If I had a trillion dollars…

2022-05-292022-05-29 pnrj development economics, ethics, inequality, market failure, politics, public policy Amazon, Barenaked Ladies, climate change, Elon Musk, government, housing, inequality, Jeff Bezos, poverty, trillion, UNICEF

May 29 JDN 2459729

(To the tune of “If I had a million dollars” by Barenaked Ladies; by the way, he does now)

[Inspired by the book How to Spend a Trillion Dollars]

If I had a trillion dollars… if I had a trillion dollars!
I’d buy everyone a house—and yes, I mean, every homeless American.
[500,000 homeless households * $300,000 median home price = $150 billion]
If I had a trillion dollars… if I had a trillion dollars!

I’d give to the extreme poor—and then there would be no extreme poor!
[Global poverty gap: $160 billion]
If I had a trillion dollars… if I had a trillion dollars!
I’d send people to Mars—hey, maybe we’d find some alien life!
[Estimated cost of manned Mars mission: $100 billion]
If I had a trillion dollars… if I had a trillion dollars!
I’d build us a Moon base—haven’t you always wanted a Moon base?
[Estimated cost of a permanent Lunar base: $35 billion. NASA is bad at forecasting cost, so let’s allow cost overruns to take us to $100 billion.]
If I had a trillion dollars… if I had a trillion dollars!
I’d build a new particle accelerator—let’s finally figure out dark matter!
[Cost of planned new accelerator at CERN: $24 billion. Let’s do 4 times bigger and make it $100 billion.]
If I had a trillion dollars… if I had a trillion dollars!
I’d save the Amazon—pay all the ranchers to do something else!
[Brazil, where 90% of Amazon cattle ranching is, produces about 10 million tons of beef per year, which at an average price of $5000 per ton is $50 billion. So I could pay all the farmers two years of revenue to protect the Amazon instead of destroying it for $100 billion.]
If I had a trillion dollars…
We wouldn’t have to drive anymore!
If I had a trillion dollars…
We’d build high-speed rail—it won’t cost more!
[Cost of proposed high-speed rail system: $240 billion]
If I had a trillion dollars… if I had trillion dollars!
Hey wait, I could get it from a carbon tax!
[Even a moderate carbon tax could raise $1 trillion in 10 years.]
If I had a trillion dollars… I’d save the world….

All of the above really could be done for under $1 trillion. (Some of them would need to be repeated, so we could call it $1 trillion per year.)

I, of course, do not, and will almost certainly never have, anything approaching $1 trillion.

But here’s the thing: There are people who do.

Elon Musk and Jeff Bezos together have a staggering $350 billion. That’s two people with enough money to end world hunger. And don’t give me that old excuse that it’s not in cash: UNICEF gladly accepts donations in stock. They could, right now, give their stocks to UNICEF and thereby end world hunger. They are choosing not to do that. In fact, the goodwill generated by giving, say, half their stocks to UNICEF might actually result in enough people buying into their companies that their stock prices would rise enough to make up the difference—thus costing them literally nothing.

The total net wealth of all the world’s billionaires is a mind-boggling $12.7 trillion. That’s more than half a year of US GDP. Held by just over 2600 people—a small town.

The US government spends $4 trillion in a normal year—and $5 trillion the last couple of years due to the pandemic. Nearly $1 trillion of that is military spending, which could be cut in half and still be the highest in the world. After seeing how pathetic Russia’s army actually is in battle (they paint Zs on their tanks because apparently their IFF system is useless!), are we really still scared of them? Do we really need eleven carrier battle groups?

Yes, the total cost of mitigating climate change is probably in the tens of trillions—but the cost of not mitigating climate change could be over $100 trillion. And it’s not as if the world can’t come up with tens of trillions; we already do. World GDP is now over $100 trillion per year; just 2% of that for 10 years is $20 trillion.

Do these sound like good ideas to you? Would you want to do them? I think most people would want most of them. So now the question becomes: Why aren’t we doing them?

What I think “gentrification” ought to mean

2021-03-072021-02-28 pnrj public policy credit, default, gentrification, housing, Irvine, Jeff Bezos, monopolistic competition, mortgage, rent

Mar7 JDN 2459281

A few years back I asked the question: “What is gentrification?”

The term evokes the notion of a gentry—a landed upper class who hoards wealth and keeps the rest of the population in penury and de facto servitude. Yet the usual meaning of the term really just seems to mean “rich people buying houses in poor areas”. Where did we get the idea that rich people buying houses in poor areas constitutes the formation of a landed gentry?

In that previous post I argued that the concept of “gentrification” as usually applied is not a useful one, and we should instead be focusing directly on the issues of poverty and housing affordability. I still think that’s right.

But it occurs to me that there is something “gentrification” could be used to mean, that would actually capture some of the original intended meaning. It doesn’t seem to be used this way often, but unlike the usual meaning, this one actually has some genuine connection with the original concept of a gentry.

Here goes: Gentrification is the purchasing of housing for the purpose of renting it out.

Why this definition in particular? Well, it actually does have an effect similar in direction (though hardly in magnitude) to the formation of a landed gentry: It concentrates land ownership and makes people into tenants instead of homeowners. It converts what should have been a one-time transfer of wealth from one owner to another into a permanent passive income stream that typically involves the poor indefinitely paying to the rich.

Because houses aren’t very fungible, the housing market is one of monopolistic competition: Each house is its own unique commodity, only partially substitutable with others, and this gives market power to the owners of houses. When it’s a permanent sale, that market power will be reflected in the price, but it will also effectively transfer to the new owner. When it’s a rental, that market power remains firmly in the hands of the landlord. The more a landlord owns, the more market power they can amass: A large landholding corporation like the Irvine Company can amass an enormous amount of market power, effectively monopolizing an entire city. (Now that feels like a landed gentry! Bend the knee before the great and noble House Irvine.)

Compare this to two other activities that are often called “gentrification”: Rich people buying houses in poor areas for the purpose of living in them, and developers building apartment buildings and renting them out.

When rich people buy houses for the purpose of living in them, they are not concentrating land ownership. They aren’t generating a passive income stream. They are simply doing the same thing that other people do—buying houses to live in them—but they have more money with which to do so. This is utterly unproblematic, and I think people need to stop complaining about it. There is absolutely nothing wrong with buying a house because you want to live in it, and if it’s a really expensive house—like Jeff Bezos’ $165 million mansion—then the problem isn’t rich people buying houses, it’s the massive concentration of wealth that made anyone that rich in the first place. No one should be made to feel guilty for spending their own money on their own house. Every time “gentrification” is used to describe this process, it just makes it seem like “gentrification” is nothing to worry about—or maybe even something to celebrate.

What about developers who build apartments to rent them out? Aren’t they setting up a passive income stream from the poor to the rich? Don’t they have monopolistic market power? Yes, that’s all true. But they’re also doing something else that buying houses in order to rent them doesn’t: They are increasing the supply of housing.

What are the two most important factors determining the price of housing? The same two factors as anything else: Supply and demand. If prices are too high, the best way to fix that is to increase supply. Developers do that.

Conversely, buying up a house in order to rent it is actually reducing the supply of housing—or at least the supply of permanent owner-occupied housing. Whereas developers buy land that has less housing and build more housing on it, gentrifiers (as I’m defining them) buy housing that already exists and rent it out to others.

Indeed, it’s really not clear to me that rent is a thing that needs to exist. Obviously people need housing. And it certainly makes sense to have things like hotels for very short-term stays and dorms for students who are living in an area for a fixed number of years.

But it’s not clear to me that we really needed to have a system where people would own other people’s houses and charge them for the privilege of living in them. I think the best argument for it is a libertarian one: If people want to do that, why not let them?

Yet I think the downsides of renting are clear enough: People get evicted and displaced, and in many cases landlords consistently fail to provide the additional services that they are supposed to provide. (I wasn’t able to quickly find good statistics on how common it is for landlords to evade their responsibilities like this, but anecdotal evidence would suggest that it’s not uncommon.)

The clearest upside is that security deposits are generally cheaper than down payments, so it’s generally easier to rent a home than to buy one. But why does this have to be the case? Indeed, why do banks insist on such large down payments in the first place? It seems to be only social norms that set the rate of down payments; I’m not aware of any actual economic arguments for why a particular percentage of the home’s value needs to be paid in cash up front. It’s commonly thought that large down payments somehow reduce the risk of defaulting on a mortgage; but I’m not aware of much actual evidence of this. Here’s a theoretical model saying that down payments should matter, but it’s purely theoretical. Here’s an empirical paper showing that lower down payments are associated with higher interest rates—but it may be the higher interest rates that account for the higher defaults, not the lower down payments. There is also a selection bias, where buyers with worse credit get worse loan terms (which can be a self-fulfilling prophecy).

The best empirical work I could find on the subject was a HUD study suggesting that yes, lower down payments are associated with higher default risk—but their effect is much smaller than lots of other things. In particular, one percentage point of down payment was equivalent to about 5 points of credit score. So someone with a credit score of 750 and a down payment of 0% is no more likely to default than someone with a credit score of 650 and a down payment of 20%. Or, to use an example they specifically state in the paper: “For example, to have the same probability of default as a prime loan, a B or C [subprime] loan needs to have a CLTV [combined loan-to-value ratio] that is 11.9 percentage points lower than the CLTV of an otherwise identical prime loan.” A combined loan-to-value ratio 12 percentage points lower is essentially the same thing as a down payment that is 12 percentage points larger—and 12% of the median US home price of $300,000 is $36,000, not an amount of money most middle-class families can easily come up with.

I also found a quasi-experimental study showing that support from nonprofit housing organizations was much more effective at reducing default rates than higher down payments. So even if larger down payments do reduce defaults, there are better ways of doing so.

The biggest determinant of whether you will default on your mortgage is the obvious one: whether you have steady income large enough to afford the mortgage payment. Typically when people default it’s because their adjustable interest rate surged or they lost their job. When housing prices decline and you end up “underwater” (owing more than the house’s current price), strategic default can theoretically increase your wealth; but in fact it’s relatively rare to take advantage of this, because it’s devastating to your credit rating. Only about 20% of all mortgage defaults in the crisis were strategic—the other 80% were people who actually couldn’t afford to pay.

Another potential upside is that it may be easier to move from one place to another if you rent your home, since selling a home can take a considerable amount of time. But I think this benefit is overstated: Most home leases are 12 months long, while selling a house generally takes 60-90 days. So unless you are already near the end of your lease term when you decide to move, you may actually find that you could move faster if you sold your home than if you waited for your lease to end—and if you end your lease early, the penalties are often substantial. Your best-case scenario is a flat early termination fee; your worst-case scenario is being on the hook for all the remaining rent (at which point, why bother?). Some landlords instead require you to cover rent until a new tenant is found—which you may recognize as almost exactly equivalent to selling your own home.

