it seriously, it says that whatever you do, must by definition be what you preferred. You can’t possibly be irrational, you can’t possibly be making mistakes of judgment, because by definition whatever you did must be what you wanted. Maybe you enjoy bashing your head into a wall, who am I to judge?

I mean, on some level taste-based discrimination is what’s happening; people think that the world is a better place if they put women and Black people in their place. So in that sense, they are trying to “maximize” some “utility function”. (By the way, most human beings behave in ways that are provably inconsistent with maximizing any well-defined utility function—the Allais Paradox is a classic example.) But the whole framework of calling it “taste-based” is a way of running away from the real explanation. If it’s just “taste”, well, it’s an unexplainable brute fact of the universe, and we just need to accept it. If people are happier being racist, what can you do, eh?

So I think it’s high time to start calling it what it is. This is not a question of taste. This is a question of tribal instinct. This is the product of millions of years of evolution optimizing the human brain to act in the perceived interest of whatever it defines as its “tribe”. It could be yourself, your family, your village, your town, your religion, your nation, your race, your gender, or even the whole of humanity or beyond into all sentient beings. But whatever it is, the fundamental tribe is the one thing you care most about. It is what you would sacrifice anything else for.

And what we learned on November 9 this year is that an awful lot of Americans define their tribe in very narrow terms. Nationalistic and xenophobic at best, racist and misogynistic at worst.

But I suppose this really isn’t so surprising, if you look at the history of our nation and the world. Segregation was not outlawed in US schools until 1955, and there are women who voted in this election who were born before American women got the right to vote in 1920. The nationalistic backlash against sending jobs to China (which was one of the chief ways that we reduced global poverty to its lowest level ever, by the way) really shouldn’t seem so strange when we remember that over 100,000 Japanese-Americans were literally forcibly relocated into camps as recently as 1942. The fact that so many White Americans seem all right with the biases against Black people in our justice system may not seem so strange when we recall that systemic lynching of Black people in the US didn’t end until the 1960s.

The wonder, in fact, is that we have made as much progress as we have. Tribal instinct is not a strange aberration of human behavior; it is our evolutionary default setting.

Indeed, perhaps it is unreasonable of me to ask humanity to change its ways so fast! We had millions of years to learn how to live the wrong way, and I’m giving you only a few centuries to learn the right way?

The problem, of course, is that the pace of technological change leaves us with no choice. It might be better if we could wait a thousand years for people to gradually adjust to globalization and become cosmopolitan; but climate change won’t wait a hundred, and nuclear weapons won’t wait at all. We are thrust into a world that is changing very fast indeed, and I understand that it is hard to keep up; but there is no way to turn back that tide of change.

Yet “turn back the tide” does seem to be part of the core message of the Trump voter, once you get past the racial slurs and sexist slogans. People are afraid of what the world is becoming. They feel that it is leaving them behind. Coal miners fret that we are leaving them behind by cutting coal consumption. Factory workers fear that we are leaving them behind by moving the factory to China or inventing robots to do the work in half the time for half the price.

And truth be told, they are not wrong about this. We are leaving them behind. Because we have to. Because coal is polluting our air and destroying our climate, we must stop using it. Moving the factories to China has raised them out of the most dire poverty, and given us a fighting chance toward ending world hunger. Inventing the robots is only the next logical step in the process that has carried humanity forward from the squalor and suffering of primitive life to the security and prosperity of modern society—and it is a step we must take, for the progress of civilization is not yet complete.

They wouldn’t have to let themselves be left behind, if they were willing to accept our help and learn to adapt. That carbon tax that closes your coal mine could also pay for your basic income and your job-matching program. The increased efficiency from the automated factories could provide an abundance of wealth that we could redistribute and share with you.

But this would require them to rethink their view of the world. They would have to accept that climate change is a real threat, and not a hoax created by… uh… never was clear on that point actually… the Chinese maybe? But 45% of Trump supporters don’t believe in climate change (and that’s actually not as bad as I’d have thought). They would have to accept that what they call “socialism” (which really is more precisely described as social democracy, or tax-and-transfer redistribution of wealth) is actually something they themselves need, and will need even more in the future. But despite rising inequality, redistribution of wealth remains fairly unpopular in the US, especially among Republicans.

Above all, it would require them to redefine their tribe, and start listening to—and valuing the lives of—people that they currently do not.

Perhaps we need to redefine our tribe as well; many liberals have argued that we mistakenly—and dangerously—did not include people like Trump voters in our tribe. But to be honest, that rings a little hollow to me: We aren’t the ones threatening to deport people or ban them from entering our borders. We aren’t the ones who want to build a wall (though some have in fact joked about building a wall to separate the West Coast from the rest of the country, I don’t think many people really want to do that). Perhaps we live in a bubble of liberal media? But I make a point of reading outlets like The American Conservative and The National Review for other perspectives (I usually disagree, but I do at least read them); how many Trump voters do you think have ever read the New York Times, let alone Huffington Post? Cosmopolitans almost by definition have the more inclusive tribe, the more open perspective on the world (in fact, do I even need the “almost”?).

Nor do I think we are actually ignoring their interests. We want to help them. We offer to help them. In fact, I want to give these people free money—that’s what a basic income would do, it would take money from people like me and give it to people like them—and they won’t let us, because that’s “socialism”! Rather, we are simply refusing to accept their offered solutions, because those so-called “solutions” are beyond unworkable; they are absurd, immoral and insane. We can’t bring back the coal mining jobs, unless we want Florida underwater in 50 years. We can’t reinstate the trade tariffs, unless we want millions of people in China to starve. We can’t tear down all the robots and force factories to use manual labor, unless we want to trigger a national—and then global—economic collapse. We can’t do it their way. So we’re trying to offer them another way, a better way, and they’re refusing to take it. So who here is ignoring the concerns of whom?

