Sweden

Men and violence

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Apr4 JDN 2459302

Content warning: In this post, I’m going to be talking about violence, including sexual violence. April is Sexual Assault Awareness and Prevention Month. I won’t go into any explicit detail, but I understand that discussion of such topics can still be very upsetting for many people.

After short posts for the past two weeks, get ready for a fairly long post. This is a difficult and complicated topic, and I want to make sure that I state things very clearly and with all necessary nuance.

While the overall level of violence between human societies varies tremendously, one thing is astonishingly consistent: Violence is usually committed by men.

In fact, violence is usually suffered by men as well—with the quite glaring exception of sexual violence. This is why I am particularly offended by claims like “All men benefit from male violence”; no, men who were murdered by other men did not benefit from male violence, and it is frankly appalling to say otherwise. Most men would be better off if male violence were somehow eliminated from the world. (Most women would also be much better off as well, of course.)

I therefore consider it both a matter of both moral obligation and self-interest to endeavor to reduce the amount of male violence in the world, which is almost coextensive with reducing the amount of violence in general.

On the other hand, ought implies can, and despite significant efforts I have made to seek out recommendations for concrete actions I could be taking… I haven’t been able to find very many.

The good news is that we appear to be doing something right—overall rates of violent crime have declined by nearly half since 1990. The decline in rape has been slower, only about 25% since 1990, though this is a bit misleading since the legal definition of rape has been expanded during that interval. The causes of this decline in violence are unclear: Some of the most important factors seem to be changes in policing, economic growth, and reductions in lead pollution. For whatever reason, Millennials just don’t seem to commit crimes at the same rates that Gen-X-ers or Boomers did. We are also substantially more feminist, so maybe that’s an important factor too; the truth is, we really don’t know.

But all of this still leaves me asking: What should I be doing?

When I searched for an answer to this question, a significant fraction of the answers I got from various feminist sources were some variation on “ruminate on your own complicity in male violence”. I tried it; it was painful, difficult—and basically useless. I think this is particularly bad advice for someone like me who has a history of depression.

When you ruminate on your own life, it’s easy to find mistakes; but how important were those mistakes? How harmful were they? I can’t say that I’ve never done anything in my whole life that hurt anyone emotionally (can anyone?), but I can only think of a few times I’ve harmed someone physically (mostly by accident, once in self-defense). I’ve definitely never raped or murdered anyone, and as far as I can tell I’ve never done anything that would have meaningfully contributed to anyone getting raped or murdered. If you were to somehow replace every other man in the world with a copy of me, maybe that wouldn’t immediately bring about a utopian paradise—but I’m pretty sure that rates of violence would be a lot lower. (And in this world ruled by my clones, we’d have more progressive taxes! Less military spending! A basic income! A global democratic federation! Greater investment in space travel! Hey, this sounds pretty good, actually… though inbreeding would be a definite concern.) So, okay, I’m no angel; but I don’t think it’s really fair to say that I’m complicit in something that would radically decrease if everyone behaved as I do.

The really interesting thing is, I think this is true of most men. A typical man commits less than the average amount of violence—because there is great skew in the distribution, with most men committing little or no violence and a small number of men committing lots of violence. Truly staggering amounts of violence are committed by those at the very top of the distribution—that would be mass murderers like Hitler and Stalin. It sounds strange, but if all men in the world were replaced by a typical man, the world would surely be better off. The loss of the very best men would be more than compensated by the removal of the very worst. In fact, since most men are not rapists or murderers, replacing every man in the world with the median man would automatically bring the rates of rape and murder to zero. I know that feminists don’t like to hear #NotAllMen; but it’s not even most men. Maybe the reason that the “not all men” argument keeps coming up is… it’s actually kind of true? Maybe it’s not so unreasonable for men to resent the implication that we are complicit in acts we abhor that we have never done and would never do? Maybe this whole concept that an entire sex of people, literally almost half the human race, can share responsibility for violent crimes—is wrong?

I know that most women face a nearly constant bombardment of sexual harassment, and feel pressured to remain constantly vigilant in order to protect themselves against being raped. I know that victims of sexual violence are often blamed for their victimization (though this happens in a lot of crimes, not just sex crimes). I know that #YesAllWomen is true—basically all women have been in some way harmed or threatened by sexual violence. But the fact remains that most men are already not committing sexual violence. Many people seem to confuse the fact that most women are harmed by men with the claim that most men harm women; these are not at all equivalent. As long as one man can harm many women, there don’t need to be very many harmful men for all women to be affected.

Plausible guesses would be that about 20-25% of women suffer sexual assault, committed by about 4% or 5% of men, each of whom commits an average of 4 to 6 assaults—and some of whom commit far more. If these figures are right, then 95% of men are not guilty of sexual assault. The highest plausible estimate I’ve seen is from a study which found that 11% of men had committed rape. Since it’s only one study and its sample size was pretty small, I’m actually inclined to think that this is an overestimate which got excessive attention because it was so shocking. Larger studies rarely find a number above 5%.

But even if we suppose that it’s really 11%, that leaves 89%; in what sense is 89% not “most men”? I saw some feminist sites responding to this result by saying things like “We can’t imprison 11% of men!” but, uh, we almost do already. About 9% of American men will go to prison in their lifetimes. This is probably higher than it should be—it’s definitely higher than any other country—but if those convictions were all for rape, I’d honestly have trouble seeing the problem. (In fact only about 10% of US prisoners are incarcerated for rape.) If the US were the incarceration capital of the world simply because we investigated and prosecuted rape more reliably, that would be a point of national pride, not shame. In fact, the American conservatives who don’t see the problem with our high incarceration rate probably do think that we’re mostly incarcerating people for things like rape and murder—when in fact large portions of our inmates are incarcerated for drug possession, “public order” crimes, or pretrial detention.

Even if that 11% figure is right, “If you know 10 men, one is probably a rapist” is wrong. The people you know are not a random sample. If you don’t know any men who have been to prison, then you likely don’t know any men who are rapists. 37% of prosecuted rapists have prior criminal convictions, and 60% will be convicted of another crime within 5 years. (Of course, most rapes are never even reported; but where would we get statistics on those rapists?) Rapists are not typical men. They may seem like typical men—it may be hard to tell the difference at a glance, or even after knowing someone for a long time. But the fact that narcissists and psychopaths may hide among us does not mean that all of us are complicit in the crimes of narcissists and psychopaths. If you can’t tell who is a psychopath, you may have no choice but to be wary; but telling every man to search his heart is worthless, because the only ones who will listen are the ones who aren’t psychopaths.

That, I think, is the key disagreement here: Where the standard feminist line is “any man could be a rapist, and every man should search his heart”, I believe the truth is much more like, “monsters hide among us, and we should do everything in our power to stop them”. The monsters may look like us, they may often act like us—but they are not us. Maybe there are some men who would commit rapes but can be persuaded out of it—but this is not at all the typical case. Most rapes are committed by hardened, violent criminals and all we can really do is lock them up. (And for the love of all that is good in the world, test all the rape kits!)