I think the main reason that people rent instead of buying is simply that they can’t come up with a down payment. If it seems too heavy-handed or risky to simply cap down payments, how about we offer government-subsidized loans (or even grants!) to first-time home buyers to cover their down payments? This would be expensive, but no more so than the mortgage interest deduction—and far less regressive.

For now, we can continue to let people rent out homes. When developers do this, I think the benefits generally outweigh the harms: Above all, they are increasing the supply of housing. A case could be made for policies that incentivize the construction of condos rather than rentals, but above all, policy should be focusing on incentivizing construction.

However, when someone buys an existing house and then rents it out, they are doing something harmful. It probably shouldn’t be illegal, and in some cases there may be no good alternatives to simply letting people do it. But it’s a harmful activity nonetheless, and where legal enforcement is too strict, social stigma can be useful. And for that reason, I think it might actually be fair to call them gentrifiers.

Glorifying superstars glorifies excessive risk

2020-04-262020-04-19 pnrj core principles, financial advice, inequality billionaires, career, education, income, Jeff Bezos, risk, risk aversion, superstar, survivor bias

Apr 26 JDN 2458964

Suppose you were offered the choice of the following two gambles; which one would you take?

Gamble A: 99.9% chance of $0; 0.1% chance of $100 million

Gamble B: 10% chance of $50,000; 80% chance of $100,000; 10% chance of $1 million

I think it’s pretty clear that you should choose gamble B.

If you were risk-neutral, the expected payoffs would be $100,000 for gamble A and $185,000 for gamble B. So clearly gamble B is the better deal.

But you’re probably risk-averse. If you have logarithmic utility with a baseline and current wealth of $10,000, the difference is even larger:

0.001*ln(10001) = 0.009

0.1*ln(6) + 0.8*ln(11) + 0.1*ln(101) = 2.56

Yet suppose this is a gamble that a lot of people get to take. And furthermore suppose that what you read about in the news every day is always the people who are the very richest. Then you will read, over and over again, about people who took gamble A and got lucky enough to get the $100 million. You’d probably start to wonder if maybe you should be taking gamble A instead.

This is more or less the world we live in. A handful of billionaires own staggering amounts of wealth, and we are constantly hearing about them. Even aside from the fact that most of them inherited a large portion of it and all of them had plenty of advantages that most of us will never have, it’s still not clear that they were actually smart about taking the paths they did—it could simply be that they got spectacularly lucky.

Or perhaps there’s an even clearer example: Professional athletes. The vast majority of athletes make basically no money at sports. Even most paid athletes are in minor leagues and make only a modest living.

There’s certainly nothing wrong with being an amateur who plays sports for fun. But if you were to invest a large proportion of your time training in sports in the hopes of becoming a professional athlete, you would most likely find yourself gravely disappointed, as your chances of actually getting into the major leagues and becoming a multi-millionaire are exceedingly small. Yet you can probably name at least a few major league athletes who are multi-millionaires—perhaps dozens, if you’re a serious fan—and I doubt you can name anywhere near as many minor league players or players who never made it into paid leagues in the first place.

When we spend all of our time focused on the superstars, what we are effectively assessing is the maximum possible income available on a given career track. And it’s true; the maximum for professional athletes and especially entrepreneurs is extremely high. But the maximum isn’t what you should care about; you should really be concerned about the average or even the median.

And it turns out that the same professions that offer staggeringly high incomes at the very top also tend to be professions with extremely high risk attached. The average income for an athlete is very small; the median is almost certainly zero. Entrepreneurs do better; their average and median income aren’t too much worse than most jobs. But this moderate average comes with a great deal of risk; yes, you could become a billionaire—but far more likely, you could become bankrupt.

This is a deeply perverse result: The careers that our culture most glorifies, the ones that we inspire people to dream about, are precisely those that are the most likely to result in financial ruin.

Realizing this changes your perspective on a lot of things. For instance, there is a common lament that teachers aren’t paid the way professional athletes are. I for one am extremely grateful that this is the case. If teachers were paid like athletes, yes, 0.1% would be millionaires, but only 4.9% would make a decent living, and the remaining 95% would be utterly broke. Indeed, this is precisely what might happen if MOOCs really take off, and a handful of superstar teachers are able to produce all the content while the vast majority of teaching mostly amounts to showing someone else’s slideshows. Teachers are much better off in a world where they almost all make a decent living even though none of them ever get spectacularly rich. (Are many teachers still underpaid? Sure. How do I know this? Because there are teacher shortages. A chronic shortage of something is a surefire sign that its price is too low.) And clearly the idea that we could make all teachers millionaires is just ludicrous: Do you want to pay $1 million a year for your child’s education?

Is there a way that we could change this perverse pattern? Could we somehow make it feel more inspiring to choose a career that isn’t so risky? Well, I doubt we’ll ever get children to dream of being accountants or middle managers. But there are a wide range of careers that are fulfilling and meaningful while still making a decent living—like, well, teaching. Even working in creative arts can be like this: While very few authors are millionaires, the median income for an author is quite respectable. (On the other hand there’s some survivor bias here: We don’t count you as an author if you can’t get published at all.) Software engineers are generally quite satisfied with their jobs, and they manage to get quite high incomes with low risk. I think the real answer here is to spend less time glorifying obscene hoards of wealth and more time celebrating lives that are rich and meaningful.

I don’t know if Jeff Bezos is truly happy. But I do know that you and I are more likely to be happy if instead of trying to emulate him, we focus on making our own lives meaningful.

Billionaires bear the burden of proof

2019-09-152019-09-15 pnrj core principles, ethics, inequality, public policy billionaires, Elizabeth Warren, gold, Great Pyramid, history, Jeff Bezos, Jonas Salk, Lord of the Rings, Norman Borlaug, scale, The Hobbit

Sep 15 JDN 2458743

A king sits atop a golden throne, surrounded by a thousand stacks of gold coins six feet high. A hundred starving peasants beseech him for just one gold coin each, so that they might buy enough food to eat and clothes for the winter. The king responds: “How dare you take my hard-earned money!”

This is essentially the world we live in today. I really cannot emphasize enough how astonishingly, horrifically, mind-bogglingly rich billionares are. I am writing this sentence at 13:00 PDT on September 8, 2019. A thousand seconds ago was 12:43, about when I started this post. A million seconds ago was Wednesday, August 28. A billion seconds ago was 1987. I will be a billion seconds old this October.

Jeff Bezos has $170 billion. 170 billion seconds ago was a thousand years before the construction of the Great Pyramid. To get as much money as he has gaining one dollar per second (that’s $3600 an hour!), Jeff Bezos would have had to work for as long as human civilization has existed.

At a more sensible wage like $30 per hour (still better than most people get), how long would it take to amass $170 billion? Oh, just about 600,000 years—or about twice the length of time that Homo sapiens has existed on Earth.

How does this compare to my fictional king with a thousand stacks of gold? A typical gold coin is worth about $500, depending on its age and condition. Coins are about 2 millimeters thick. So a thousand stacks, each 2 meters high, would be about $500*1000*1000 = $500 million. This king isn’t even a billionaire! Jeff Bezos has three hundred times as much as him.

Coins are about 30 millimeters in diameter, so assuming they are packed in neat rows, these thousand stacks of gold coins would fill a square about 0.9 meters to a side—in our silly Imperial units, that’s 3 feet wide, 3 feet deep, 6 feet tall. If Jeff Bezo’s stock portfolio were liquidated into gold coins (which would require about 2% of the world’s entire gold supply and surely tank the market), the neat rows of coins stacked a thousand high would fill a square over 16 meters to a side—that’s a 50-foot-wide block of gold coins. Smaug’s hoard in The Hobbit was probably about the same amount of money as what Jeff Bezos has.

And yet, somehow there are still people who believe that he deserves this money, that he earned it, that to take even a fraction of it away would be a crime tantamount to theft or even slavery.

Their arguments can be quite seductive: How would you feel about the government taking your hard-earned money? Entrepreneurs are brilliant, dedicated, hard-working people; why shouldn’t they be rewarded? What crime do CEOs commit by selling products at low prices?

The way to cut through these arguments is to never lose sight of the numbers. In defense of a man who had $5 million or even $20 million, such an argument might make sense. I can imagine how someone could contribute enough to humanity to legitimately deserve $20 million. I can understand how a talented person might work hard enough to earn $5 million. But it’s simply not possible for any human being to be so brilliant, so dedicated, so hard-working, or make such a contribution to the world, that they deserve to have more dollars than there have been seconds since the Great Pyramid.

It’s not necessary to find specific unethical behaviors that brought a billionaire to where he (and yes, it’s nearly always he) is. They are generally there to be found: At best, one becomes a billionaire by sheer luck. Typically, one becomes a billionaire by exerting monopoly power. At worst, one can become a billionaire by ruthless exploitation or even mass murder. But it’s not our responsibility to point out a specific crime for every specific billionaire.

The burden of proof is on billionaires: Explain how you can possibly deserve that much money.

It’s not enough to point to some good things you did, or emphasize what a bold innovator you are: You need to explain what you did that was so good that it deserves to be rewarded with Smaug-level hoards of wealth. Did you save the world from a catastrophic plague? Did you end world hunger? Did you personally prevent a global nuclear war? I could almost see the case for Norman Borlaug or Jonas Salk earning a billion dollars (neither did, by the way). But Jeff Bezos? You didn’t save the world. You made a company that sells things cheaply and ships them quickly. Get over yourself.

Where exactly do we draw that line? That’s a fair question. $20 million? $100 million? $500 million? Maybe there shouldn’t even be a hard cap. There are many other approaches we could take to reducing this staggering inequality. Previously I have proposed a tax system that gets continuously more progressive forever, as well as a CEO compensation cap based on the pay of the lowliest employees. We could impose a wealth tax, as Elizabeth Warren has proposed. Or we could simply raise the top marginal rate on income tax to something more like what it was in the 1960s. Or as Republicans today would call it, radical socialism.

“Robots can’t take your job if you’re already retired.”

2019-07-072019-06-30 pnrj futurism, inequality automation, basic income, inequality, Jeff Bezos, redistribution, robots, wealth

July 7 JDN 2458672

There is a billboard on I-405 near where I live, put up by some financial advisor company, with that slogan on it: “Robots can’t take your job if you’re already retired.”