Of course, the fact that it’s really their fault doesn’t solve the problem. We do need to take it upon ourselves to do whatever we can, because, regardless of whose fault it is, the world will still suffer if we fail. And that presents us with our most difficult task of all, a task that I fully expect to spend a career trying to do and yet still probably failing: We must understand the human tribal instinct well enough that we can finally begin to change it. We must know enough about how human beings form their mental tribes that we can actually begin to shift those parameters. We must, in other words, cure bigotry—and we must do it now, for we are running out of time.

Toward an economics of social norms

Sep 17, JDN 2457649

It is typical in economics to assume that prices are set by perfect competition in markets with perfect information. This is obviously ridiculous, so many economists do go further and start looking into possible distortions of the market, such as externalities and monopolies. But almost always the assumption is still that human beings are neoclassical rational agents, what I call “infinite identical psychopaths”, selfish profit-maximizers with endless intelligence and zero empathy.

What happens when we recognize that human beings are not like this, but in fact are empathetic, social creatures, who care about one another and work toward the interests of (what they perceive to be) their tribe? How are prices really set? What actually decides what is made and sold? What does economics become once you understand sociology? (The good news is that experiments are now being done to find out.)

Presumably some degree of market competition is involved, and no small amount of externalities and monopolies. But one of the very strongest forces involved in setting prices in the real world is almost completely ignored, and that is social norms.

Social norms are tremendously powerful. They will drive us to bear torture, fight and die on battlefields, even detonate ourselves as suicide bombs. When we talk about “religion” or “ideology” motivating people to do things, really what we are talking about is social norms. While some weaker norms can be overridden, no amount of economic incentive can ever override a social norm at its full power. Moreover, most of our behavior in daily life is driven by social norms: How to dress, what to eat, where to live. Even the fundamental structure of our lives is written by social norms: Go to school, get a job, get married, raise a family.

Even academic economists, who imagine themselves one part purveyor of ultimate wisdom and one part perfectly rational agent, are clearly strongly driven by social norms—what problems are “interesting”, which researchers are “renowned”, what approaches are “sensible”, what statistical methods are “appropriate”. If economists were perfectly rational, dynamic stochastic general equilibrium models would be in the dustbin of history (because, like string theory, they have yet to lead to a single useful empirical prediction), research journals would not be filled with endless streams of irrelevant but impressive equations (I recently read one that basically spent half a page of calculus re-deriving the concept of GDP—and computer-generated gibberish has been published, because its math looked so impressive), and instead of frequentist p-values (and often misinterpreted at that), all the statistics would be written in the form of Bayesian logodds.

Indeed, in light of all this, I often like to say that to a first approximation, all human behavior is social norms.

How does this affect buying and selling? Well, first of all, there are some things we refuse to buy and sell, or at least that most of us refuse to buy and sell, and who use social pressure, public humilitation, or even the force of law to prevent. You’re not supposed to sell children. You’re not supposed to sell your vote. You’re not even supposed to sell sexual favors (though every society has always had a large segment of people who do, and more recently people are becoming more open to the idea of at least decriminalizing it). If we were neoclassical rational agents, we would have no such qualms; if we want something and someone is willing to sell it to us, we’ll buy it. But as actual human beings with emotions and social norms, we recognize that there is something fundamentally different about selling your vote as opposed to selling a shirt or a television. It’s not always immediately obvious where to draw the line, which is why sex work can be such a complicated issue (You can’t get paid to have sex… unless someone is filming it?). Different societies may do it differently: Part of the challenge of fighting corruption in Third World countries is that much of what we call corruption—and which actually is harmful to long-run economic development—isn’t perceived as “corruption” by the people involved in it, just as social custom (“Of course I’d hire my cousin! What kind of cousin would I be if I didn’t?”). Yet despite all that, almost everyone agrees that there is a line to be drawn. So there are whole markets that theoretically could exist, but don’t, or only exist as tiny black markets most people never participate in, because we consider selling those things morally wrong. Recently a whole subfield of cognitive economics has emerged studying these repugnant markets.

Even if a transaction is not considered so repugnant as to be unacceptable, there are also other classes of goods that are in some sense unsavory; something you really shouldn’t buy, but you’re not a monster for doing so. These are often called sin goods, and they have always included drugs, alcohol, and gambling—and I do mean always, as every human civilization has had these things—they include prostitution where it is legal, and as social norms change they are now beginning to include oil and coal as well (which can only be good for the future of Earth’s climate). Sin goods are systematically more expensive than they should be for their marginal cost, because most people are unwilling to participate in selling them. As a result, the financial returns for producing sin goods are systematically higher. Actually, this could partially explain why Wall Street banks are so profitable; when the banking system is corrupt as it is—and you’re not imagining that; laundering money for terroriststhen banking becomes a sin good, and good people don’t want to participate in it. Or perhaps the effect runs the other way around: Banking has been viewed as sinful for centuries (in Medieval times, usury was punished much the same way as witchcraft), and as a result only the sort of person who doesn’t care about social and moral norms becomes a banker—and so the banking system becomes horrifically corrupt. Is this a reason for good people to force ourselves to become bankers? Or is there another way—perhaps credit unions?