It may be that sexual harassment of various degrees is more spread throughout the male population; perhaps the median man indeed commits some harassment at some point in his life. But even then, I think it’s pretty clear that the really awful kinds of harassment are largely committed by a small fraction of serial offenders. Indeed, there is a strong correlation between propensity toward sexual harassment and various measures of narcissism and psychopathy. So, if most men look closely enough, maybe they can think of a few things that they do occasionally that might make women uncomfortable; okay, stop doing those things. (Hint: Do not send unsolicited dick pics. Ever. Just don’t. Anyone who wants to see your genitals will ask first.) But it isn’t going to make a huge difference in anyone’s life. As long as the serial offenders continue, women will still feel utterly bombarded.

There are other kinds of sexual violations that more men commit—being too aggressive, or persisting too much after the first rejection, or sending unsolicited sexual messages or images. I’ve had people—mostly, but not only, men—do things like that to me; but it would be obviously unfair to both these people and actual rape victims to say I’d ever been raped. I’ve been groped a few times, but it seems like quite a stretch to call it “sexual assault”. I’ve had experiences that were uncomfortable, awkward, frustrating, annoying, occasionally creepy—but never traumatic. Never violence. Teaching men (and women! There is evidence that women are not much less likely than men to commit this sort of non-violent sexual violation) not to do these things is worthwhile and valuable in itself—but it’s not going to do much to prevent rape or murder.

Thus, whatever responsibility men have in reducing sexual violence, it isn’t simply to stop; you can’t stop doing what you already aren’t doing.

After pushing through all that noise, at last I found a feminist site making a more concrete suggestion: They recommended that I read a book by Jackson Katz on the subject entitled The Macho Paradox: Why Some Men Hurt Women and How All Men Can Help.

First of all, I must say I can’t remember any other time I’ve read a book that was so poorly titled. The only mention of the phrase “macho paradox” is a brief preface that was added to the most recent edition explaining what the term was meant to mean; it occurs nowhere else in the book. And in all its nearly 300 pages, the book has almost nothing that seriously addresses either the motivations underlying sexual violence or concrete actions that most men could take in order to reduce it.

As far as concrete actions (“How all men can help”), the clearest, most consistent advice the book seems to offer that would apply to most men is “stop consuming pornography” (something like 90% of men and 60% of women regularly consume porn), when in fact there is a strong negative correlation between consumption of pornography and real-world sexual violence. (Perhaps Millennials are less likely to commit rape and murder because we are so into porn and video games!) This advice is literally worse than nothing.

The sex industry exists on a continuum from the adult-only but otherwise innocuous (smutty drawings and erotic novels), through the legal but often problematic (mainstream porn, stripping), to the usually illegal but defensible (consensual sex work), all the way to the utterly horrific and appalling (the sexual exploitation of children). I am well aware that there are many deep problems with the mainstream porn industry, but I confess I’ve never quite seen how these problems are specific to porn rather than endemic to media or even capitalism more generally. Particularly with regard to the above-board sex industry in places like Nevada or the Netherlands, it’s not obvious to me that a prostitute is more exploited than a coal miner, a sweatshop worker, or a sharecropper—indeed, given the choice between those four careers, I’d without hesitation choose to be a prostitute in Amsterdam. Many sex workers resent the paternalistic insistence by anti-porn feminists that their work is inherently degrading and exploitative. Overall, sex workers report job satisfaction not statistically different than the average for all jobs. There are a multitude of misleading statistics often reported about the sex industry that often make matters seem far worse than they are.

Katz (all-too) vividly describes the depiction of various violent or degrading sex acts in mainstream porn, but he seems unwilling to admit that any other forms of porn do or even could exist—and worse, like far too many anti-porn feminists, he seems to willfully elide vital distinctions, effectively equating fantasy depiction with genuine violence and consensual kinks with sexual abuse. I like to watch action movies and play FPS video games; does that mean I believe it’s okay to shoot people with machine guns? I know the sophisticated claim is that it somehow “desensitizes” us (whatever that means), but there’s not much evidence of that either. Given that porn and video games are negatively correlated with actual violence, it may in fact be that depicting the fantasy provides an outlet for such urges and helps prevent them from becoming reality. Or, it may simply be that keeping a bunch of young men at home in front of their computers keeps them from going out and getting into trouble. (Then again, homicides actually increased during the COVID pandemic—though most other forms of crime decreased.) But whatever the cause, the evidence is clear that porn and video games don’t increase actual violence—they decrease them.

At the very end of the book, Katz hints at a few other things men might be able to do, or at least certain groups of men: Challenge sexism in sports, the military, and similar male-dominated spaces (you know, if you have clout in such spaces, which I really don’t—I’m an effete liberal intellectual, a paradigmatic “soy boy”; do you think football players or soldiers are likely to listen to me?); educate boys with more positive concepts of masculinity (if you are in a position to do so, e.g. as a teacher or parent); or, the very best advice in the entire book, worth more than the rest of the book combined: Donate to charities that support survivors of sexual violence. Katz doesn’t give any specific recommendations, but here are a few for you: RAINN, NAESV and NSVRC.

Honestly, I’m more impressed by Upworthy’s bulleted list of things men can do, though they’re mostly things that conscientious men do anyway, and even if 90% of men did them, it probably wouldn’t greatly reduce actual violence.

As far as motivations (“Why some men hurt women”), the book does at least manage to avoid the mindless slogan “rape is about power, not sex” (there is considerable evidence that this slogan is false or at least greatly overstated). Still, Katz insists upon collective responsibility, attributing what are in fact typically individual crimes, committed mainly by psychopaths, motivated primarily by anger or sexual desire, to some kind of institutionalized system of patriarchal control that somehow permeates all of society. The fact that violence is ubiquitous does not imply that it is coordinated. It’s very much the same cognitive error as “murderism”.

I agree that sexism exists, is harmful, and may contribute to the prevalence of rape. I agree that there are many widespread misconceptions about rape. I also agree that reducing sexism and toxic masculinity are worthwhile endeavors in themselves, with numerous benefits for both women and men. But I’m just not convinced that reducing sexism or toxic masculinity would do very much to reduce the rates of rape or other forms of violence. In fact, despite widely reported success of campaigns like the “Don’t Be That Guy” campaign, the best empirical research on the subject suggests that such campaigns actually tend to do more harm than good. The few programs that seem to work are those that focus on bystander interventions—getting men who are not rapists to recognize rapists and stop them. Basically nothing has ever been shown to convince actual rapists; all we can do is deny them opportunities—and while bystander intervention can do that, the most reliable method is probably incarceration. Trying to change their sexist attitudes may be worse than useless.

Indeed, I am increasingly convinced that much—not all, but much—of what is called “sexism” is actually toxic expressions of heterosexuality. Why do most creepy male bosses only ever hit on their female secretaries? Well, maybe because they’re straight? This is not hard to explain. It’s a fair question why there are so many creepy male bosses, but one need not posit any particular misogyny to explain why their targets would usually be women. I guess it’s a bit hard to disentangle; if an incel hates women because he perceives them as univocally refusing to sleep with him, is that sexism? What if he’s a gay incel (yes they exist) and this drives him to hate men instead?