First, let me say this: Don’t hire a financial advisor firm; you really don’t need one. 90% of actively-managed funds perform worse than simple index funds. Buy all the stocks and let them sit. You won’t be able to retire sooner because you paid someone else to do the same thing you could have done yourself.

Yet, there is some wisdom in this statement: The best answer to technological unemployment is to make it so people don’t need to be employed. As an individual, all you could really do there is try to save up and retire early. But as a society, there is a lot more we could do.

The goal should essentially to make everyone retired, or if not everyone, then whatever portion of the population has been displaced by automation. A pension for everyone sounds a lot like a basic income.

People are strangely averse to redistribution of wealth as such (perhaps because they don’t know, or don’t want to think about, how much of our existing wealth was gained by force?), so we may not want to call our basic income a basic income.

Instead, we will call it capital income. People seem astonishingly comfortable with Jeff Bezos making more income in a minute than his median employee makes in a year, as long as it’s capital income instead of “welfare” or “redistribution of wealth”.

The basic income will instead be called something like the Perpetual Dividend of the United States, the dividends each US citizen receives for being a shareholder in the United States of America. I know this kind of terminology works, because the Permanent Fund Dividend in Alaska is a successful and enormously popular basic income. Even conservatives in Alaska dare not suggest eliminating the PFD.
And in fact it could literally be capital income: While public ownership of factories generally does not go well (see: the entire history of socialism and communism), the most sensible way to raise revenue for this program would be to tax income gained by owners of robotic factories, which, even if on the books as salary or stock options or whatever, is at its core capital income. If we wanted to make that connection even more transparent, we could tax in the form of non-voting shares in corporations, so that instead of paying a conventional corporate tax, corporations simply had to pay a portion of their profits directly to the public fund.

I’m not quite sure why people are so much more uncomfortable with redistribution of wealth than they are with the staggering levels of wealth inequality that make it so obviously necessary. Maybe it’s the feeling of “robbing Peter to pay Paul”, or “running out of other people’s money”? But obviously a basic income won’t just be free money from nowhere. We would be collecting it in taxes, the same way we fund all other government spending. Even printing money would mean paying in the form of inflation (and we definitely should not print enough money to cover a whole basic income!)

I think it may simply be that people aren’t cognizant enough of the magnitude of wealth inequality. I’m hoping that my posts on the extremes of wealth and poverty might help a bit with that. The richest people on Earth make about $10 billion per year—that’s $10,000,000,000—simply for owning things. The poorest people on Earth struggle to survive on less than $500 per year—often working constantly throughout their waking hours. Even if we believe that billionaires work harder (obviously false) or contribute more to society (certainly debatable) than other people, do we really believe that some people deserve to make 20 million times as much as others? It’s one thing to think that being a successful entrepreneur should make you rich. It’s another to believe that it should make you so rich you could buy a house for every homeless person in America.
Automation is already making this inequality worse, and there is reason to think it will continue to do so. In our current system, when the owner of a corporation automates production, he then gets to claim all the output from the robots, where previously he had to pay wages to the workers—and that’s why he does the automation, because it makes him more profit. Even if overall productivity increases, the fruits of that new production always get concentrated at the top. Unless we can find a way to change that system, we’re going to need to redistribute some of that wealth.

But if we have to call it something else, so be it. Let’s all be shareholders in America.

Just how poor is poor?

2019-06-022019-05-24 pnrj core principles, current events, development economics, ethics, inequality, public policy Congo, dehydration, disease, extreme poverty, inequality, Jeff Bezos, malnutrition, poverty, smartphones, United Nations, United States, World Bank

June 2 JDN 2458637

In last week’s post I told you about the richest of the rich, the billionaires with ten, eleven, or even twelve-figure net wealth. My concern about them is only indirect: I care that we have concentrated so many of the resources of our society into this handful of people instead of spreading it around where it would do more good. But it is not inherently bad for billionaires to exist; all other things equal, people having more wealth is good.

Today my topic is the poorest of the poor. Their status is inherently bad. No one deserves it, and while for much of history we may have been powerless to prevent it, we are no longer. We could help these people—quite substantially quite cheaply, as you’ll see—and we are simply choosing not to. Perhaps you as an individual are not making this choice; perhaps, like me, you vote for candidates who support international aid and donate to top-rated international charities. But as a society, we are making this choice. Voters in the First World could all agree—or even 51% agree—that this problem really should be fixed, and we could fix it.

If asked, most people would say they care about world hunger, but either they are deeply ignorant about the solutions we now have availble to us, or they can’t really care about world hunger, or they would have voted for politicians who were committed to actually implementing the spending necessary to fix it. Maybe people would prefer to fix world hunger as long as it didn’t cost them a cent; but ask them to pay even a little bit, and suddenly they’re not so sure.

At current prices, the official UN threshold for “extreme poverty” is $1.90 in real consumption per person per day. I want to be absolutely clear about this: This is adjusted for inflation and local purchasing power. They account for all consumption, including hunting, fishing, gathering, and goods made at home or obtained through bartering. This is not an artifact of failing to adjust for prices or not including goods that aren’t bought with money. These people really do live on less than $700 per year.

Shockingly, they are not all in Third World countries. While the majority of what we call “poverty” in the United States is well above the standard of living of UN “extreme poverty”, there are exceptions to this; th ere are about 5 million people in the US who are genuinely so poor that they are accurately categorized as at or near that $1.90 per day threshold.

This is such a shocking and horrifying truth that many people will try to deny it, as at least one libertarian think-tank did in a propagandistic screed. No, the UN isn’t lying; it’s really that bad. Extreme poverty in the US could be fixed so quickly, so easily that the fact that it remains in place can only be called an atrocity. Change a few numbers in the IRS code, work out a payment distribution system to reach people without bank accounts using cash or mobile payments, and by the end of the year you would have ended extreme poverty in the United States with no more than a few billion dollars diverted—which is to say, an amount that Jeff Bezos himself could afford to pay, or an amount that could be raised by a single percentage point of capital gains tax applied to billionaires only.
Even so, life is probably better for a homeless person on the street in New York City than it is for a child with malaria whose parents died in civil war in Congo. The New Yorker has access to clean water via drinking fountains, basic sanitation via public toilets (particularly in government buildings, since private businesses often specifically try to exclude the homeless), and basic nutrition via food banks and soup kitchens. The Congolese child has none of these things.

Life for the very poorest is a constant struggle for survival, against disease, malnutrition, dehydration, and parasites. Forget having a refrigerator or a microwave (as most of the poor in the US do, and rightly so—these things are really cheap here); they often have little clothing and no reliable shelter. The idea of going to a school or seeing a doctor sounds like a pipe dream. Surprisingly, there is a good chance that they or someone they know has a smartphone; if so it is likely their most prized possession. Though in Congo in particular, smartphones are relatively rare, which is ironic because the most critical raw material for smartphones—tantalum—is quite prevalent in Congo and a major source of conflict there.

Such a hard life is also typically a short one. The average life expectancy in Congo is less than 65 years. This is mainly due to the fact that almost 15% of children will die before the age of five, though fortunately infant and child mortality in Congo is rapidly declining (though that means it used to be worse than this!).

A disease that is merely inconvenient in a rich country is often fatal in a poor one; malaria is the classic example of this. Malaria remains the cause of over one million deaths per year, but essentially no one dies of malaria in First World countries. It can be treated with quinine, which costs no more than $3 per pill. But when your total consumption is $1.50 per day, a $3 pill is still prohibitively expensive. While in rich countries antibiotic-resistant tuberculosis is a real danger, for the world’s poorest people it doesn’t much matter if the bacteria are resistant to antibiotics, because nobody can afford antibiotics.

What could we do to save these people? A great deal, as it turns out.

Ending extreme poverty worldwide wouldn’t be as easy as ending it in the United States; there’s no central taxation authority that would let us simply change a few numbers and then start writing checks.
We could implement changes through either official development aid or by supporting specific vetted non-governmental organizations, but each of these options carries drawbacks. Development aid can be embezzled by corrupt governments. NGOs can go bankrupt or have their assets expropriated.

Yet even with such challenges in mind, the total cost to end extreme poverty—not all poverty, but extreme poverty—worldwide is probably less than $200 billion per year. This is not a small sum, but it is well within our means. This is less than a third of the US military budget (not counting non-DoD military spending!), or about half what the US spends on gasoline.

Frankly I think we could safely divert that $200 billion directly from military spending without losing any national security. 21st century warfare is much less about blowing up targets and much more about winning hearts and minds. Ending world hunger would win an awful lot of hearts and minds, methinks. Obviously we can’t eliminate all military spending; those first two or three aircraft carrier battle groups really are keeping us and our allies safer. Did we really need eleven?

But all right, suppose we did need to raise additional tax revenue to fund this program. How much would taxes have to go up? Let’s say that only First World countries pay, which we can approximate using the GDP of the US and the EU (obviously we could also include Canada and Australia, but we might not want to include some of Eastern Europe, so that roughly balances out). Add up the $19 trillion of European Union GDP and $21 trillion of US GDP together and you get $40 trillion per year; $200 billion is only 0.5% of that. We would only need to raise taxes by half a percentage point to fund this program. Even if we didn’t make the tax progressive (and why wouldn’t we?), a typical family making $60,000 per year would only need to pay an extra $300 per year.

Why aren’t we doing this?

This is a completely serious question. Feel free to read it in an exasperated voice. I honestly would like to know why the world is willing to leave so many people in so much suffering when we could save them for such little cost.

Just how rich is rich?

2019-05-262019-05-16 pnrj core principles, ethics, inequality, public policy Ann Arbor, Bill Gates, billionaires, capital, capital gains, capitalism, GiveDirectly, Gordon Gekko, Jeff Bezos, millionaires, Mitt Romney, poor, Queen Elizabeth, rich, Scandinaviaisbetter, socialism, wealth

May 26 JDN 2458630

I think if there is one single thing I would like more people to know about economics, it is the sheer magnitude of global inequality. Most people seem to have no idea just how rich some people are—and how poor so many others are. They have a vision in their head of what “rich” and “poor” are, and their “rich” is a low-level Wall Street trader making $400,000 a year (the kind of people Gordon Gekko mocks in the film), and “poor” is someone who lives under a bridge in New York City. (They’re both New Yorkers, I guess. New Yorkers seem to be the iconic Americans, which is honestly more representative than you might think—80% of Americans live in urban or suburban areas.)

If we take a global perspective, this is not what “rich” and “poor” truly mean.