There are other ways that social norms drive prices as well. We have a concept ofa “fair wage”, which is quite distinct from the economic concept of a “market-clearing wage”. When people ask whether someone’s wage is fair, they don’t look at supply and demand and try to determine whether there are too many or too few people offering that service. They ask themselves what the labor is worth—what value has it added—and how hard that person has worked to do it—what cost it bore. Now, these aren’t totally unrelated to supply and demand (people are less likely to supply harder work, people are more likely to demand higher value), so it’s conceivable that these heuristics could lead us to more or less achieve the market-clearing wage most of the time. But there are also some systematic distortions to consider.

Perhaps the most important way fairness matters in economics is necessities: Basic requirements for human life such as food, housing, and medicine. The structure of our society also makes transportation, education, and Internet access increasingly necessary for basic functioning. From the perspective of an economist, it is a bit paradoxical how angry people get when the price of something important (such as healthcare) is increased: If it’s extremely valuable, shouldn’t you be willing to pay more? Why does it bother you less when something like a Lamborghini or a Rolex rises in price, something that almost certainly wasn’t even worth its previous price? You’re going to buy the necessities anyway, right? Well, as far as most economists are concerned, that’s all that matters—what gets bought and sold. But of course as a human being I do understand why people get angry about these things, and it is because they have to buy them anyway. When someone like Martin Shkreli raises the prices on basic goods, we feel exploited. There’s even a way to make this economically formal: When demand is highly inelastic, we are rightly very sensitive to the possibility of a monopoly, because monopolies under inelastic demand can extract huge profits and cause similarly huge amounts of damage to the welfare of their customers. That isn’t quite how most people would put it, but I think that has something to do with the ultimate reason we evolved that heuristic: It’s dangerous to let someone else control your basic necessities, because that gives them enormous power to exploit you. If they control things that aren’t as important to you, that doesn’t matter so much, because you can always do without if you must. So a norm that keeps businesses from overcharging on necessities is very important—and probably not as strong anymore as it should be.

Another very important way that fairness and markets can be misaligned is talent: What if something is just easier for one person than another? If you achieve the same goal with half the work, should you be rewarded more for being more efficient, or less because you bore less cost? Neoclassical economics doesn’t concern itself with such questions, asking only if supply and demand reached equilibrium. But we as human beings do care about such things; we want to know what wage a person deserves, not just what wage they would receive in a competitive market.

Could we be wrong to do that? Might it be better if we just let the market do its work? In some cases I think that may actually be true. Part of why CEO pay is rising so fast despite being uncorrelated with corporate profitability or even negatively correlated is that CEOs have convinced us (or convinced their boards of directors) that this is fair, that they deserve more stock options. They even convince them that their pay is based on performance, by using highly distorted measures of performance. If boards thought more like economic rational agents, when a CEO asked for more pay they’d ask: “What other company gave you a higher offer?” and if the CEO didn’t have an answer, they’d laugh and refuse the raise. Because in purely economic terms, that is all a salary does: it keeps you from quitting to work somewhere else. The competitive mechanism of the market is supposed to then ensure that your wage aligns with your marginal cost and marginal productivity purely due to that.

On the other hand, there are many groups of people who simply aren’t doing very well in the market: Women, racial minorities, people with disabilities. There are a lot of reasons for this, some of which might go away if markets were made more competitive—the classic argument that competitive markets reward companies that don’t discriminate—but many clearly wouldn’t. Indeed, that argument was never as strong as it at first appears; in a society where social norms are strongly in favor of bigotry, it can be completely economically rational to participate in bigotry to avoid being penalized. When Chick-Fil-A was revealed to have donated to anti-LGBT political groups, many people tried to boycott—but their sales actually increased from the publicity. Honestly it’s a bit baffling that they promised not to donate to such causes anymore; it was apparently a profitable business decision to be revealed as supporters of bigotry. And even when discrimination does hurt economic performance, companies are run by human beings, and they are still quite capable of discriminating regardless. Indeed, the best evidence we have that discrimination is inefficient comes from… businesses that persist in discriminating despite the fact that it is inefficient.

But okay, suppose we actually did manage to make everyone compensated according to their marginal productivity. (Or rather, what Rawls derided: “From each according to his marginal productivity, to each according to his threat advantage.”) The market would then clear and be highly efficient. Would that actually be a good thing? I’m not so sure.

A lot of people are highly unproductive through no fault of their own—particularly children and people with disabilities. Much of this is not discrimination; it’s just that they aren’t as good at providing services. Should we simply leave them to fend for themselves? Then there’s the key point about what marginal means in this case—it means “given what everyone else is doing”. But that means that you can be made obsolete by someone else’s actions, and in this era of rapid technological advancement, jobs become obsolete faster than ever. Unlike a lot of people, I recognize that it makes no sense to keep people working at jobs that can be automated—the machines are better. But still, what do we do with the people whose jobs have been eliminated? Do we treat them as worthless? When automated buses become affordable—and they will; I give it 20 years—do we throw the human bus drivers under them?

One way out is of course a basic income: Let the market wage be what it will, and then use the basic income to provide for what human beings deserve irrespective of their market productivity. I definitely support a basic income, of course, and this does solve the most serious problems like children and quadriplegics starving in the streets.

But as I read more of the arguments by people who favor a job guarantee instead of a basic income, I begin to understand better why they are uncomfortable with the idea: It doesn’t seem fair. A basic income breaks once and for all the link between “a fair day’s work” and “a fair day’s wage”. It runs counter to this very deep-seated intuition most people have that money is what you earn—and thereby deserve—by working, and only by working. That is an extremely powerful social norm, and breaking it will be very difficult; so it’s worth asking: Should we even try to break it? Is there a way to achieve a system where markets are both efficient and fair?