In fact, I happen to know of a particular gay boss who has quite a few rumors surrounding him regarding his sexual harassment of male employees. Or you could look at Kevin Spacey, who (allegedly) sexually abused teenage boys. You could tell a complicated story about how this is some kind of projection of misogynistic attitudes onto other men (perhaps for being too “femme” or something)—or you could tell a really simple story about how this man is only sexually abusive toward other men because that’s the gender of people he’s sexually attracted to. Occam’s Razor strongly favors the latter.

Indeed, what are we to make of the occasional sexual harasser who targets men and women equally? On the theory that abuse is caused by patriarchy, that seems pretty hard to explain. On the theory that abusive people sometimes happen to be bisexual, it’s not much of a mystery. (Though I would like to take a moment to debunk the stereotype of the “depraved bisexual”: Bisexuals are no more likely to commit sexual violence, but are far more likely to suffer it—more likely than either straight or gay people, independently of gender. Trans people face even higher risk; the acronym LGBT is in increasing order of danger of violence.)

Does this excuse such behavior? Absolutely not. Sexual harassment and sexual assault are definitely wrong, definitely harmful, and rightfully illegal. But when trying to explain why the victims are overwhelmingly female, the fact that roughly 90% of people are heterosexual is surely relevant. The key explanandum here is not why the victims are usually female, but rather why the perpetrators are usually male.

That, indeed, requires explanation; but such an explanation is really not so hard to come by. Why is it that, in nearly every human society, for nearly every form of violence, the vast majority of that violence is committed by men? It sure looks genetic to me.

Indeed, in anyother context aside from gender or race, we would almost certainly reject any explanation other than genetics for such a consistent pattern. Why is it that, in nearly every human society, about 10% of people are LGBT? Probably genetics. Why is it that, in near every human society, about 10% of people are left-handed? Genetics. Why, in nearly every human society, do smiles indicate happiness, children fear loud noises, and adults fear snakes? Genetics. Why, in nearly every human society, are men on average much taller and stronger than women? Genetics. Why, in nearly every human society, is about 90% of violence, including sexual violence, committed by men? Clearly, it’s patriarchy.

A massive body of scientific evidence from multiple sources shows a clear casual relationship between increased testosterone and increased aggression. The correlation is moderate, only about 0.38—but it’s definitely real. And men have a lot more testosterone than women: While testosterone varies a frankly astonishing amount between men and over time—including up to a 2-fold difference even over the same day—a typical adult man has about 250 to 950 ng/dL of blood testosterone, while a typical adult woman has only 8 to 60 ng/dL. (An adolescent boy can have as much as 1200 ng/dL!) This is a difference ranging from a minimum of 4-fold to a maximum of over 100-fold, with a typical value of about 20-fold. It would be astonishing if that didn’t have some effect on behavior.

This is of course far from a complete explanation: With a correlation of 0.38, we’ve only explained about 14% of the variance, so what’s the other 86%? Well, first of all, testosterone isn’t the only biological difference between men and women. It’s difficult to identify any particular genes with strong effects on aggression—but the same is true of height, and nobody disputes that the height difference between men and women is genetic.

Clearly societal factors do matter a great deal, or we couldn’t possibly explain why homicide rates vary between countries from less than 3 per million per year in Japan to nearly 400 per million per year in Honduras—a full 2 orders of magnitude! But gender inequality does not appear to strongly predict homicide rates. Japan is not a very feminist place (in fact, surveys suggest that, after Spain, Japan is second-worst highly-developed country for women). Sweden is quite feminist, and their homicide rate is relatively low; but it’s still 4 times as high as Japan’s. The US doesn’t strike me as much more sexist than Canada (admittedly subjective—surveys do suggest at least some difference, and in the expected direction), and yet our homicide rate is nearly 3 times as high. Also, I think it’s worth noting that while overall homicide rates vary enormously across societies, the fact that roughly 90% of homicides are committed by men does not. Through some combination of culture and policy, societies can greatly reduce the overall level of violence—but no society has yet managed to change the fact that men are more violent than women.

I would like to do a similar analysis of sexual assault rates across countries, but unfortunately I really can’t, because different countries have such different laws and different rates of reporting that the figures really aren’t comparable. Sweden infamously has a very high rate of reported sex crimes, but this is largely because they have very broad definitions of sex crimes and very high rates of reporting. The best I can really say for now is there is no obvious pattern of more feminist countries having lower rates of sex crimes. Maybe there really is such a pattern; but the data isn’t clear.

Yet if biology contributes anything to the causation of violence—and at this point I think the evidence for that is utterly overwhelming—then mainstream feminism has done the world a grave disservice by insisting upon only social and cultural causes. Maybe it’s the case that our best options for intervention are social or cultural, but that doesn’t mean we can simply ignore biology. And then again, maybe it’s not the case at all:A neurological treatment to cure psychopathy could cut almost all forms of violence in half.

I want to be completely clear that a biological cause is not a justification or an excuse: literally billions of men manage to have high testosterone levels, and experience plenty of anger and sexual desire, without ever raping or murdering anyone. The fact that men appear to be innately predisposed toward violence does not excuse actual violence, and the fact that rape is typically motivated at least in part by sexual desire is no excuse for committing rape.

In fact, I’m quite worried about the opposite: that the notion that sexual violence is always motivated by a desire to oppress and subjugate women will be used to excuse rape, because men who know that their motivation was not oppression will therefore be convinced that what they did wasn’t rape. If rape is always motivated by a desire to oppress women, and his desire was only to get laid, then clearly, what he did can’t be rape, right? The logic here actually makes sense. If we are to reject this argument—as we must—then we must reject the first premise, that all rape is motivated by a desire to oppress and subjugate women. I’m not saying that’s never a motivation—I’m simply saying we can’t assume it is always.

The truth is, I don’t know how to end violence, and sexual violence may be the most difficult form of violence to eliminate. I’m not even sure what most of us can do to make any difference at all. For now, the best thing to do is probably to donate money to organizations like RAINN, NAESV and NSVRC. Even $10 to one of these organizations will do more to help survivors of sexual violence than hours of ruminating on your own complicity—and cost you a lot less.

Green New Deal Part 3: Guaranteeing education and healthcare is easy—why aren’t we doing it?

pnrj current events, ethics, inequality, personal, public policy , , , , , , , , , , , ,

Apr 21 JDN 2458595

Last week was one of the “hard parts” of the Green New Deal. Today it’s back to one of the “easy parts”: Guaranteed education and healthcare.

“Providing all people of the United States with – (i) high-quality health care; […]

“Providing resources, training, and high-quality education, including higher education, to all people of the United States.”