In next week’s post I’ll talk about what “poor” means. It’s really appallingly bad. We have to leave the First World in order to find it; many people here are poor, but not that poor. It’s so bad that I think once you really understand it, it can’t but change your whole outlook on the world. But I’m saving that for next week.

This week, I’ll talk about what “rich” really means in today’s world. We needn’t leave the United States, for the top 3 and 6 of the top 10 richest people in the world live here. And they are all White men, by the way, though Carlos Slim and Amancio Ortega are at least Latino.

Going down the list of billionaires ranked by wealth, you have to get down to 15th place before encountering a woman, and it’s really worse than that, because Francoise Bettencourt (15), Alice Walton (17), Jacqueline Mars (33), Yang Huiyan (42), Susan Klatton (46), Laurena Powell-Jobs (54), Abigail Johnson (71), and Iris Fontbona (74) are all heirs. The richest living woman who didn’t simply inherit from her father or husband is actually Gina Rinehart, the 75th richest person in the world. (And note that, while also in some sense an heir, Queen Elizabeth is not on that list; in fact, she’s nowhere near the richest people in the world. She’s not in the top 500.)

You have to get to 20th place before encountering someone non-White (Ma Huateng), and all the way down to 65th before encountering someone not White or East Asian (the Hinduja brothers). Not one of the top 100 richest people is Black.

Just how rich are these people? Well, there’s a meme going around saying that Jeff Bezos could afford to buy every homeless person in the world a house at median market price and still, with just what’s left over, be a multi-billionaire among the top 100 richest people in the world.

And that meme is completely correct. The math checks out.

There are about 554,000 homeless people in the US at any given time.

The median sale price of a currently existing house in the US is about $253,000.

Multiply those two numbers together, and you get $140 billion.

And Jeff Bezos has net wealth of $157 billion.

This means that he would still have $17 billion left after buying all those houses. The 100th richest person in the world has $13 billion, so Jeff Bezos would still be higher than that.

Even $17 billion is enough to spend over $2 million every single day—over $20 per second—and never run out of money as long as the dividends keep paying out.

Jeff Bezos in fact made so much in dividends and capital gains this past quarter that he was taking in as much money as the median Amazon employee’s annual salary—which is more than what I make as a grad student, and only slightly less than the median US individual income—every nine seconds. Yes, you read that correctly: Nine (9) seconds. In the time it took you to read this paragraph, Jeff Bezos probably received more in capital gains than you will make this whole year. And if not (because you’re relatively rich or you read quickly), I’m sure he will have in the time it takes you to read this whole post.

When Mitt Romney ran for President, a great deal was made of his net wealth of over $250 million. This is indeed very rich, richer than anyone really needs or probably deserves. But compared to the world’s richest, this is pocket change. Jeff Bezos gets that much in dividends and capital gains every day. Bill Gates could give away that much every day for a year and still not run out of money. (He doesn’t quite give that much, but he does give a lot.)

I grew up in Ann Arbor, Michigan. Ann Arbor is a medium-sized city of about 120,000 people (230th in the US by population), and relatively well-off (median household income about 16% higher than the US median). Nevertheless, if Jeff Bezos wanted to, he could give every single person in Ann Arbor the equivalent of 30 years of their income—over a million dollars each—and still have enough money left to be among the world’s 100 richest people.

Or suppose instead that all the world’s 500 richest people decided to give away all the money they have above $1 billion—so they’d all still be billionaires, but only barely. That $8.7 trillion they have together, minus the $500 billion they’re keeping, would be $8.2 trillion. In fact, let’s say they keep a little more, just to make sure they all have the same ordering: Give each one an extra $1 million for each point they are in the ranking, so that Jeff Bezos would stay on top at $1 B + 500 ($0.001 B) = $1.5 billion, while Bill Gates in second place would have $1 million less, and so on. That would leave us with still over $8 trillion to give away.

How far could that $8 trillion go? Well, suppose we divided it evenly between all 328 million people in the United States. How much would each person receive? Oh, just about $24,000—basically my annual income.

Or suppose instead we spread it out over the entire world: Every single man, woman, and child on the planet Earth gets an equal share. There are 7.7 billion people in the world, so by spreading out $8 trillion between them, each one would get over $1000. For you or I that’s a big enough windfall to feel. For the world’s poorest people, it’s more than they make in several years. It would be life-changing for them. (Actually that’s about what GiveDirectly gives each family—and it is life-changing.)

And let me remind you: This would be leaving them billionaires. They’re just not as much billionaires as before—they only have $1 billion instead of $20 billion or $50 billion or $100 billion. And even $1 billion is obviously enough to live however you want, wherever you want, for the rest of your life, never working another day if you don’t want to. With $1 billion, you can fly in jets (a good one will set you back $20 million), sail in yachts (even a massive 200-footer wouldn’t run much above $200 million), and eat filet mignon at every meal (in fact, at $25 per pound, you can serve it to yourself and a hundred of your friends without breaking a sweat). You can decorate your bedroom with original Jackson Pollock paintings (at $200 million, his most expensive painting is only 20% of your wealth) and bathe in bottles of Dom Perignon (at $400 per liter, a 200-liter bath would cost you about $80,000—even every day that’s only $30 million a year, or maybe half to a third of your capital income). Remember, this is all feasible at just $1 billion—and Jeff Bezos has over a hundred times that. There is no real lifestyle improvement that happens between $1 billion and $157 billion; it’s purely a matter of status and power.

Taking enough to make them mere millionaires would give us another $0.5 trillion to spend (about the GDP of Sweden, one-fourth the GDP of Canada, or 70% of the US military budget).

Do you think maybe these people have too much money?

I’m not saying that we should confiscate all private property. I’m not saying that we should collectivize all industry. I believe in free markets and private enterprise. People should be able to get rich by inventing things and starting businesses.

But should they be able to get that rich? So rich that one man could pay off every mortgage in a whole major city? So rich that the CEO of a company makes what his employees make in a year in less than a minute? So rich that 500 people—enough to fill a large lecture hall—own enough wealth that if it were spread out evenly they could give $1000 to every single person in the world?

If Jeff Bezos had $1.5 million, I’d say he absolutely earned it. Some high-level programmers at Amazon have that much, and they absolutely earned it. If he had $15 million, I’d think maybe he could deserve that, given his contribution to the world. If he had $150 million, I’d find it hard to believe that anyone could really deserve that much, but if it’s part of what we need to make capitalism work, I could live with that.

But Jeff Bezos doesn’t have $1.5 million. He doesn’t have $15 million. He doesn’t have $150 million. He doesn’t have $1.5 billion. He doesn’t even have $15 billion. He has $150 billion. He has over a thousand times the level of wealth at which I was already having to doubt whether any human being could possibly deserve so much money—and once it gets that big, it basically just keeps growing. A stock market crash might drop it down temporarily, but it would come back in a few years.

And it’s not like there’s nothing we could do to spread this wealth around. Some fairly simple changes in how we tax dividends and capital gains would be enough to get a lot of it, and a wealth tax like the one Elizabeth Warren has proposed would help a great deal as well. At the rates people have seriously proposed, these taxes would only really stop their wealth from growing; it wouldn’t meaningfully shrink it.

That could be combined with policy changes about compensation for corporate executives, particularly with regard to stock options, to make it harder to extract such a large proportion of a huge multinational corporation’s wealth into a single individual. We could impose a cap on the ratio between median employee salary (including the entire supply chain!) and total executive compensation (including dividends and capital gains!), say 100 to 1. (Making in 9 seconds what his employees make in a year, Jeff Bezos is currently operating at a ratio of over 3 million to 1.) If you exceed the cap, the remainder is taxed at 100%. This would mean that as a CEO you can still make $100 million a year, but only if your median employee makes $1 million. If your median employee makes $30,000, you’d better keep your own compensation under $3 million, because we’re gonna take the rest.

Is this socialism? I guess maybe it’s democratic socialism, the high-tax, high-spend #ScandinaviaIsBetter welfare state. But it would not be an end to free markets or free enterprise. We’re not collectivizing any industries, let alone putting anyone in guillotines. You could still start a business and make millions or even hundreds of millions of dollars; you’d simply be expected to share that wealth with your employees and our society as a whole, instead of hoarding it all for yourself.

Sympathy for the incel

2018-05-062018-04-29 pnrj current events, ethics, inequality, personal, public policy Culture, Donald Trump, human rights, incel, Islam, Jeff Bezos, Lawyers Guns & Money, Less Wrong, LGBT, masculinity, misogyny, polyamory, poverty, prostitution, psychotherapy, Robert Nozick, Robin Hanson, sex, social norms, taxation, terrorism, Toronto

Post 237: May 6 JDN 2458245

If you’ve been following the news surrounding the recent terrorist attack in Toronto, you may have encountered the word “incel” for the first time via articles in NPR, Vox, USA Today, or other sources linking the attack to the incel community.

If this was indeed your first exposure to the concept of “incel”, I think you are getting a distorted picture of their community, which is actually a surprisingly large Internet subculture. Finding out about incel this way would be like finding out about Islam from 9/11. (Actually, I’m fairly sure a lot of Americans did learn that way, which is awful.) The incel community is remarkably large one—hundreds of thousands of members at least, and quite likely millions.

While a large proportion subscribe to a toxic and misogynistic ideology, a similarly large proportion do not; while the ideology has contributed to terrorism and other violence, the vast majority of members of the community are not violent.

Note that the latter sentence is also entirely true of Islam. So if you are sympathetic toward Muslims and want to protect them from abuse and misunderstanding, I maintain that you should want to do the same for incels, and for basically the same reasons.

I want to make something abundantly clear at the outset:

This attack was terrorism. I am in no way excusing or defending the use of terrorism. Once someone crosses the line and starts attacking random civilians, I don’t care what their grievances were; the best response to their behavior involves snipers on rooftops. I frankly don’t even understand the risks police are willing to take in order to capture these people alive—especially considering how trigger-happy they are when it comes to random Black men. If you start shooting (or bombing, or crashing vehicles into) civilians, the police should shoot you. It’s that simple.

I do not want to evoke sympathy for incel-motivated terrorism. I want to evoke sympathy for the hundreds of thousands of incels who would never support terrorism and are now being publicly demonized.

I also want to make it clear that I am not throwing in my hat with the likes of Robin Hanson (who is also well-known as a behavioral economist, blogger, science fiction fan, Less Wrong devotee, and techno-utopian—so I feel a particular need to clarify my differences with him) when he defends something he calls in purposefully cold language “redistribution of sex” (that one is from right after the attack, but he has done this before, in previous blog posts).