I’m honestly not sure; but I do know that we could make substantial progress from where we currently stand. Most billionaire wealth is pure rent in the economic sense: It’s received by corruption and market distortion, not by efficient market competition. Most poverty is due to failures of institutions, not lack of productivity of workers. As George Monblot famously wrote, “If wealth was the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire.” Most of the income disparity between White men and others is due to discrimination, not actual skill—and what skill differences there are are largely the result of differences in education and upbringing anyway. So if we do in fact correct these huge inefficiencies, we will also be moving toward fairness at the same time. But still that nagging thought remains: When all that is done, will there come a day where we must decide whether we would rather have an efficient economy or a just society? And if it does, will we decide the right way?

Moral responsibility does not inherit across generations

JDN 2457548

In last week’s post I made a sharp distinction between believing in human progress and believing that colonialism was justified. To make this argument, I relied upon a moral assumption that seems to me perfectly obvious, and probably would to most ethicists as well: Moral responsibility does not inherit across generations, and people are only responsible for their individual actions.

But is in fact this principle is not uncontroversial in many circles. When I read utterly nonsensical arguments like this one from the aptly-named Race Baitr saying that White people have no role to play in the liberation of Black people apparently because our blood is somehow tainted by the crimes our ancestors, it becomes apparent to me that this principle is not obvious to everyone, and therefore is worth defending. Indeed, many applications of the concept of “White Privilege” seem to ignore this principle, speaking as though racism is not something one does or participates in, but something that one is simply by being born with less melanin. Here’s a Salon interview specifically rejecting the proposition that racism is something one does:

For white people, their identities rest on the idea of racism as about good or bad people, about moral or immoral singular acts, and if we’re good, moral people we can’t be racist – we don’t engage in those acts. This is one of the most effective adaptations of racism over time—that we can think of racism as only something that individuals either are or are not “doing.”

If racism isn’t something one does, then what in the world is it? It’s all well and good to talk about systems and social institutions, but ultimately systems and social institutions are made of human behaviors. If you think most White people aren’t doing enough to combat racism (which sounds about right to me!), say that—don’t make some bizarre accusation that simply by existing we are inherently racist. (Also: We? I’m only 75% White, so am I only 75% inherently racist?) And please, stop redefining the word “racism” to mean something other than what everyone uses it to mean; “White people are snakes” is in fact a racist sentiment (and yes, one I’ve actually heard–indeed, here is the late Muhammad Ali comparing all White people to rattlesnakes, and Huffington Post fawning over him for it).

Racism is clearly more common and typically worse when performed by White people against Black people—but contrary to the claims of some social justice activists the White perpetrator and Black victim are not part of the definition of racism. Similarly, sexism is more common and more severe committed by men against women, but that doesn’t mean that “men are pigs” is not a sexist statement (and don’t tell me you haven’t heard that one). I don’t have a good word for bigotry by gay people against straight people (“heterophobia”?) but it clearly does happen on occasion, and similarly cannot be defined out of existence.

I wouldn’t care so much that you make this distinction between “racism” and “racial prejudice”, except that it’s not the normal usage of the word “racism” and therefore confuses people, and also this redefinition clearly is meant to serve a political purpose that is quite insidious, namely making excuses for the most extreme and hateful prejudice as long as it’s committed by people of the appropriate color. If “White people are snakes” is not racism, then the word has no meaning.

Not all discussions of “White Privilege” are like this, of course; this article from Occupy Wall Street actually does a fairly good job of making “White Privilege” into a sensible concept, albeit still not a terribly useful one in my opinion. I think the useful concept is oppression—the problem here is not how we are treating White people, but how we are treating everyone else. What privilege gives you is the freedom to be who you are.”? Shouldn’t everyone have that?

Almost all the so-called “benefits” or “perks” associated with privilege” are actually forgone harms—they are not good things done to you, but bad things not done to you. But benefitting from racist systems doesn’t mean that everything is magically easy for us. It just means that as hard as things are, they could always be worse.” No, that is not what the word “benefit” means. The word “benefit” means you would be worse off without it—and in most cases that simply isn’t true. Many White people obviously think that it is true—which is probably a big reason why so many White people fight so hard to defend racism, you know; you’ve convinced them it is in their self-interest. But, with rare exceptions, it is not; most racial discrimination has literally zero long-run benefit. It’s just bad. Maybe if we helped people appreciate that more, they would be less resistant to fighting racism!

The only features of “privilege” that really make sense as benefits are those that occur in a state of competition—like being more likely to be hired for a job or get a loan—but one of the most important insights of economics is that competition is nonzero-sum, and fairer competition ultimately means a more efficient economy and thus more prosperity for everyone.

But okay, let’s set that aside and talk about this core question of what sort of responsibility we bear for the acts of our ancestors. Many White people clearly do feel deep shame about what their ancestors (or people the same color as their ancestors!) did hundreds of years ago. The psychological reactance to that shame may actually be what makes so many White people deny that racism even exists (or exists anymore)—though a majority of Americans of all races do believe that racism is still widespread.

We also apply some sense of moral responsibility applied to whole races quite frequently. We speak of a policy “benefiting White people” or “harming Black people” and quickly elide the distinction between harming specific people who are Black, and somehow harming “Black people” as a group. The former happens all the time—the latter is utterly nonsensical. Similarly, we speak of a “debt owed by White people to Black people” (which might actually make sense in the very narrow sense of economic reparations, because people do inherit money! They probably shouldn’t, that is literally feudalist, but in the existing system they in fact do), which makes about as much sense as a debt owed by tall people to short people. As Walter Michaels pointed out in The Trouble with Diversity (which I highly recommend), because of this bizarre sense of responsibility we are often in the habit of “apologizing for something you didn’t do to people to whom you didn’t do it (indeed to whom it wasn’t done)”. It is my responsibility to condemn colonialism (which I indeed do), to fight to ensure that it never happens again; it is not my responsibility to apologize for colonialism.