Many Americans seem to think that providing universal healthcare would be prohibitively expensive. In fact, it would have literally negative net cost.
The US currently has the most bloated, expensive, inefficient healthcare system in the entire world. We spend almost $10,000 per person per year on healthcare, and get outcomes no better than France or the UK where they spend less than $5,000.
In fact, our public healthcare expenditures are currently higher than almost every other country. Our private expenditures are therefore pure waste; all they are doing is providing returns for the shareholders of corporations. If we were to simply copy the UK National Health Service and spend money in exactly the same way as they do, we would spend the same amount in public funds and almost nothing in private funds—and the UK has a higher mean lifespan than the US.
This is absolutely a no-brainer. Burn the whole system of private insurance down. Copy a healthcare system that actually works, like they use in every other First World country.
It wouldn’t even be that complicated to implement: We already have a single-payer healthcare system in the US; it’s called Medicare. Currently only old people get it; but old people use the most healthcare anyway. Hence, Medicare for All: Just lower the eligibility age for Medicare to 18 (if not zero). In the short run there would be additional costs for the transition, but in the long run we would save mind-boggling amounts of money, all while improving healthcare outcomes and extending our lifespans. Current estimates say that the net savings of Medicare for All would be about $5 trillion over the next 10 years. We can afford this. Indeed, the question is, as it was for infrastructure: How can we afford not to do this?
Isn’t this socialism? Yeah, I suppose it is. But healthcare is one of the few things that socialist countries consistently do extremely well. Cuba is a socialist country—a real socialist country, not a social democratic welfare state like Norway but a genuinely authoritarian centrally-planned economy. Cuba’s per-capita GDP PPP is a third of ours. Yet their life expectancy is actually higher than ours, because their healthcare system is just that good. Their per-capita healthcare spending is one-fourth of ours, and their health outcomes are better. So yeah, let’s be socialist in our healthcare. Socialists seem really good at healthcare.
And this makes sense, if you think about it. Doctors can do their jobs a lot better when they’re focused on just treating everyone who needs help, rather than arguing with insurance companies over what should and shouldn’t be covered. Preventative medicine is extremely cost-effective, yet it’s usually the first thing that people skimp on when trying to save money on health insurance. A variety of public health measures (such as vaccination and air quality regulation) are extremely cost-effective, but they are public goods that the private sector would not pay for by itself.
It’s not as if healthcare was ever really a competitive market anyway: When you get sick or injured, do you shop around for the best or cheapest hospital? How would you even go about that, when they don’t even post most of their prices and what prices they post are often wildly different than what you’ll actually pay?
The only serious argument I’ve heard against single-payer healthcare is a moral one: “Why should I have to pay for other people’s healthcare?” Well, I guess, because… you’re a human being? You should care about other human beings, and not want them to suffer and die from easily treatable diseases?
I don’t know how to explain to you that you should care about other people.

Single-payer healthcare is not only affordable: It would be cheaper and better than what we are currently doing. (In fact, almost anything would be cheaper and better than what we are currently doing—Obamacare was an improvement over the previous mess, but it’s still a mess.)
What about public education? Well, we already have that up to the high school level, and it works quite well.
Contrary to popular belief, the average public high school has better outcomes in terms of test scores and college placements than the average private high school. There are some elite private schools that do better, but they are extraordinarily expensive and they self-select only the best students. Public schools have to take all students, and they have a limited budget; but they have high quality standards and they require their teachers to be certified.
The flaws in our public school system are largely from it being not public enough, which is to say that schools are funded by their local property taxes instead of having their costs equally shared across whole states. This gives them the same basic problem as private schools: Rich kids get better schools.
If we removed that inequality, our educational outcomes would probably be among the best in the world—indeed, in our most well-funded school districts, they are. The state of Massachusetts which actually funds their public schools equally and well, gets international test scores just as good as the supposedly “superior” educational systems of Asian countries. In fact, this is probably even unfair to Massachusetts, as we know that China specifically selects the regions that have the best students to be the ones to take these international tests. Massachusetts is the best the US has to offer, but Shanghai is also the best China has to offer, so it’s only fair we compare apples to apples.
Public education has benefits for our whole society. We want to have a population of citizens, workers, and consumers who are well-educated. There are enormous benefits of primary and secondary education in terms of reducing poverty, improving public health, and increased economic growth.
So there’s my impassioned argument for why we should continue to support free, universal public education up to high school.
When it comes to college, I can’t be quite so enthusiastic. While there are societal benefits of college education, most of the benefits of college accrue to the individuals who go to college themselves.
The median weekly income of someone with a high school diploma is about $730; with a bachelor’s degree this rises to $1200; and with a doctoral or professional degree it gets over $1800. Higher education also greatly reduces your risk of being unemployed; while about 4% of the general population is unemployed, only 1.5% of people with doctorates or professional degrees are. Add that up over all the weeks of your life, and it’s a lot of money.
The net present value of a college education has been estimated at approximately $1 million. This result is quite sensitive to the choice of discount rate; at a higher discount rate you can get the net present value as “low” as $250,000.
With this in mind, the fact that the median student loan debt for a college graduate is about $30,000 doesn’t sound so terrible, does it? You’re taking out a loan for $30,000 to get something that will earn you between $250,000 and $1 million over the course of your life.
There is some evidence that having student loans delays homeownership; but this is a problem with our mortgage system, not our education system. It’s mainly the inability to finance a down payment that prevents people from buying homes. We should implement a system of block grants for first-time homeowners that gives them a chunk of money to make a down payment, perhaps $50,000. This would cost about as much as the mortgage interest tax deduction which mainly benefits the upper-middle class.
Higher education does have societal benefits as well. Perhaps the starkest I’ve noticed is how categorically higher education decided people’s votes on Donald Trump: Counties with high rates of college education almost all voted for Clinton, and counties with low rates of college education almost all voted for Trump. This was true even controlling for income and a lot of other demographic factors. Only authoritarianism, sexism and racism were better predictors of voting for Trump—and those could very well be mediating variables, if education reduces such attitudes.
If indeed it’s true that higher education makes people less sexist, less racist, less authoritarian, and overall better citizens, then it would be worth every penny to provide universal free college.
But it’s worth noting that even countries like Germany and Sweden which ostensibly do that don’t really do that: While college tuition is free for Swedish citizens and Germany provides free college for all students of any nationality, nevertheless the proportion of people in Sweden and Germany with bachelor’s degrees is actually lower than that of the United States. In Sweden the gap largely disappears if you restrict to younger cohorts—but in Germany it’s still there.
Indeed, from where I’m sitting, “universal free college” looks an awful lot like “the lower-middle class pays for the upper-middle class to go to college”. Social class is still a strong predictor of education level in Sweden. Among OECD countries, education seems to be the best at promoting upward mobility in Australia, and average college tuition in Australia is actually higher than average college tuition in the US (yes, even adjusting for currency exchange: Australian dollars are worth only slightly less than US dollars).
What does Australia do? They have a really good student loan system. You have to reach an annual income of about $40,000 per year before you need to make payments at all, and the loans are subsidized to be interest-free. Once you do owe payments, the debt is repaid at a rate proportional to your income—so effectively it’s not a debt at all but an equity stake.
In the US, students have been taking the desperate (and very cyberpunk) route of selling literal equity stakes in their education to Wall Street banks; this is a terrible idea for a hundred reasons. But having the government have something like an equity stake in students makes a lot of sense.
Because of the subsidies and generous repayment plans, the Australian government loses money on their student loan system, but so what? In order to implement universal free college, they would have spent an awful lot more than they are losing now. This way, the losses are specifically on students who got a lot of education but never managed to raise their income high enough—which means the government is actually incentivized to improve the quality of education or job-matching.
The cost of universal free college is considerable: That $1.3 trillion currently owed as student loans would be additional government debt or tax liability instead. Is this utterly unaffordable? No. But it’s not trivial either. We’re talking about roughly $60 billion per year in additional government spending, a bit less than what we currently spend on food stamps. An expenditure like that should have a large public benefit (as food stamps absolutely, definitely do!); I’m not convinced that free college would have such a benefit.
It would benefit me personally enormously: I currently owe over $100,000 in debt (about half from my undergrad and half from my first master’s). But I’m fairly privileged. Once I finally make it through this PhD, I can expect to make something like $100,000 per year until I retire. I’m not sure that benefiting people like me should be a major goal of public policy.
That said, I don’t think universal free college is a terrible policy. Done well, it could be a good thing. But it isn’t the no-brainer that single-payer healthcare is. We can still make sure that students are not overburdened by debt without making college tuition actually free.