Hanson has drunk Robert Nozick‘s Kool-Aid, and thinks that redistribution of wealth via taxation is morally equivalent to theft or even slavery. He is fond of making comparisons between redistribution of wealth and other forms of “redistribution” that obviously would be tantamount to theft and slavery, and asking “What’s the difference?” when in fact the difference is glaringly obvious to everyone but him. He is also fond of saying that “inequality between households within a nation” is a small portion of inequality, and then wondering aloud why we make such a big deal out of it. The answer here is also quite obvious: First of all, it’s not that small a portion of inequality—it’s a third of global income inequality by most measures, it’s increasing while across-nation inequality is decreasing, and the absolute magnitude of within-nation inequality is staggering: there are households with incomes over one million times that of other households within the same nation. (Where are the people who have had sex one hundred billion times, let alone the ones who had sex forty billion times in one year? Because here’s the man who has one hundred billion dollars and made almost $40 billion in one year.) Second, within-nation inequality is extremely simple to fix by public policy; just change a few numbers in the tax code—in fact, just change them back to what they were in the 1950s. Cross-national inequality is much more complicated (though I believe it can be solved, eventually) and some forms of what he’s calling “inequality” (like “inequality across periods of human history” or “inequality of innate talent”) don’t seem amenable to correction under any conceivable circumstances.

Hanson has lots of just-so stories about the evolutionary psychology of why “we don’t care” about cross-national inequality (gee, I thought maybe devoting my career to it was a pretty good signal otherwise?) or inequality in access to sex (which is thousands of times smaller than income inequality), but no clear policy suggestions for how these other forms of inequality could be in any way addressed. This whole idea of “redistribution of sex”; what does that mean, exactly? Legalized or even subsidized prostitution or sex robots would be one thing; I can see pros and cons there at least. But without clarification, it sounds like he’s endorsing the most extremist misogynist incels who think that women should be rightfully compelled to have sex with sexually frustrated men—which would be quite literally state-sanctioned rape. I think really Hanson isn’t all that interested in incels, and just wants to make fun of silly “socialists” who would dare suppose that maybe Jeff Bezos doesn’t need his 120 billion dollars as badly as some of the starving children in Africa could benefit from them, or that maybe having a tax system similar to Sweden or Denmark (which consistently rate as some of the happiest, most prosperous nations on Earth) sounds like a good idea. He takes things that are obviously much worse than redistributive taxation, and compares them to redistributive taxation to make taxation seem worse than it is.

No, I do not support “redistribution of sex”. I might be able to support legalized prostitution, but I’m concerned about the empirical data suggesting that legalized prostitution correlates with increased human sex trafficking. I think I would also support legalized sex robots, but for reasons that will become clear shortly, I strongly suspect they would do little to solve the problem, even if they weren’t ridiculously expensive. Beyond that, I’ve said enough about Hanson; Lawyers, Guns & Money nicely skewers Hanson’s argument, so I’ll not bother with it any further.
Instead, I want to talk about the average incel, one of hundreds of thousands if not millions of men who feels cast aside by society because he is socially awkward and can’t get laid. I want to talk about him because I used to be very much like him (though I never specifically identified as “incel”), and I want to talk about him because I think that he is genuinely suffering and needs help.

There is a moderate wing of the incel community, just as there is a moderate wing of the Muslim community. The moderate wing of incels is represented by sites like Love-Shy.com that try to reach out to people (mostly, but not exclusively young heterosexual men) who are lonely and sexually frustrated and often suffering from social anxiety or other mood disorders. Though they can be casually sexist (particularly when it comes to stereotypes about differences between men and women), they are not virulently misogynistic and they would never support violence. Moreover, they provide a valuable service in offering social support to men who otherwise feel ostracized by society. I disagree with a lot of things these groups say, but they are providing valuable benefits to their members and aren’t hurting anyone else. Taking out your anger against incel terrorists on Love-Shy.com is like painting graffiti on a mosque in response to 9/11 (which, of course, people did).

To some extent, I can even understand the more misogynistic (but still non-violent) wings of the incel community. I don’t want to defend their misogyny, but I can sort of understand where it might come from.

You see, men in our society (and most societies) are taught from a very young age that their moral worth as human beings is based primarily on one thing in particular: Sexual prowess. If you are having a lot of sex with a lot of women, you are a good and worthy man. If you are not, you are broken and defective. (Donald Trump has clearly internalized this narrative quite thoroughly—as have a shockingly large number of his supporters.)

This narrative is so strong and so universal, in fact, that I wouldn’t be surprised if it has a genetic component. It actually makes sense as a matter of evolutionary psychology than males would evolve to think this way; in an evolutionary sense it’s true that a male’s ultimate worth—that is, fitness, the one thing natural selection cares about—is defined by mating with a maximal number of females. But even if it has a genetic component, there is enough variation in this belief that I am confident that social norms can exaggerate or suppress it. One thing I can’t stand about popular accounts of evolutionary psychology is how they leap from “plausible evolutionary account” to “obviously genetic trait” all the way to “therefore impossible to change or compensate for”. My myopia and astigmatism are absolutely genetic; we can point to some of the specific genes. And yet my glasses compensate for them perfectly, and for a bit more money I could instead get LASIK surgery that would correct them permanently. Never think for a moment that “genetic” implies “immutable”.

Because of this powerful narrative, men who are sexually frustrated get treated like garbage by other men and even women. They feel ostracized and degraded. Often, they even feel worthless. If your worth as a human being is defined by how many women you have sex with, and you aren’t having sex with any, it follows that your worth is zero. No wonder, then, that so many become overcome with despair.
The incel community provides an opportunity to escape that despair. If you are told that you are not defective, but instead there is something wrong with society that keeps you down, you no longer have to feel worthless. It’s not that you don’t deserve to have sex, it’s that you’ve been denied what you deserve. When the only other narrative you’ve been given is that you are broken and worthless, I can see why “society is screwing you over” is an appealing counter-narrative. Indeed, it’s not even that far off from the truth.

The moderate wing of the incel community even offers some constructive solutions: They offer support to help men improve themselves, overcome their own social anxiety, and ultimately build fulfilling sexual relationships.

The extremist wing gets this all wrong: Instead of blaming the narrative that sex equals worth, they blame women—often, all women—for somehow colluding to deny them access to the sex they so justly deserve. They often link themselves to the “pick-up artist” community who try to manipulate women into having sex.

And then in the most extreme cases, they may even decide to turn their anger into violence.

But really I don’t think most of these men actually want sex at all, which is part of why I don’t think sex robots would be particularly effective.

Rather, to clarify: They want sex, as most of us do—but that’s not what they need. A simple lack of sex can be compensated reasonably well by pornography and masturbation. (Let me state this outright: Pornography and masturbation are fundamental human rights. Porn is free speech, and masturbation is part of the fundamental right of bodily autonomy. The fact that increased access to porn reduces incidence of sexual assault is nice, but secondary; porn is freedom.) Obviously it would be more satisfying to have a real sexual relationship, but with such substitutes available, a mere lack of sex does not cause suffering.

The need that these men are feeling is companionship. It is love. It is understanding. These are things that can’t be replaced, even partially, by sex robots or Internet porn.

Why do they conflate the two? Again, because society has taught them to do so. This one is clearly cultural, as it varies quite considerably between nations; it’s not nearly as bad in Southern Europe for example.
In American society (and many, but not all others), men are taught three things: First, expression of any emotion except for possibly anger, and especially expression of affection, is inherently erotic. Second, emotional vulnerability jeopardizes masculinity. Third, erotic expression must be only between men and women in a heterosexual relationship.

In principle, it might be enough to simply drop the third proposition: This is essentially what happens in the LGBT community. Gay men still generally suffer from the suspicion that all emotional expression is erotic, but have long-since abandoned their fears of expressing eroticism with other men. Often they’ve also given up on trying to sustain norms of masculinity as well. So gay men can hug each other and cry in front of each other, for example, without breaking norms within the LGBT community; the sexual subtext is often still there, but it’s considered unproblematic. (Gay men typically aren’t even as concerned about sexual infidelity as straight men; over 40% of gay couples are to some degree polyamorous, compared to 5% of straight couples.) It may also be seen as a loss of masculinity, but this too is considered unproblematic in most cases. There is a notable exception, which is the substantial segment of gay men who pride themselves upon hypermasculinity (generally abbreviated “masc”); and indeed, within that subcommunity you often see a lot of the same toxic masculinity norms that are found in the society as large.

That is also what happened in Classical Greece and Rome, I think: These societies were certainly virulently misogynistic in their own way, but their willingness to accept erotic expression between men opened them to accepting certain kinds of emotional expression between men as well, as long as it was not perceived as a threat to masculinity per se.

But when all three of those norms are in place, men find that the only emotional outlet they are even permitted to have while remaining within socially normative masculinity is a woman who is a romantic partner. Family members are allowed certain minimal types of affection—you can hug your mom, as long as you don’t seem too eager—but there is only one person in the world that you are allowed to express genuine emotional vulnerability toward, and that is your girlfriend. If you don’t have one? Get one. If you can’t get one? Well, sorry, pal, you’re just out of luck. Deal with it, or you’re not a real man.

But really what I’d like to get rid of is the first two propositions: Emotional expression should not be considered inherently sexual. Expressing emotional vulnerability should not be taken as a capitulation of your masculinity—and if I really had my druthers, the whole idea of “masculinity” would disappear or become irrelevant. This is the way that society is actually holding incels down: Not by denying them access to sex—the right to refuse sex is also a fundamental human right—but by denying them access to emotional expression and treating them like garbage because they are unable to have sex.

My sense is that what most incels are really feeling is not a dearth of sexual expression; it’s a dearth of emotional expression. But precisely because social norms have forced them into getting the two from the same place, they have conflated them. Further evidence in favor of this proposition? A substantial proportion of men who hire prostitutes spend a lot of the time they paid for simply talking.

I think what most of these men really need is psychotherapy. I’m not saying that to disparage them; I myself am a regular consumer of psychotherapy, which is one of the most cost-effective medical interventions known to humanity. I feel a need to clarify this because there is so much stigma on mental illness that saying someone is mentally ill and needs therapy can be taken as an insult; but I literally mean that a lot of these men are mentally ill and need therapy. Many of them exhibit significant signs of social anxiety, depression, or bipolar disorder.

Even for those who aren’t outright mentally ill, psychotherapy might be able to help them sort out some of these toxic narratives they’ve been fed by society, get them to think a little more carefully about what it means to be a good man and whether the “man” part is even so important. A good therapist could tease out the fabric of their tangled cognition and point out that when they say they want sex, it really sounds like they want self-worth, and when they say they want a girlfriend it really sounds like they want someone to talk to.