This makes some sense in evolutionary terms; it’s part of the all-encompassing tribal paradigm, wherein human beings come to identify themselves with groups and treat those groups as the meaningful moral agents. It’s much easier to maintain the cohesion of a tribe against the slings and arrows (sometimes quite literal) of outrageous fortune if everyone believes that the tribe is one moral agent worthy of ultimate concern.

This concept of racial responsibility is clearly deeply ingrained in human minds, for it appears in some of our oldest texts, including the Bible: “You shall not bow down to them or worship them; for I, the Lord your God, am a jealous God, punishing the children for the sin of the parents to the third and fourth generation of those who hate me,” (Exodus 20:5)

Why is inheritance of moral responsibility across generations nonsensical? Any number of reasons, take your pick. The economist in me leaps to “Ancestry cannot be incentivized.” There’s no point in holding people responsible for things they can’t control, because in doing so you will not in any way alter behavior. The Stanford Encyclopedia of Philosophy article on moral responsibility takes it as so obvious that people are only responsible for actions they themselves did that they don’t even bother to mention it as an assumption. (Their big question is how to reconcile moral responsibility with determinism, which turns out to be not all that difficult.)

An interesting counter-argument might be that descent can be incentivized: You could use rewards and punishments applied to future generations to motivate current actions. But this is actually one of the ways that incentives clearly depart from moral responsibilities; you could incentivize me to do something by threatening to murder 1,000 children in China if I don’t, but even if it was in fact something I ought to do, it wouldn’t be those children’s fault if I didn’t do it. They wouldn’t deserve punishment for my inaction—I might, and you certainly would for using such a cruel incentive.

Moreover, there’s a problem with dynamic consistency here: Once the action is already done, what’s the sense in carrying out the punishment? This is why a moral theory of punishment can’t merely be based on deterrence—the fact that you could deter a bad action by some other less-bad action doesn’t make the less-bad action necessarily a deserved punishment, particularly if it is applied to someone who wasn’t responsible for the action you sought to deter. In any case, people aren’t thinking that we should threaten to punish future generations if people are racist today; they are feeling guilty that their ancestors were racist generations ago. That doesn’t make any sense even on this deterrence theory.

There’s another problem with trying to inherit moral responsibility: People have lots of ancestors. Some of my ancestors were most likely rapists and murderers; most were ordinary folk; a few may have been great heroes—and this is true of just about anyone anywhere. We all have bad ancestors, great ancestors, and, mostly, pretty good ancestors. 75% of my ancestors are European, but 25% are Native American; so if I am to apologize for colonialism, should I be apologizing to myself? (Only 75%, perhaps?) If you go back enough generations, literally everyone is related—and you may only have to go back about 4,000 years. That’s historical time.

Of course, we wouldn’t be different colors in the first place if there weren’t some differences in ancestry, but there is a huge amount of gene flow between different human populations. The US is a particularly mixed place; because most Black Americans are quite genetically mixed, it is about as likely that any randomly-selected Black person in the US is descended from a slaveowner as it is that any randomly-selected White person is. (Especially since there were a large number of Black slaveowners in Africa and even some in the United States.) What moral significance does this have? Basically none! That’s the whole point; your ancestors don’t define who you are.

If these facts do have any moral significance, it is to undermine the sense most people seem to have that there are well-defined groups called “races” that exist in reality, to which culture responds. No; races were created by culture. I’ve said this before, but it bears repeating: The “races” we hold most dear in the US, White and Black, are in fact the most nonsensical. “Asian” and “Native American” at least almost make sense as categories, though Chippewa are more closely related to Ainu than Ainu are to Papuans. “Latino” isn’t utterly incoherent, though it includes as much Aztec as it does Iberian. But “White” is a club one can join or be kicked out of, while “Black” is the majority of genetic diversity.

Sex is a real thing—while there are intermediate cases of course, broadly speaking humans, like most metazoa, are sexually dimorphic and come in “male” and “female” varieties. So sexism took a real phenomenon and applied cultural dynamics to it; but that’s not what happened with racism. Insofar as there was a real phenomenon, it was extremely superficial—quite literally skin deep. In that respect, race is more like class—a categorization that is itself the result of social institutions.

To be clear: Does the fact that we don’t inherit moral responsibility from our ancestors absolve us from doing anything to rectify the inequities of racism? Absolutely not. Not only is there plenty of present discrimination going on we should be fighting, there are also inherited inequities due to the way that assets and skills are passed on from one generation to the next. If my grandfather stole a painting from your grandfather and both our grandfathers are dead but I am now hanging that painting in my den, I don’t owe you an apology—but I damn well owe you a painting.

The further we become from the past discrimination the harder it gets to make reparations, but all hope is not lost; we still have the option of trying to reset everyone’s status to the same at birth and maintaining equality of opportunity from there. Of course we’ll never achieve total equality of opportunity—but we can get much closer than we presently are.

We could start by establishing an extremely high estate tax—on the order of 99%—because no one has a right to be born rich. Free public education is another good way of equalizing the distribution of “human capital” that would otherwise be concentrated in particular families, and expanding it to higher education would make it that much better. It even makes sense, at least in the short run, to establish some affirmative action policies that are race-conscious and sex-conscious, because there are so many biases in the opposite direction that sometimes you must fight bias with bias.