Forget the Doughnut. Meet the Wedge.

pnrj book reviews, development economics, inequality, market failure, public policy , , , , , , , , , , , , , , ,

Mar 11 JDN 2458189

I just finished reading Kate Raworth’s book Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist; Raworth also has a whole website dedicated to the concept of the Doughnut as a way of rethinking economics.

The book is very easy to read, and manages to be open to a wide audience with only basic economics knowledge without feeling patronizing or condescending. Most of the core ideas are fundamentally sound, though Raworth has a way of making it sound like she is being revolutionary even when most mainstream economists already agree with the core ideas.

For example, she makes it sound like it is some sort of dogma among neoclassical economists that GDP growth must continue at the same pace forever. As I discussed in an earlier post, the idea that growth will slow down is not radical in economics—it is basically taken for granted in the standard neoclassical growth models.

Even the core concept of the Doughnut isn’t all that radical. It’s based on the recognition that economic development is necessary to end poverty, but resources are not unlimited. Then combine that with two key assumptions: GDP growth requires growth in energy consumption, and growth in energy consumption requires increased carbon emissions. Then, the goal should be to stay within a certain range: We want to be high enough to not have poverty, but low enough to not exceed our carbon budget.

Why a doughnut? That’s… actually a really good question. The concept Raworth presents is a fundamentally one-dimensional object; there’s no reason for it to be doughnut-shaped. She could just as well have drawn it on a single continuum, with poverty at one end, unsustainability at the other end, and a sweet spot in the middle. The doughnut shape adds some visual appeal, but no real information.

But the fundamental assumptions that GDP requires energy and energy requires carbon emissions are simply false—especially the second one. Always keep one thing in mind whenever you’re reading something by environmentalists telling you we need to reduce economic output to save the Earth: Nuclear power does not produce carbon emissions.

This is how the environmentalist movement has shot itself—and the world—in the foot for the last 50 years. They continually refuse to admit that nuclear power is the best hope we have for achieving both economic development and ecological sustainability. They have let their political biases cloud their judgment on what is actually best for humanity’s future.

I will give Raworth some credit for not buying into the pipe dream that we can somehow transition rapidly to an entirely solar and wind-based power grid—renewables only produce 6% of world energy (the most they ever have), while nuclear produces 10%. And nuclear power certainly has its downsides, particularly in its high cost of construction. It may in fact be the case that we need to reduce economic output somewhat, particularly in the very richest countries, and if so, we need to find a way to do that without causing social and political collapse.

The Dougnut is a one-dimensional object glorified by a two-dimensional diagram.

So let me present you with an actual two-dimensional object, which I call the Wedge.

On this graph, the orange dots plot actual GDP per capita (at purchasing power parity) on the X axis against actual CO2 emissions per capita on the Y-axis. The green horizonal line is a CO2 emission target of 3 tonnes per person per year based on reports from the International Panel on Climate Change.

Wedge_full

As you can see, most countries are above the green line. That’s bad. We need the whole world below that green line. The countries that are below the line are largely poor countries, with a handful of middle-income countries mixed in.

But it’s the blue diagonal line that really makes this graph significant, what makes it the Wedge. That line uses Switzerland’s level of efficiency to estimate a frontier of what’s possible. Switzerland’s ratio of GDP to CO2 is the best in the world, among countries where the data actually looks reliable. A handful of other countries do better in the data, but for some (Macau) it’s obviously due to poor counting of indirect emissions and for others (Rwanda, Chad, Burundi) we just don’t have good data at all. I think Switzerland’s efficiency level of $12,000 per ton of CO2 is about as good as can be reasonably expected for most countries over the long run.

Our goal should be to move as far right on the graph as we can (toward higher levels of economic development), but always staying inside this Wedge: Above the green line, our CO2 emissions are too high. Below the blue line may not be technologically feasible (though of course it’s worth a try). We want to aim for the point of the wedge, where GDP is as high as possible but emissions are still below safe targets.

Zooming in on the graph gives a better view of the Wedge.

Wedge_zoomed

The point of the Wedge is about $38,000 per person per year. This is not as rich as the US, but it’s definitely within the range of highly-developed countries. This is about the same standard of living as Italy, Spain, or South Korea. In fact, all three of these countries exceed their targets; the closest I was able to find to a country actually hitting the point of the wedge was Latvia, at $27,300 and 3.5 tonnes per person per year. Uruguay also does quite well at $22,400 and 2.2 tonnes per person per year.

Some countries are within the Wedge; a few, like Uruguay, quite close to the point, and many, like Colombia and Bangladesh, that are below and to the left. For these countries, a “stay the course” policy is the way to go: If they keep up what they are doing, they can continue to experience economic growth without exceeding their emission targets.

 

But the most important thing about the graph is not actually the Wedge itself: It’s all the countries outside the Wedge, and where they are outside the Wedge.

There are some countries, like Sweden, France, and Switzerland, that are close to the blue line but still outside the Wedge because they are too far to the right. These are countries for whom “degrowth” policies might actually make sense: They are being as efficient in their use of resources as may be technologically feasible, but are simply producing too much output. They need to find a way to scale back their economies without causing social and political collapse. My suggestion, for what it’s worth, is progressive taxation. In addition to carbon taxes (which are a no-brainer), make income taxes so high that they start actually reducing GDP, and do so without fear, since that’s part of the point; then redistribute all the income as evenly as possible so that lower total income comes with much lower inequality and the eradication of poverty. Most of the country will then be no worse off than they were, so social and political unrest seems unlikely. Call it “socialism” if you like, but I’m not suggesting collectivization of industry or the uprising of the proletariat; I just want everyone to adopt the income tax rates the US had in the 1950s.

But most countries are not even close to the blue line; they are well above it. In all these countries, the goal should not be to reduce economic output, but to increase the carbon efficiency of that output. Increased efficiency has no downside (other than the transition cost to implement it): It makes you better off ecologically without making you worse off economically. Bahrain has about the same GDP per capita as Sweden but produces over five times the per-capita carbon emissions. Simply by copying Sweden they could reduce their emissions by almost 19 tonnes per person per year, which is more than the per-capita output of the US (and we’re hardly models of efficiency)—at absolutely no cost in GDP.