Such a solution won’t work on everyone, and it won’t work overnight on anyone. But the incel community did not emerge from a vacuum; it was catalyzed by a great deal of genuine suffering. Remove some of that suffering, and we might just undermine the most dangerous parts of the incel community and prevent at least some future violence.

No one owes sex to anyone. But maybe we do, as a society, owe these men a little more sympathy?

Is Equal Unfair?

2016-04-132017-10-08 pnrj book reviews, core principles, ethics, inequality, public policy Andrew Carnegie, antitrust, Ayn Rand, Bill Gates, book review, Darwin, Einstein, Equal is Unfair, exploitation, HSBC, inequality, Jeff Bezos, John Rawls, Keynes, Khmer Rouge, laissez-faire, Latvia, marginal utility, Mark Zuckerberg, Milton Friedman, minimum wage, monopoly, Naomi Klein, Newton, Nikola Tesla, Peter Singer, progressive taxation, public goods, public policy, Randall Monroe, redistribution, Robert Nozick, Steve Jobs, Steve Wozniack, Stiglitz, taxation, The Economist, wealth, XKCD

JDN 2457492

Much as you are officially a professional when people start paying you for what you do, I think you are officially a book reviewer when people start sending you books for free asking you to review them for publicity. This has now happened to me, with the book Equal Is Unfair by Don Watkins and Yaron Brook. This post is longer than usual, but in order to be fair to the book’s virtues as well as its flaws, I felt a need to explain quite thoroughly.

It’s a very frustrating book, because at times I find myself agreeing quite strongly with the first part of a paragraph, and then reaching the end of that same paragraph and wanting to press my forehead firmly into the desk in front of me. It makes some really good points, and for the most part uses economic statistics reasonably accurately—but then it rides gleefully down a slippery slope fallacy like a waterslide. But I guess that’s what I should have expected; it’s by leaders of the Ayn Rand Institute, and my experience with reading Ayn Rand is similar to that of Randall Monroe (I’m mainly referring to the alt-text, which uses slightly foul language).

As I kept being jostled between “That’s a very good point.”, “Hmm, that’s an interesting perspective.”, and “How can anyone as educated as you believe anything that stupid!?” I realized that there are actually three books here, interleaved:

1. A decent economics text on the downsides of taxation and regulation and the great success of technology and capitalism at raising the standard of living in the United States, which could have been written by just about any mainstream centrist neoclassical economist—I’d say it reads most like John Taylor or Ken Galbraith. My reactions to this book were things like “That’s a very good point.”, and “Sure, but any economist would agree with that.”

2. An interesting philosophical treatise on the meanings of “equality” and “opportunity” and their application to normative economic policy, as well as about the limitations of statistical data in making political and ethical judgments. It could have been written by Robert Nozick (actually I think much of it was based on Robert Nozick). Some of the arguments are convincing, others are not, and many of the conclusions are taken too far; but it’s well within the space of reasonable philosophical arguments. My reactions to this book were things like “Hmm, that’s an interesting perspective.” and “Your argument is valid, but I think I reject the second premise.”

3. A delusional rant of the sort that could only be penned by a True Believer in the One True Gospel of Ayn Rand, about how poor people are lazy moochers, billionaires are world-changing geniuses whose superior talent and great generosity we should all bow down before, and anyone who would dare suggest that perhaps Steve Jobs got lucky or owes something to the rest of society is an authoritarian Communist who hates all achievement and wants to destroy the American Dream. It was this book that gave me reactions like “How can anyone as educated as you believe anything that stupid!?” and “You clearly have no idea what poverty is like, do you?” and “[expletive] you, you narcissistic ingrate!”

Given that the two co-authors are Executive Director and a fellow of the Ayn Rand Institute, I suppose I should really be pleasantly surprised that books 1 and 2 exist, rather than disappointed by book 3.

As evidence of each of the three books interleaved, I offer the following quotations:

Book 1:

“All else being equal, taxes discourage production and prosperity.” (p. 30)

No reasonable economist would disagree. The key is all else being equal—it rarely is.

“For most of human history, our most pressing problem was getting enough food. Now food is abundant and affordable.” (p.84)

Correct! And worth pointing out, especially to anyone who thinks that economic progress is an illusion or we should go back to pre-industrial farming practices—and such people do exist.

“Wealth creation is first and foremost knowledge creation. And this is why you can add to the list of people who have created the modern world, great thinkers: people such as Euclid, Aristotle, Galileo, Newton, Darwin, Einstein, and a relative handful of others.” (p.90, emph. in orig.)

Absolutely right, though as I’ll get to below there’s something rather notable about that list.

“To be sure, there is competition in an economy, but it’s not a zero-sum game in which some have to lose so that others can win—not in the big picture.” (p. 97)

Yes! Precisely! I wish I could explain to more people—on both the Left and the Right, by the way—that economics is nonzero-sum, and that in the long run competitive markets improve the standard of living of society as a whole, not just the people who win that competition.

Book 2:

“Even opportunities that may come to us without effort on our part—affluent parents, valuable personal connections, a good education—require enormous effort to capitalize on.” (p. 66)

This is sometimes true, but clearly doesn’t apply to things like the Waltons’ inherited billions, for which all they had to do was be born in the right family and not waste their money too extravagantly.

“But life is not a game, and achieving equality of initial chances means forcing people to play by different rules.” (p. 79)

This is an interesting point, and one that I think we should acknowledge; we must treat those born rich differently from those born poor, because their unequal starting positions mean that treating them equally from this point forward would lead to a wildly unfair outcome. If my grandfather stole your grandfather’s wealth and passed it on to me, the fair thing to do is not to treat you and I equally from this point forward—it’s to force me to return what was stolen, insofar as that is possible. And even if we suppose that my grandfather earned far vaster wealth than yours, I think a more limited redistribution remains justified simply to put you and I on a level playing field and ensure fair competition and economic efficiency.

“The key error in this argument is that it totally mischaracterizes what it means to earn something. For the egalitarians, the results of our actions don’t merely have to be under our control, but entirely of our own making. […] But there is nothing like that in reality, and so what the egalitarians are ultimately doing is wiping out the very possibility of earning something.” (p. 193)

The way they use “egalitarian” as an insult is a bit grating, but there clearly are some actual egalitarian philosophers whose views are this extreme, such as G.A. Cohen, James Kwak and Peter Singer. I strongly agree that we need to make a principled distinction between gains that are earned and gains that are unearned, such that both sets are nonempty. Yet while Cohen would seem to make “earned” an empty set, Watkins and Brook very nearly make “unearned” empty—you get what you get, and you deserve it. The only exceptions they seem willing to make are outright theft and, what they consider equivalent, taxation. They have no concept of exploitation, excessive market power, or arbitrage—and while they claim they oppose fraud, they seem to think that only government is capable of it.

Book 3:

“What about government handouts (usually referred to as ‘transfer payments’)?” (p. 23)

Because Social Security is totally just a handout—it’s not like you pay into it your whole life or anything.

“No one cares whether the person who fixes his car or performs his brain surgery or applies for a job at his company is male or female, Indian or Pakistani—he wants to know whether they are competent.” (p.61)

Yes they do. We have direct experimental evidence of this.

“The notion that ‘spending drives the economy’ and that rich people spend less than others isn’t a view seriously entertained by economists,[…]” (p. 110)

The New Synthesis is Keynesian! This is what Milton Friedman was talking about when he said, “We’re all Keynesians now.”

“Because mobility statistics don’t distinguish between those who don’t rise and those who can’t, they are useless when it comes to assessing how healthy mobility is.” (p. 119)

So, if Black people have much lower odds of achieving high incomes even controlling for education, we can’t assume that they are disadvantaged or discriminated against; maybe Black people are just lazy or stupid? Is that what you’re saying here? (I think it might be.)

“Payroll taxes alone amount to 15.3 percent of your income; money that is taken from you and handed out to the elderly. This means that you have to spend more than a month and a half each year working without pay in order to fund other people’s retirement and medical care.” (p. 127)

That is not even close to how taxes work. Taxes are not “taken” from money you’d otherwise get—taxation changes prices and the monetary system depends upon taxation.

“People are poor, in the end, because they have not created enough wealth to make themselves prosperous.” (p. 144)

This sentence was so awful that when I showed it to my boyfriend, he assumed it must be out of context. When I showed him the context, he started swearing the most I’ve heard him swear in a long time, because the context was even worse than it sounds. Yes, this book is literally arguing that the reason people are poor is that they’re just too lazy and stupid to work their way out of poverty.

“No society has fully implemented the egalitarian doctrine, but one came as close as any society can come: Cambodia’s Khmer Rouge.” (p. 207)

Because obviously the problem with the Khmer Rouge was their capital gains taxes. They were just too darn fair, and if they’d been more selfish they would never have committed genocide. (The authors literally appear to believe this.)

So there are my extensive quotations, to show that this really is what the book is saying. Now, a little more summary of the good, the bad, and the ugly.

One good thing is that the authors really do seem to understand fairly well the arguments of their opponents. They quote their opponents extensively, and only a few times did it feel meaningfully out of context. Their use of economic statistics is also fairly good, though occasionally they present misleading numbers or compare two obviously incomparable measures.

One of the core points in Equal is Unfair is quite weak: They argue against the “shared-pie assumption”, which is that we create wealth as a society, and thus the rest of society is owed some portion of the fruits of our efforts. They maintain that this is fundamentally authoritarian and immoral; essentially they believe a totalizing false dichotomy between either absolute laissez-faire or Stalinist Communism.

But the “shared-pie assumption” is not false; we do create wealth as a society. Human cognition is fundamentally social cognition; they said themselves that we depend upon the discoveries of people like Newton and Einstein for our way of life. But it should be obvious we can never pay Einstein back; so instead we must pay forward, to help some child born in the ghetto to rise to become the next Einstein. I agree that we must build a society where opportunity is maximized—and that means, necessarily, redistributing wealth from its current state of absurd and immoral inequality.

I do however agree with another core point, which is that most discussions of inequality rely upon a tacit assumption which is false: They call it the “fixed-pie assumption”.

When you talk about the share of income going to different groups in a population, you have to be careful about the fact that there is not a fixed amount of wealth in a society to be distributed—not a “fixed pie” that we are cutting up and giving around. If it were really true that the rising income share of the top 1% were necessary to maximize the absolute benefits of the bottom 99%, we probably should tolerate that, because the alternative means harming everyone. (In arguing this they quote John Rawls several times with disapprobation, which is baffling because that is exactly what Rawls says.)