Actually what I think we should do in hiring, for example, is assemble a pool of applicants based on demographic quotas to ensure a representative sample, and then anonymize the applications and assess them on merit. This way we do ensure representation and reduce bias, but don’t ever end up hiring anyone other than the most qualified candidate. But nowhere should we think that this is something that White men “owe” to women or Black people; it’s something that people should do in order to correct the biases that otherwise exist in our society. Similarly with regard to sexism: Women exhibit just as much unconscious bias against other women as men do. This is not “men” hurting “women”—this is a set of unconscious biases found in almost everywhere and social structures almost everywhere that systematically discriminate against people because they are women.

Perhaps by understanding that this is not about which “team” you’re on (which tribe you’re in), but what policy we should have, we can finally make these biases disappear, or at least fade so small that they are negligible.

The powerful persistence of bigotry

JDN 2457527

Bigotry has been a part of human society since the beginning—people have been hating people they perceive as different since as long as there have been people, and maybe even before that. I wouldn’t be surprised to find that different tribes of chimpanzees or even elephants hold bigoted beliefs about each other.

Yet it may surprise you that neoclassical economics has basically no explanation for this. There is a long-standing famous argument that bigotry is inherently irrational: If you hire based on anything aside from actual qualifications, you are leaving money on the table for your company. Because women CEOs are paid less and perform better, simply ending discrimination against women in top executive positions could save any typical large multinational corporation tens of millions of dollars a year. And yet, they don’t! Fancy that.

More recently there has been work on the concept of statistical discrimination, under which it is rational (in the sense of narrowly-defined economic self-interest) to discriminate because categories like race and gender may provide some statistically valid stereotype information. For example, “Black people are poor” is obviously not true across the board, but race is strongly correlated with wealth in the US; “Asians are smart” is not a universal truth, but Asian-Americans do have very high educational attainment. In the absence of more reliable information that might be your best option for making good decisions. Of course, this creates a vicious cycle where people in the positive stereotype group are better off and have more incentive to improve their skills than people in the negative stereotype group, thus perpetuating the statistical validity of the stereotype.

But of course that assumes that the stereotypes are statistically valid, and that employers don’t have more reliable information. Yet many stereotypes aren’t even true statistically: If “women are bad drivers”, then why do men cause 75% of traffic fatalities? Furthermore, in most cases employers have more reliable information—resumes with education and employment records. Asian-Americans are indeed more likely to have bachelor’s degrees than Latino Americans, but when it say right on Mr. Lorenzo’s resume that he has a B.A. and on Mr. Suzuki’s resume that he doesn’t, that racial stereotype no longer provides you with any further information. Yet even if the resumes are identical, employers will be more likely to hire a White applicant than a Black applicant, and more likely to hire a male applicant than a female applicant—we have directly tested this in experiments. In an experiment where employers had direct performance figures in front of them, they were still more likely to choose the man when they had the same scores—and sometimes even when the woman had a higher score!

Even our assessments of competence are often biased, probably subconsciously; given the same essay to review, most reviewers find more spelling errors and are more concerned about those errors if they are told that the author is Black. If they thought the author was White, they thought of the errors as “minor mistakes” by a student with “otherwise good potential”; but if they thought the author was Black, they “can’t believe he got into this school in the first place”. These reviewers were reading the same essay. The alleged author’s race was decided randomly. Most if not all of these reviewers were not consciously racist. Subconscious racial biases are all over the place; almost everyone exhibits some subconscious racial bias.

No, discrimination isn’t just rational inference based on valid (if unfortunate and self-reinforcing) statistical trends. There is a significant component of just outright irrational bigotry.

We’re seeing this play out in North Carolina; due to their arbitrary discrimination against lesbian, gay, bisexual and especially transgender people, they are now hemorrhaging jobs as employers pull out, and their federal funding for student loans is now in jeopardy due to the obvious Title IX violation. This is obviously not in the best interest of the people of North Carolina (even the ones who aren’t LGBT!); and it’s all being justified on the grounds of an epidemic of sexual assaults by people pretending to be trans that doesn’t even exist. It turns out that more Republican Senators have been arrested for sexual misconduct in bathrooms than transgender people—and while the number of transgender people in the US is surprisingly hard to measure, it’s clearly a lot larger than the number of Republican Senators!

In fact, discrimination is even more irrational than it may seem, because empirically the benefits of discrimination (such as they are—short-term narrow economic self-interest) fall almost entirely on the rich while the harms fall mainly on the poor, yet poor people are much more likely to be racist! Since income and education are highly correlated, education accounts for some of this effect. This is reason to be hopeful, for as educational attainment has soared, we have found that racism has decreased.

But education doesn’t seem to explain the full effect. One theory to account this is what’s called last-place aversiona highly pernicious heuristic where people are less concerned about their own absolute status than they are about not having the worst status. In economic experiments, people are usually more willing to give money to people worse off than them than to those better off than them—unless giving it to the worse-off would make those people better off than they themselves are. I think we actually need to do further study to see what happens if it would make those other people exactly as well-off as they are, because that turns out to be absolutely critical to whether people would be willing to support a basic income. In other words, do people count “tied for last”? Would they rather play a game where everyone gets $100, or one where they get $50 but everyone else only gets $10?