Then there are countries like Mongolia, which produces only $12,500 in GDP but 14.5 tonnes of CO2 per person per year. Mongolia is far above and to the left of the point of the Wedge, meaning that they could both increase their GDP and decrease their emissions by adopting the model of more efficient countries. Telling these countries that “degrowth” is the answer is beyond perverse—cut Mongolia’s GDP by 2/3 and you would throw them into poverty without even bringing carbon emissions down to target.

We don’t need to overthrow capitalism or even give up on GDP growth in general. We need to focus on carbon, carbon, carbon: All economic policy from this point forward should be made with CO2 reduction in mind. If that means reducing GDP, we may have to accept that; but often it won’t. Switching to nuclear power and public transit would dramatically reduce emissions but need have no harmful effect on economic output—in fact, the large investment required could pull a country out of recession.

Don’t worry about the Doughnut. Aim for the point of the Wedge.

No, Scandinavian countries aren’t parasites. They’re just… better.

pnrj core principles, public policy , , , , , , , , , , , , , , , , , , , , , ,

Oct 1, JDN 2457663

If you’ve been reading my blogs for awhile, you likely have noticed me occasionally drop the hashtag #ScandinaviaIsBetter; I am in fact quite enamored of the Scandinavian (or Nordic more generally) model of economic and social policy.

But this is not a consensus view (except perhaps within Scandinavia itself), and I haven’t actually gotten around to presenting a detailed argument for just what it is that makes these countries so great.

I was inspired to do this by discussion with a classmate of mine (who shall remain nameless) who emphatically disagreed; he actually seems to think that American economic policy is somewhere near optimal (and to be fair, it might actually be near optimal, in the broad space of all possible economic policies—we are not Maoist China, we are not Somalia, we are not a nuclear wasteland). He couldn’t disagree with the statistics on how wealthy and secure and happy Scandinavian countries are, so instead he came up with this: “They are parasites.”

What he seemed to mean by this is that somehow Scandinavian countries achieve their success by sapping wealth from other countries, perhaps the rest of Europe, perhaps the world more generally. On this view, it’s not that Norway and Denmark aren’t rich because they economic policy basically figured out; no, they are somehow draining those riches from elsewhere.

This could scarcely be further from the truth.

But first, consider a couple of countries that are parasites, at least partially: Luxembourg and Singapore.

Singapore has an enormous trade surplus: 5.5 billion SGD per month, which is $4 billion per month, so almost $50 billion per year. They also have a positive balance of payments of $61 billion per year. Singapore’s total GDP is about $310 billion, so these are not small amounts. What does this mean? It means that Singapore is taking in a lot more money than they are spending out. They are effectively acting as mercantilists, or if you like as a profit-seeking corporation.

Moreover, Singapore is totally dependent on trade: their exports are over $330 billion per year, and their imports are over $280 billion. You may recognize each of these figures as comparable to the entire GDP of the country. Yes, their total trade is 200% of GDP. They aren’t really so much a country as a gigantic trading company.

What about Luxembourg? Well, they have a trade deficit of 420 million Euros per month, which is about $560 million per year. Their imports total about $2 billion per year, and their exports about $1.5 billion. Since Luxembourg’s total GDP is $56 billion, these aren’t unreasonably huge figures (total trade is about 6% of GDP); so Luxembourg isn’t a parasite in the sense that Singapore is.

No, what makes Luxembourg a parasite is the fact that 36% of their GDP is due to finance. Compare the US, where 12% of our GDP is finance—and we are clearly overfinancialized. Over a third of Luxembourg’s income doesn’t involve actually… doing anything. They hold onto other people’s money and place bets with it. Even insofar as finance can be useful, it should be only very slightly profitable, and definitely not more than 10% of GDP. As Stiglitz and Krugman agree (and both are Nobel Laureate economists), banking should be boring.

Do either of these arguments apply to Scandinavia? Let’s look at trade first. Denmark’s imports total about 42 billion DKK per month, which is about $70 billion per year. Their exports total about $90 billion per year. Denmark’s total GDP is $330 billion, so these numbers are quite reasonable. What are their main sectors? Manufacturing, farming, and fuel production. Notably, not finance.

Similar arguments hold for Sweden and Norway. They may be small countries, but they have diversified economies and strong production of real economic goods. Norway is probably overly dependent on oil exports, but they are specifically trying to move away from that right now. Even as it is, only about $90 billion of their $150 billion exports are related to oil, and exports in general are only about 35% of GDP, so oil is about 20% of Norway’s GDP. Compare that to Saudi Arabia, of which has 90% of its exports related to oil, accounting for 45% of GDP. If oil were to suddenly disappear, Norway would lose 20% of their GDP, dropping their per-capita GDP… all the way to the same as the US. (Terrifying!) But Saudi Arabia would suffer a total economic collapse, and their per capita-GDP would fall from where it is now at about the same as the US to about the same as Greece.

And at least oil actually does things. Oil exporting countries aren’t parasites so much as they are drug dealers. The world is “rolling drunk on petroleum”, and until we manage to get sober we’re going to continue to need that sweet black crude. Better we buy it from Norway than Saudi Arabia.

So, what is it that makes Scandinavia so great? Why do they have the highest happiness ratings, the lowest poverty rates, the best education systems, the lowest unemployment rates, the best social mobility and the highest incomes? To be fair, in most of these not literally every top spot is held by a Scandinavian country; Canada does well, Germany does well, the UK does well, even the US does well. Unemployment rates in particular deserve further explanation, because a lot of very poor countries report surprisingly low unemployment rates, such as Cambodia and Laos.

It’s also important to recognize that even great countries can have serious flaws, and the remnants of the feudal system in Scandinavia—especially in Sweden—still contribute to substantial inequality of wealth and power.

But in general, I think if you assembled a general index of overall prosperity of a country (or simply used one that already exists like the Human Development Index), you would find that Scandinavian countries are disproportionately represented at the very highest rankings. This calls out for some sort of explanation.

Is it simply that they are so small? They are certainly quite small; Norway and Denmark each have fewer people than the core of New York City, and Sweden has slightly more people than the Chicago metropolitan area. Put them all together, add in Finland and Iceland (which aren’t quite Scandinavia), and all together you have about the population of the New York City Combined Statistical Area.

But some of the world’s smallest countries are also its poorest. Samoa and Kiribati each have populations comparable to the city of Ann Arbor and per-capita GDPs 1/10 that of the US. Eritrea is the same size as Norway, and 70 times poorer. Burundi is slightly larger than Sweden, and has a per-capita GDP PPP of only $3.14 per day.

There’s actually a good statistical reason to expect that the smallest countries should vary the most in their incomes; you’re averaging over a smaller sample so you get more variance in the estimate. But this doesn’t explain why Norway is rich and Eritrea is poor. Incomes aren’t assigned randomly. This might be a reason to try comparing Norway to specifically New York City or Los Angeles rather than to the United States as a whole (Norway still does better, in case you were wondering—especially compared to LA); but it’s not a reason to say that Norway’s wealth doesn’t really count.