Even if that’s true, there is still a case to be made against inequality, because too much wealth in the hands of a few people will give them more power—and unequal power can be dangerous even if wealth is earned, exchanges are uncoerced, and the distribution is optimally efficient. (Watkins and Brook dismiss this contention out of hand, essentially defining beneficent exploitation out of existence.)

Of course, in the real world, there’s no reason to think that the ballooning income share of the top 0.01% in the US is actually associated with improved standard of living for everyone else.

I’ve shown these graphs before, but they bear repeating:

Income shares for the top 1% and especially the top 0.1% and 0.01% have risen dramatically in the last 30 years.

top_income_shares_adjusted

But real median income has only slightly increased during the same period.

US_median_household_income

Thus, mean income has risen much faster than median income.

median_mean

While theoretically it could be that the nature of our productivity technology has shifted in such a way that it suddenly became necessary to heap more and more wealth on the top 1% in order to continue increasing national output, there is actually very little evidence of this. On the contrary, as Joseph Stiglitz (Nobel Laureate, you may recall) has documented, the leading cause of our rising inequality appears to be a dramatic increase in rent-seeking, which is to say corruption, exploitation, and monopoly power. (This probably has something to do with why I found in my master’s thesis that rising top income shares correlate quite strongly with rising levels of corruption.)

Now to be fair, the authors of Equal is Unfair do say that they are opposed to rent-seeking, and would like to see it removed. But they have a very odd concept of what rent-seeking entails, and it basically seems to amount to saying that whatever the government does is rent-seeking, whatever corporations do is fair free-market competition. On page 38 they warn us not to assume that government is good and corporations are bad—but actually it’s much more that they assume that government is bad and corporations are good. (The mainstream opinion appears to be actually that both are bad, and we should replace them both with… er… something.)

They do make some other good points I wish more leftists would appreciate, such as the point that while colonialism and imperialism can damage countries that suffer them and make them poorer, they generally do not benefit the countries that commit them and make them richer. The notion that Europe is rich because of imperialism is simply wrong; Europe is rich because of education, technology, and good governance. Indeed, the greatest surge in Europe’s economic growth occurred as the period of imperialism was winding down—when Europeans realized that they would be better off trying to actually invent and produce things rather than stealing them from others.

Likewise, they rightfully demolish notions of primitivism and anti-globalization that I often see bouncing around from folks like Naomi Klein. But these are book 1 messages; any economist would agree that primitivism is a terrible idea, and very few are opposed to globalization per se.

The end of Equal is Unfair gives a five-part plan for unleashing opportunity in America:

1. Abolish all forms of corporate welfare so that no business can gain unfair advantage.

2. Abolish government barriers to work so that every individual can enjoy the dignity of earned success.

3. Phase out the welfare state so that America can once again become the land of self-reliance.

4. Unleash the power of innovation in education by ending the government monopoly on schooling.

5. Liberate innovators from the regulatory shackles that are strangling them.

Number 1 is hard to disagree with, except that they include literally everything the government does that benefits a corporation as corporate welfare, including things like subsidies for solar power that the world desperately needs (or millions of people will die).

Number 2 sounds really great until you realize that they are including all labor standards, environmental standards and safety regulations as “barriers to work”; because it’s such a barrier for children to not be able to work in a factory where your arm can get cut off, and such a barrier that we’ve eliminated lead from gasoline emissions and thereby cut crime in half.

Number 3 could mean a lot of things; if it means replacing the existing system with a basic income I’m all for it. But in fact it seems to mean removing all social insurance whatsoever. Indeed, Watkins and Brook do not appear to believe in social insurance at all. The whole concept of “less fortunate”, “there but for the grace of God go I” seems to elude them. They have no sense that being fortunate in their own lives gives them some duty to help others who were not; they feel no pang of moral obligation whatsoever to help anyone else who needs help. Indeed, they literally mock the idea that human beings are “all in this together”.

They also don’t even seem to believe in public goods, or somehow imagine that rational self-interest could lead people to pay for public goods without any enforcement whatsoever despite the overwhelming incentives to free-ride. (What if you allow people to freely enter a contract that provides such enforcement mechanisms? Oh, you mean like social democracy?)

Regarding number 4, I’d first like to point out that private schools exist. Moreover, so do charter schools in most states, and in states without charter schools there are usually vouchers parents can use to offset the cost of private schools. So while the government has a monopoly in the market share sense—the vast majority of education in the US is public—it does not actually appear to be enforcing a monopoly in the anti-competitive sense—you can go to private school, it’s just too expensive or not as good. Why, it’s almost as if education is a public good or a natural monopoly.

Number 5 also sounds all right, until you see that they actually seem most opposed to antitrust laws of all things. Why would antitrust laws be the ones that bother you? They are designed to increase competition and lower barriers, and largely succeed in doing so (when they are actually enforced, which is rare of late). If you really want to end barriers to innovation and government-granted monopolies, why is it not patents that draw your ire?

They also seem to have trouble with the difference between handicapping and redistribution—they seem to think that the only way to make outcomes more equal is to bring the top down and leave the bottom where it is, and they often use ridiculous examples like “Should we ban reading to your children, because some people don’t?” But of course no serious egalitarian would suggest such a thing. Education isn’t fungible, so it can’t be redistributed. You can take it away (and sometimes you can add it, e.g. public education, which Watkins and Brooks adamantly oppose); but you can’t simply transfer it from one person to another. Money on the other hand, is by definition fungible—that’s kind of what makes it money, really. So when we take a dollar from a rich person and give it to a poor person, the poor person now has an extra dollar. We’ve not simply lowered; we’ve also raised. (In practice it’s a bit more complicated than that, as redistribution can introduce inefficiencies. So realistically maybe we take $1.00 and give $0.90; that’s still worth doing in a lot of cases.)

If attributes like intelligence were fungible, I think we’d have a very serious moral question on our hands! It is not obvious to me that the world is better off with its current range of intelligence, compared to a world where geniuses had their excess IQ somehow sucked out and transferred to mentally disabled people. Or if you think that the marginal utility of intelligence is increasing, then maybe we should redistribute IQ upward—take it from some mentally disabled children who aren’t really using it for much and add it onto some geniuses to make them super-geniuses. Of course, the whole notion is ridiculous; you can’t do that. But whereas Watkins and Brook seem to think it’s obvious that we shouldn’t even if we could, I don’t find that obvious at all. You didn’t earn your IQ (for the most part); you don’t seem to deserve it in any deep sense; so why should you get to keep it, if the world would be much better off if you didn’t? Why should other people barely be able to feed themselves so I can be good at calculus? At best, maybe I’m free to keep it—but given the stakes, I’m not even sure that would be justifiable. Peter Singer is right about one thing: You’re not free to let a child drown in a lake just to keep your suit from getting wet.

Ultimately, if you really want to understand what’s going on with Equal is Unfair, consider the following sentence, which I find deeply revealing as to the true objectives of these Objectivists:

“Today, meanwhile, although we have far more liberty than our feudal ancestors, there are countless ways in which the government restricts our freedom to produce and trade including minimum wage laws, rent control, occupational licensing laws, tariffs, union shop laws, antitrust laws, government monopolies such as those granted to the post office and education system, subsidies for industries such as agriculture or wind and solar power, eminent domain laws, wealth redistribution via the welfare state, and the progressive income tax.” (p. 114)

Some of these are things no serious economist would disagree with: We should stop subsidizing agriculture and tariffs should be reduced or removed. Many occupational licenses are clearly unnecessary (though this has a very small impact on inequality in real terms—licensing may stop you from becoming a barber, but it’s not what stops you from becoming a CEO). Others are legitimately controversial: Economists are currently quite divided over whether minimum wage is beneficial or harmful (I lean toward beneficial, but I’d prefer a better solution), as well as how to properly regulate unions so that they give workers much-needed bargaining power without giving unions too much power. But a couple of these are totally backward, exactly contrary to what any mainstream economist would say: Antitrust laws need to be enforced more, not eliminated (don’t take it from me; take it from that well-known Marxist rag The Economist). Subsidies for wind and solar power make the economy more efficient, not less—and suspiciously Watkins and Brook omitted the competing subsidies that actually are harmful, namely those to coal and oil.

Moreover, I think it’s very revealing that they included the word progressive when talking about taxation. In what sense does making a tax progressive undermine our freedom? None, so far as I can tell. The presence of a tax undermines freedom—your freedom to spend that money some other way. Making the tax higher undermines freedom—it’s more money you lose control over. But making the tax progressive increases freedom for some and decreases it for others—and since rich people have lower marginal utility of wealth and are generally more free in substantive terms in general, it really makes the most sense that, holding revenue constant, making a tax progressive generally makes your people more free.

But there’s one thing that making taxes progressive does do: It benefits poor people and hurts rich people. And thus the true agenda of Equal is Unfair becomes clear: They aren’t actually interested in maximizing freedom—if they were, they wouldn’t be complaining about occupational licensing and progressive taxation, they’d be outraged by forced labor, mass incarceration, indefinite detention, and the very real loss of substantive freedom that comes from being born into poverty. They wouldn’t want less redistribution, they’d want more efficient and transparent redistribution—a shift from the current hodgepodge welfare state to a basic income system. They would be less concerned about the “freedom” to pollute the air and water with impunity, and more concerned about the freedom to breathe clean air and drink clean water.

No, what they really believe is rich people are better. They believe that billionaires attained their status not by luck or circumstance, not by corruption or ruthlessness, but by the sheer force of their genius. (This is essentially the entire subject of chapter 6, “The Money-Makers and the Money-Appropriators”, and it’s nauseating.) They describe our financial industry as “fundamentally moral and productive” (p.156)—the industry that you may recall stole millions of homes and laundered money for terrorists. They assert that no sane person could believe that Steve Wozniack got lucky—I maintain no sane person could think otherwise. Yes, he was brilliant; yes, he invented good things. But he had to be at the right place at the right time, in a society that supported and educated him and provided him with customers and employees. You didn’t build that.

Indeed, perhaps most baffling is that they themselves seem to admit that the really great innovators, such as Newton, Einstein, and Darwin, were scientists—but scientists are almost never billionaires. Even the common counterexample, Thomas Edison, is largely false; he mainly plagiarized from Nikola Tesla and appropriated the ideas of his employees. Newton, Einstein and Darwin were all at least upper-middle class (as was Tesla, by the way—he did not die poor as is sometimes portrayed), but they weren’t spectacularly mind-bogglingly rich the way that Steve Jobs and Andrew Carnegie were and Bill Gates and Jeff Bezos are.