I would hope that humanity is better than that—that we would want to play the $100 game, which is analogous to a basic income. But when I look at the extreme and persistent inequality that has plagued human society for millennia, I begin to wonder if perhaps there really are a lot of people who think of the world in such zero-sum, purely relative terms, and care more about being better than others than they do about doing well themselves. Perhaps the horrific poverty of Sub-Saharan Africa and Southeast Asia is, for many First World people, not a bug but a feature; we feel richer when we know they are poorer. Scarcity seems to amplify this zero-sum thinking; racism gets worse whenever we have economic downturns. Precisely because discrimination is economically inefficient, this can create a vicious cycle where poverty causes bigotry which worsens poverty.

There is also something deeper going on, something evolutionary; bigotry is part of what I call the tribal paradigm, the core aspect of human psychology that defines identity in terms of in-groups which are good and out-groups which are bad. We will probably never fully escape the tribal paradigm, but this is not a reason to give up hope; we have made substantial progress in reducing bigotry in many places. What seems to happen is that people learn to expand their mental tribe, so that it encompasses larger and larger groups—not just White Americans but all Americans, or not just Americans but all human beings. Peter Singer calls this the Expanding Circle (also the title of his book on it). We may one day be able to make our tribe large enough to encompass all sentient beings in the universe; at that point, it’s just fine if we are only interested in advancing the interests of those in our tribe, because our tribe would include everyone. Yet I don’t think any of us are quite there yet, and some people have a really long way to go.

But with these expanding tribes in mind, perhaps I can leave you with a fact that is as counter-intuitive as it is encouraging, and even easier still to take out of context: Racism was better than what came before it. What I mean by this is not that racism is good—of course it’s terrible—but that in order to be racism, to define the whole world into a small number of “racial groups”, people already had to enormously expand their mental tribe from where it started. When we evolved on the African savannah millions of years ago, our tribe was 150 people; to this day, that’s about the number of people we actually feel close to and interact with on a personal level. We could have stopped there, and for millennia we did. But over time we managed to expand beyond that number, to a village of 1,000, a town of 10,000, a city of 100,000. More recently we attained mental tribes of whole nations, in some case hundreds of millions of people. Racism is about that same scale, if not a bit larger; what most people (rather arbitrarily, and in a way that changes over time) call “White” constitutes about a billion people. “Asian” (including South Asian) is almost four billion. These are astonishingly huge figures, some seven orders of magnitude larger than what we originally evolved to handle. The ability to feel empathy for all “White” people is just a little bit smaller than the ability to feel empathy for all people period. Similarly, while today the gender in “all men are created equal” is jarring to us, the idea at the time really was an incredibly radical broadening of the moral horizon—Half the world? Are you mad?

Therefore I am confident that one day, not too far from now, the world will take that next step, that next order of magnitude, which many of us already have (or try to), and we will at last conquer bigotry, and if not eradicate it entirely then force it completely into the most distant shadows and deny it its power over our society.

Why is there a “corporate ladder”?

JDN 2457482

We take this concept for granted; there are “entry-level” jobs, and then you can get “promoted”, until perhaps you’re lucky enough or talented enough to rise to the “top”. Jobs that are “higher” on this “ladder” pay better, offer superior benefits, and also typically involve more pleasant work environments and more autonomy, though they also typically require greater skill and more responsibility.

But I contend that an alien lifeform encountering our planet for the first time, even one that somehow knew all about neoclassical economic theory (admittedly weird, but bear with me here), would be quite baffled by this arrangement.

The classic “rags to riches” story always involves starting work in some menial job like working in the mailroom, from which you then more or less magically rise to the position of CEO. (The intermediate steps are rarely told in the story, probably because they undermine the narrative; successful entrepreneurs usually make their first successful business using funds from their wealthy relatives, and if you haven’t got any wealthy relatives, that’s just too bad for you.)

Even despite its dubious accuracy, the story is bizarre in another way: There’s no reason to think that being really good at working in the mail room has anything at all to do with being good at managing a successful business. They’re totally orthogonal skills. They may even be contrary in personality terms; the kind of person who makes a good entrepreneur is innovative, decisive, and independent—and those are exactly the kind of personality traits that will make you miserable in a menial job where you’re constantly following orders.

Yet in almost every profession, we have this process where you must first “earn” your way to “higher” positions by doing menial and at best tangentially-related tasks.

This even happens in science, where we ought to know better! There’s really no reason to think that being good at taking multiple-choice tests strongly predicts your ability to do scientific research, nor that being good at grading multiple-choice tests does either; and yet to become a scientific researcher you must pass a great many multiple-choice tests (at bare minimum the SAT and GRE), and probably as a grad student you’ll end up grading some as well.

This process is frankly bizarre; worldwide, we are probably leaving tens of trillions of dollars of productivity on the table by instituting these arbitrary selection barriers that have nothing to do with actual skills. Simply optimizing our process of CEO selection alone would probably add a trillion dollars to US GDP.

If neoclassical economics were right, we should assign jobs solely based on marginal productivity; there should be some sort of assessment of your ability at each task you might perform, and whichever you’re best at (in the sense of comparative advantage) is what you end up doing, because that’s what you’ll be paid the most to do. Actually for this to really work the selection process would have to be extremely cheap, extremely reliable, and extremely fast, lest the friction of the selection system itself introduce enormous inefficiencies. (The fact that this never even seems to work even in SF stories with superintelligent sorting AIs, let alone in real life, is just so much the worse for neoclassical economics. The last book I read in which it actually seemed to work was Harry Potter and the Sorceror’s Stone—so it was literally just magic.)