Is it because they are ethnically homogeneous? Yes, relatively speaking; but perhaps not as much as you imagine. 14% of Sweden’s population is immigrants, of which 64% are from outside the EU. 10% of Denmark’s population is comprised of immigrants, of which 66% came from non-Western countries. Immigrants are 13% of Norway’s population, of which half are from non-Western countries.

That’s certainly more ethnically homogeneous than the United States; 13% of our population is immigrants, which may sound comparable, but almost all non-immigrants in Scandinavia are of indigenous Nordic descent, all “White” by the usual classification. Meanwhile the United States is 64% non-Hispanic White, 16% Hispanic, 12% Black, 5% Asian, and 1% Native American or Pacific Islander.

Scandinavian countries are actually by some measures less homogeneous than the US in terms of religion, however; only 4% of Americans are not Christian (78.5%), atheist (16.1%), or Jewish (1.7%), and only 0.6% are Muslim. As much as In Sweden, on the other hand, 60% of the population is nominally Lutheran, but 80% is atheist, and 5% of the population is Muslim. So if you think of Christian/Muslim as the sharp divide (theologically this doesn’t make a whole lot of sense, but it seems to be the cultural norm in vogue), then Sweden has more religious conflict to worry about than the US does.

Moreover, there are some very ethnically homogeneous countries that are in horrible shape. North Korea is almost completely ethnically homogeneous, for example, as is Haiti. There does seem to be a correlation between higher ethnic diversity and lower economic prosperity, but Canada and the US are vastly more diverse than Japan and South Korea yet significantly richer. So clearly ethnicity is not the whole story here.

I do think ethnic homogeneity can partly explain why Scandinavian countries have the good policies they do; because humans are tribal, ethnic homogeneity engenders a sense of unity and cooperation, a notion that “we are all in this together”. That egalitarian attitude makes people more comfortable with some of the policies that make Scandinavia what it is, which I will get into at the end of this post.

What about culture? Is there something about Nordic ideas, those Viking traditions, that makes Scandinavia better? Miles Kimball has argued this; he says we need to import “hard work, healthy diets, social cohesion and high levels of trust—not Socialism”. And truth be told, it’s hard to refute this assertion, since it’s very difficult to isolate and control for cultural variables even though we know they are important.

But this difficulty in falsification is a reason to be cautious about such a hypothesis; it should be a last resort when all the more testable theories have been ruled out. I’m not saying culture doesn’t matter; it clearly does. But unless you can test it, “culture” becomes a theory that can explain just about anything—which means that it really explains nothing.

The “social cohesion and high levels of trust” part actually can be tested to some extent—and it is fairly well supported. High levels of trust are strongly correlated with economic prosperity. But we don’t really need to “import” that; the US is already near the top of the list in countries with the highest levels of trust.

I can’t really disagree with “good diet”, except to say that almost everywhere eats a better diet than the United States. The homeland of McDonald’s and Coca-Cola is frankly quite dystopian when it comes to rates of heart disease and diabetes. Given our horrible diet and ludicrously inefficient healthcare system, the only reason we live as long as we do is that we are an extremely rich country (so we can afford to pay the most for healthcare, for certain definitions of “afford”), and almost no one here smokes anymore. But good diet isn’t so much Scandinavian as it is… un-American.

But as for “hard work”, he’s got it backwards; the average number of work hours per week is 33 in Denmark and Norway, compared to 38 in the US. Among full-time workers in the US, the average number of hours per week is a whopping 47. Working hours in the US are much more intensive than anywhere in Europe, including Scandinavia. Though of course we are nowhere near the insane work addiction suffered by most East Asian countries; lately South Korea and Japan have been instituting massive reforms to try to get people to stop working themselves to death. And not surprisingly, work-related stress is a leading cause of death in the United States. If anything, we need to import some laziness, or at least a sense of work-life balance. (Indeed, I’m fairly sure that the only reason he said “hard work” is that it’s a cultural Applause Light in the US; being against hard work is like being against the American Flag or homemade apple pie. At this point, “we need more hard work” isn’t so much an assertion as it is a declaration of tribal membership.)

But none of these things adequately explains why poverty and inequality is so much lower in Scandinavia than it is in the United States, and there’s really a quite simple explanation.

Why is it that #ScandinaviaIsBetter? They’re not afraid to make rich people pay higher taxes so they can help poor people.

In the US, this idea of “redistribution of wealth” is anathema, even taboo; simply accusing a policy of being “redistributive” or “socialist” is for many Americans a knock-down argument against that policy. In Denmark, “socialist” is a meaningful descriptor; some policies are “socialist”, others “capitalist”, and these aren’t particularly weighted terms; it’s like saying here that a policy is “Keynesian” or “Monetarist”, or if that’s too obscure, saying that it’s “liberal” or “conservative”. People will definitely take sides, and it is a matter of political importance—but it’s inside the Overton Window. It’s not almost unthinkable as it is here.

If culture has an effect here, it likely comes from Scandinavia’s long traditions of egalitarianism. Going at least back to the Vikings, in theory at least (clearly not always in practice), people—or at least fellow Scandinavians—were considered equal participants in society, no one “better” or “higher” than anyone else. Even today, it is impolite in Denmark to express pride at your own accomplishments; there’s a sense that you are trying to present yourself as somehow more deserving than others. Honestly this attitude seems unhealthy to me, though perhaps preferable to the unrelenting narcissism of American society; but insofar as culture is making Scandinavia better, it’s almost certainly because this thoroughgoing sense of egalitarianism underlies all their economic policy. In the US, the rich are brilliant and the poor are lazy; in Denmark, the rich are fortunate and the poor are unlucky. (Which theory is more accurate? Donald Trump. I rest my case.)

To be clear, Scandinavia is not communist; and they are certainly not Stalinist. They don’t believe in total collectivization of industry, or complete government control over the economy. They don’t believe in complete, total equality, or even a hard cap on wealth: Stefan Persson is an 11-figure billionaire. Does he pay high taxes, living in Sweden? Yes he does, considerably higher than he’d pay in the US. He seems to be okay with that. Why, it’s almost like his marginal utility of wealth is now negligible.

Scandinavian countries also don’t try to micromanage your life in the way often associated with “socialism”–in fact I’d say they do it less than we do in the US. Here we have Republicans who want to require drug tests for food stamps even though that literally wastes money and helps no one; there they just provide a long list of government benefits for everyone free of charge. They just held a conference in Copenhagen to discuss the possibility of transitioning many of these benefits into a basic income; and basic income is the least intrusive means of redistributing wealth.

In fact, because Scandinavian countries tax differently, it’s not necessarily the case that people always pay higher taxes there. But they pay more transparent taxes, and taxes with sharper incidence. Denmark’s corporate tax rate is only 22% compared to 35% in the US; but their top personal income tax bracket is 59% while ours is only 39.6% (though it can rise over 50% with some state taxes). Denmark also has a land value tax and a VAT, both of which most economists have clamored for for generations. (The land value tax I totally agree with; the VAT I’m a little more ambivalent about.) Moreover, filing your taxes in Denmark is not a month-long stress marathon of gathering paperwork, filling out forms, and fearing that you’ll get something wrong and be audited as it is in the US; they literally just send you a bill. You can contest it, but most people don’t. You just pay it and you’re done.