Some people clearly have more talent than others, and some people clearly work harder than others, and some people clearly produce more than others. But I just can’t wrap my head around the idea that a single man can work so hard, be so talented, produce so much that he can deserve to have as much wealth as a nation of millions of people produces in a year. Yet, Mark Zuckerberg has that much wealth. Remind me again what he did? Did he cure a disease that was killing millions? Did he colonize another planet? Did he discover a fundamental law of nature? Oh yes, he made a piece of software that’s particularly convenient for talking to your friends. Clearly that is worth the GDP of Latvia. Not that silly Darwin fellow, who only uncovered the fundamental laws of life itself.

In the grand tradition of reducing complex systems to simple numerical values, I give book 1 a 7/10, book 2 a 5/10, and book 3 a 2/10. Equal is Unfair is about 25% book 1, 25% book 2, and 50% book 3, so altogether their final score is, drumroll please: 4/10. Maybe read the first half, I guess? That’s where most of the good stuff is.

Free trade is not the problem. Billionaires are the problem.

2016-03-192017-10-08 pnrj development economics, ethics, inequality, public policy Airbnb, Bernie Sanders, Bill Gates, CEO pay, China, confiscation, Donald Trump, exports, Ferrari, free trade, gains from trade, GDP, globalization, household income, immigration, imports, income, inequality, Jeff Bezos, Larry Page, median income, Raw Deal, Robert Reich, TPP, trade, trade deficit, trade policy, TRIPS accord, Uber, wealth

JDN 2457468

One thing that really stuck out to me about the analysis of the outcome of the Michigan primary elections was that people kept talking about trade; when Bernie Sanders, a center-left social democrat, and Donald Trump, a far-right populist nationalist (and maybe even crypto-fascist) are the winners, something strange is at work. The one common element that the two victors seemed to have was their opposition to free trade agreements. And while people give many reasons to support Trump, many quite baffling, his staunch protectionism is one of the stronger voices. While Sanders is not as staunchly protectionist, he definitely has opposed many free-trade agreements.

Most of the American middle class feels as though they are running in place, working as hard as they can to stay where they are and never moving forward. The income statistics back them up on this; as you can see in this graph from FRED, real median household income in the US is actually lower than it was a decade ago; it never really did recover from the Second Depression:

US_median_household_income

As I talk to people about why they think this is, one of the biggest reasons they always give is some variant of “We keep sending our jobs to China.” There is this deep-seated intuition most Americans seem to have that the degradation of the middle class is the result of trade globalization. Bernie Sanders speaks about ending this by changes in tax policy and stronger labor regulations (which actually makes some sense); Donald Trump speaks of ending this by keeping out all those dirty foreigners (which appeals to the worst in us); but ultimately, they both are working from the narrative that free trade is the problem.

But free trade is not the problem. Like almost all economists, I support free trade. Free trade agreements might be part of the problem—but that’s because a lot of free trade agreements aren’t really about free trade. Many trade agreements, especially the infamous TRIPS accord, were primarily about restricting trade—specifically on “intellectual property” goods like patented drugs and copyrighted books. They were about expanding the monopoly power of corporations over their products so that the monopoly applied not just to the United States, but indeed to the whole world. This is the opposite of free trade and everything that it stands for. The TPP was a mixed bag, with some genuinely free-trade provisions (removing tariffs on imported cars) and some awful anti-trade provisions (making patents on drugs even stronger).

Every product we buy as an import is another product we sell as an export. This is not quite true, as the US does run a trade deficit; but our trade deficit is small compared to our overall volume of trade (which is ludicrously huge). Total US exports for 2014, the last full year we’ve fully tabulated, were $3.306 trillion—roughly the entire budget of the federal government. Total US imports for 2014 were $3.578 trillion. This makes our trade deficit $272 billion, which is 7.6% of our imports, or about 1.5% of our GDP of $18.148 trillion. So to be more precise, every 100 products we buy as imports are 92 products we sell as exports.

If we stopped making all these imports, what would happen? Well, for one thing, millions of people in China would lose their jobs and fall back into poverty. But even if you’re just looking at the US specifically, there’s no reason to think that domestic production would increase nearly as much as the volume of trade was reduced, because the whole point of trade is that it’s more efficient than domestic production alone. It is actually generous to think that by switching to autarky we’d have even half the domestic production that we’re currently buying in imports. And then of course countries we export to would retaliate, and we’d lose all those exports. The net effect of cutting ourselves off from world trade would be a loss of about $1.5 trillion in GDP—average income would drop by 8%.

Now, to be fair, there are winners and losers. Offshoring of manufacturing does destroy the manufacturing jobs that are offshored; but at least when done properly, it also creates new jobs by improved efficiency. These two effects are about the same size, so the overall effect is a small decline in the overall number of US manufacturing jobs. It’s not nearly large enough to account for the collapsing middle class.

Globalization may be one contributor to rising inequality, as may changes in technology that make some workers (software programmers) wildly more productive as they make other workers (cashiers, machinists, and soon truck drivers) obsolete. But those of us who have looked carefully at the causes of rising income inequality know that this is at best a small part of what’s really going on.

The real cause is what Bernie Sanders is always on about: The 1%. Gains in income in the US for the last few decades (roughly as long as I’ve been alive) have been concentrated in a very small minority of the population—in fact, even 1% may be too coarse. Most of the income gains have actually gone to more like the top 0.5% or top 0.25%, and the most spectacular increases in income have all been concentrated in the top 0.01%.

The story that we’ve been told—I dare say sold—by the mainstream media (which is, lets face it, owned by a handful of corporations) is that new technology has made it so that anyone who works hard (or at least anyone who is talented and works hard and gets a bit lucky) can succeed or even excel in this new tech-driven economy.

I just gave up on a piece of drivel called Bold that was seriously trying to argue that anyone with a brilliant idea can become a billionaire if they just try hard enough. (It also seemed positively gleeful about the possibility of a cyberpunk dystopia in which corporations use mass surveillance on their customers and competitors—yes, seriously, this was portrayed as a good thing.) If you must read it, please, don’t give these people any more money. Find it in a library, or find a free ebook version, or something. Instead you should give money to the people who wrote the book I switched to, Raw Deal, whose authors actually understand what’s going on here (though I maintain that the book should in fact be called Uber Capitalism).

When you look at where all the money from the tech-driven “new economy” is going, it’s not to the people who actually make things run. A typical wage for a web developer is about $35 per hour, and that’s relatively good as far as entry-level tech jobs. A typical wage for a social media intern is about $11 per hour, which is probably less than what the minimum wage ought to be. The “sharing economy” doesn’t produce outstandingly high incomes for workers, just outstandingly high income risk because you aren’t given a full-time salary. Uber has claimed that its drivers earn $90,000 per year, but in fact their real take-home pay is about $25 per hour. A typical employee at Airbnb makes $28 per hour. If you do manage to find full-time hours at those rates, you can make a middle-class salary; but that’s a big “if”. “Sharing economy”? Robert Reich has aptly renamed it the “share the crumbs economy”.

So where’s all this money going? CEOs. The CEO of Uber has net wealth of $8 billion. The CEO of Airbnb has net wealth of $3.3 billion. But they are paupers compared to the true giants of the tech industry: Larry Page of Google has $36 billion. Jeff Bezos of Amazon has $49 billion. And of course who can forget Bill Gates, founder of Microsoft, and his mind-boggling $77 billion.

Can we seriously believe that this is because their ideas were so brilliant, or because they are so talented and skilled? Uber’s “brilliant” idea is just to monetize carpooling and automate linking people up. Airbnb’s “revolutionary” concept is an app to advertise your bed-and-breakfast. At least Google invented some very impressive search algorithms, Amazon created one of the most competitive product markets in the world, and Microsoft democratized business computing. Of course, none of these would be possible without the invention of the Internet by government and university projects.

As for what these CEOs do that is so skilled? At this point they basically don’t do… anything. Any real work they did was in the past, and now it’s all delegated to other people; they just rake in money because they own things. They can manage if they want, but most of them have figured out that the best CEOs do very little while CEOS who micromanage typically fail. While I can see some argument for the idea that working hard in the past could merit you owning capital in the future, I have a very hard time seeing how being very good at programming and marketing makes you deserve to have so much money you could buy a new Ferrari every day for the rest of your life.

That’s the heuristic I like to tell people, to help them see the absolutely enormous difference between a millionaire and a billionaire: A millionaire is someone who can buy a Ferrari. A billionaire is someone who can buy a new Ferrari every day for the rest of their life. A high double-digit billionaire like Bezos or Gates could buy a new Ferrari every hour for the rest of their life. (Do the math; a Ferrari is about $250,000. Remember that they get a return on capital typically between 5% and 15% per year. With $1 billion, you get $50 to $150 million just in interest and dividends every year, and $100 million is enough to buy 365 Ferraris. As long as you don’t have several very bad years in a row on your stocks, you can keep doing this more or less forever—and that’s with only $1 billion.)

Immigration and globalization are not what is killing the American middle class. Corporatization is what’s killing the American middle class. Specifically, the use of regulatory capture to enforce monopoly power and thereby appropriate almost all the gains of new technologies into into the hands of a few dozen billionaires. Typically this is achieved through intellectual property, since corporate-owned patents basically just are monopolistic regulatory capture.

Since 1984, US real GDP per capita rose from $28,416 to $46,405 (in 2005 dollars). In that same time period, real median household income only rose from $48,664 to $53,657 (in 2014 dollars). That means that the total amount of income per person in the US rose by 49 log points (63%), while the amount of income that a typical family received only rose 10 log points (10%). If median income had risen at the same rate as per-capita GDP (and if inequality remained constant, it would), it would now be over $79,000, instead of $53,657. That is, a typical family would have $25,000 more than they actually do. The poverty line for a family of 4 is $24,300; so if you’re a family of 4 or less, the billionaires owe you a poverty line. You should have three times the poverty line, and in fact you have only two—because they took the rest.

And let me be very clear: I mean took. I mean stole, in a very real sense. This is not wealth that they created by their brilliance and hard work. This is wealth that they expropriated by exploiting people and manipulating the system in their favor. There is no way that the top 1% deserves to have as much wealth as the bottom 95% combined. They may be talented; they may work hard; but they are not that talented, and they do not work that hard. You speak of “confiscation of wealth” and you mean income taxes? No, this is the confiscation of our nation’s wealth.

Those of us who voted for Bernie Sanders voted for someone who is trying to stop it.

Those of you who voted for Donald Trump? Congratulations on supporting someone who epitomizes it.

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