The hope seems to be that competition will somehow iron out this problem, but in order for that to work, we must all be competing on a level playing field, and furthermore the mode of competition must accurately assess our real ability. The reason Olympic sports do a pretty good job of selecting the best athletes in the world is that they obey these criteria; the reason corporations do a terrible job of selecting the best CEOs is that they do not.

I’m quite certain I could do better than the former CEO of the late Lehman Brothers (and, to be fair, there are others who could do better still than I), but I’ll likely never get the chance to own a major financial firm—and I’m a lot closer than most people. I get to tick most of the boxes you need to be in that kind of position: White, male, American, mostly able-bodied, intelligent, hard-working, with a graduate degree in economics. Alas, I was only born in the top 10% of the US income distribution, not the top 1% or 0.01%, so my odds are considerably reduced. (That and I’m pretty sure that working for a company as evil as the late Lehman Brothers would destroy my soul.) Somewhere in Sudan there is a little girl who would be the best CEO of an investment bank the world has ever seen, but she is dying of malaria. Somewhere in India there is a little boy who would have been a greater physicist than Einstein, but no one ever taught him to read.

Competition may help reduce the inefficiency of this hierarchical arrangement—but it cannot explain why we use a hierarchy in the first place. Some people may be especially good at leadership and coordination; but in an efficient system they wouldn’t be seen as “above” other people, but as useful coordinators and advisors that people consult to ensure they are allocating tasks efficiently. You wouldn’t do things because “your boss told you to”, but because those things were the most efficient use of your time, given what everyone else in the group was doing. You’d consult your coordinator often, and usually take their advice; but you wouldn’t see them as orders you were required to follow.

Moreover, coordinators would probably not be paid much better than those they coordinate; what they were paid would depend on how much the success of the tasks depends upon efficient coordination, as well as how skilled other people are at coordination. It’s true that if having you there really does make a company with $1 billion in revenue 1% more efficient, that is in fact worth $10 million; but that isn’t how we set the pay of managers. It’s simply obvious to most people that managers should be paid more than their subordinates—that with a “promotion” comes more leadership and more pay. You’re “moving up the corporate ladder” Your pay reflects your higher status, not your marginal productivity.

This is not an optimal economic system by any means. And yet it seems perfectly natural to us to do this, and most people have trouble thinking any other way—which gives us a hint of where it’s probably coming from.

Perfectly natural. That is, instinctual. That is, evolutionary.

I believe that the corporate ladder, like most forms of hierarchy that humans use, is actually a recapitulation of our primate instincts to form a mating hierarchy with an alpha male.

First of all, the person in charge is indeed almost always male—over 90% of all high-level business executives are men. This is clearly discrimination, because women executives are paid less and yet show higher competence. Rare, underpaid, and highly competent is exactly the pattern we would expect in the presence of discrimination. If it were instead a lack of innate ability, we would expect that women executives would be much less competent on average, though they would still be rare and paid less. If there were no discrimination and no difference in ability, we would see equal pay, equal competence, and equal prevalence (this happens almost nowhere—the closest I think we get is in undergraduate admissions). Executives are also usually tall, healthy, and middle-aged—just like alpha males among chimpanzees and gorillas. (You can make excuses for why: Height is correlated with IQ, health makes you more productive, middle age is when you’re old enough to have experience but young enough to have vigor and stamina—but the fact remains, you’re matching the gorillas.)

Second, many otherwise-baffling economic decisions make sense in light of this hypothesis.

When a large company is floundering, why do we cut 20,000 laborers instead of simply reducing the CEO’s stock option package by half to save the same amount of money? Think back to the alpha male: Would he give himself less in a time of scarcity? Of course not. Nor would he remove his immediate subordinates, unless they had done something to offend him. If resources are scarce, the “obvious” answer is to take them from those at the bottom of the hierarchy—resource conservation is always accomplished at the expense of the lowest-status individuals.

Why are the very same poor people who would most stand to gain from redistribution of wealth often those who are most fiercely opposed to it? Because, deep down, they just instinctually “know” that alpha males are supposed to get the bananas, and if they are of low status it is their deserved lot in life. That is how people who depend on TANF and Medicaid to survive can nonetheless vote for Donald Trump. (As for how they can convince themselves that they “don’t get anything from the government”, that I’m not sure. “Keep your government hands off my Medicare!”)

Why is power an aphrodisiac, as well as for many an apparent excuse for bad behavior? I’ll let Cameron Anderson (a psychologist at UC Berkeley) give you the answer: “powerful people act with great daring and sometimes behave rather like gorillas”. With higher status comes a surge in testosterone (makes sense if you’re going to have more mates, and maybe even if you’re commanding an army—but running an investment bank?), which is directly linked to dominance behavior.

These attitudes may well have been adaptive for surviving in the African savannah 2 million years ago. In a world red in tooth and claw, having the biggest, strongest male be in charge of the tribe might have been the most efficient means of ensuring the success of the tribe—or rather I should say, the genes of the tribe, since the only reason we have a tribal instinct is that tribal instinct genes were highly successful at propagating themselves.

I’m actually sort of agnostic on the question of whether our evolutionary heuristics were optimal for ancient survival, or simply the best our brains could manage; but one thing is certain: They are not optimal today. The uninhibited dominance behavior associated with high status may work well enough for a tribal chieftain, but it could be literally apocalyptic when exhibited by the head of state of a nuclear superpower. Allocation of resources by status hierarchy may be fine for hunter-gatherers, but it is disastrously inefficient in an information technology economy.

From now on, whenever you hear “corporate ladder” and similar turns of phrase, I want you to substitute “primate status hierarchy”. You’ll quickly see how well it fits; and hopefully once enough people realize this, together we can all find a way to change to a better system.