Now, that does mean the government is keeping track of your income; and I might think that Americans would never tolerate such extreme surveillance… and then I remember that PRISM is a thing. Apparently we’re totally fine with the NSA reading our emails, but God forbid the IRS just fill out our 1040s for us (that they are going to read anyway). And there’s no surveillance involved in requiring retail stores to incorporate sales tax into listed price like they do in Europe instead of making us do math at the cash register like they do here. It’s almost like Americans are trying to make taxes as painful as possible.

Indeed, I think Scandanavian socialism is a good example of how high taxes are a sign of a free society, not an authoritarian one. Taxes are a minimal incursion on liberty. High taxes are how you fund a strong government and maintain extensive infrastructure and public services while still being fair and following the rule of law. The lowest tax rates in the world are in North Korea, which has ostensibly no taxes at all; the government just confiscates whatever they decide they want. Taxes in Venezuela are quite low, because the government just owns all the oil refineries (and also uses multiple currency exchange rates to arbitrage seigniorage). US taxes are low by First World standards, but not by world standards, because we combine a free society with a staunch opposition to excessive taxation. Most of the rest of the free world is fine with paying a lot more taxes than we do. In fact, even using Heritage Foundation data, there is a clear positive correlation between higher tax rates and higher economic freedom:
Graph: Heritage Foundation Economic Freedom Index and tax burden

What’s really strange, though, is that most Americans actually support higher taxes on the rich. They often have strange or even incoherent ideas about what constitutes “rich”; I have extended family members who have said they think $100,000 is an unreasonable amount of money for someone to make, yet somehow are totally okay with Donald Trump making $300,000,000. The chant “we are the 99%” has always been off by a couple orders of magnitude; the plutocrat rentier class is the top 0.01%, not the top 1%. The top 1% consists mainly of doctors and lawyers and engineers; the top 0.01%, to a man—and they are nearly all men, in fact White men—either own corporations or work in finance. But even adjusting for all this, it seems like at least a bare majority of Americans are all right with “redistributive” “socialist” policies—as long as you don’t call them that.

So I suppose that’s sort of what I’m trying to do; don’t think of it as “socialism”. Think of it as #ScandinaviaIsBetter.

The high cost of frictional unemployment

pnrj critique of neoclassical economics, macroeconomics , , , , , , , , , , , , , , , , ,

Sep 3, JDN 2457635

I had wanted to open this post with an estimate of the number of people in the world, or at least in the US, who are currently between jobs. It turns out that such estimates are essentially nonexistent. The Bureau of Labor Statistics maintains a detailed database of US unemployment; they don’t estimate this number. We have this concept in macroeconomics of frictional unemployment, the unemployment that results from people switching jobs; but nobody seems to have any idea how common it is.

I often hear a ballpark figure of about 4-5%, which is related to a notion that “full employment” should really be about 4-5% unemployment because otherwise we’ll trigger horrible inflation or something. There is almost no evidence for this. In fact, the US unemployment rate has gotten as low as 2.5%, and before that was stable around 3%. This was during the 1950s, the era of the highest income tax rates ever imposed in the United States, a top marginal rate of 92%. Coincidence? Maybe. Obviously there were a lot of other things going on at the time. But it sure does hurt the argument that high income taxes “kill jobs”, don’t you think?

Indeed, it may well be that the rate of frictional unemployment varies all the time, depending on all sorts of different factors. But here’s what we do know: Frictional unemployment is a serious problem, and yet most macroeconomists basically ignore it.

Talk to most macroeconomists about “unemployment”, and they will assume you mean either cyclical unemployment (the unemployment that results from recessions and bad fiscal and monetary policy responses to them), or structural unemployment (the unemployment that results from systematic mismatches between worker skills and business needs). If you specifically mention frictional unemployment, the response is usually that it’s no big deal and there’s nothing we can do about it anyway.

Yet at least when we aren’t in a recession, frictional employment very likely accounts for the majority of unemployment, and thus probably the majority of misery created by unemployment. (Not necessarily, since it probably doesn’t account for much long-term unemployment, which is by far the worst.) And it is quite clear to me that there are things we can do about it—they just might be difficult and/or expensive.

Most of you have probably changed jobs at least once. Many of you have, like me, moved far away to a new place for school or work. Think about how difficult that was. There is the monetary cost, first of all; you need to pay for the travel of course, and then usually leases and paychecks don’t line up properly for a month or two (for some baffling and aggravating reason, UCI won’t actually pay me my paychecks until November, despite demanding rent starting the last week of July!). But even beyond that, you are torn from your social network and forced to build a new one. You have to adapt to living in a new place which may have differences in culture and climate. Bureaucracy often makes it difficult to change over documentation of such as your ID and your driver’s license.

And that’s assuming that you already found a job before you moved, which isn’t always an option. Many people move to new places and start searching for jobs when they arrive, which adds an extra layer of risk and difficulty above and beyond the transition itself.

With all this in mind, the wonder is that anyone is willing to move at all! And this is probably a large part of why people are so averse to losing their jobs even when it is clearly necessary; the frictional unemployment carries enormous real costs. (That and loss aversion, of course.)

What could we do, as a matter of policy, to make such transitions easier?

Well, one thing we could do is expand unemployment insurance, which reduces the cost of losing your job (which, despite the best efforts of Republicans in Congress, we ultimately did do in the Second Depression). We could expand unemployment insurance to cover voluntary quits. Right now, quitting voluntarily makes you forgo all unemployment benefits, which employers pay for in the form of insurance premiums; so an employer is much better off making your life miserable until you quit than they are laying you off. They could also fire you for cause, if they can find a cause (and usually there’s something they could trump up enough to get rid of you, especially if you’re not prepared for the protracted legal battle of a wrongful termination lawsuit). The reasoning of our current system appears to be something like this: Only lazy people ever quit jobs, and why should we protect lazy people? This is utter nonsense and it needs to go. Many states already have no-fault divorce and no-fault auto collision insurance; it’s time for no-fault employment termination.

We could establish a basic income of course; then when you lose your job your income would go down, but to a higher floor where you know you can meet certain basic needs. We could provide subsidized personal loans, similar to the current student loan system, that allow people to bear income gaps without losing their homes or paying exorbitant interest rates on credit cards.

We could use active labor market programs to match people with jobs, or train them with the skills needed for emerging job markets. Denmark has extensive active labor market programs (they call it “flexicurity”), and Denmark’s unemployment rate was 2.4% before the Great Recession, hit a peak of 6.2%, and has now recovered to 4.2%. What Denmark calls a bad year, the US calls a good year—and Greece fantasizes about as something they hope one day to achieve. #ScandinaviaIsBetter once again, and Norway fits this pattern also, though to be fair Sweden’s unemployment rate is basically comparable to the US or even slightly worse (though it’s still nothing like Greece).

Maybe it’s actually all right that we don’t have estimates of the frictional unemployment rate, because the goal really isn’t to reduce the number of people who are unemployed; it’s to reduce the harm caused by unemployment. Most of these interventions would very likely increase the rate frictional unemployment, as people who always wanted to try to find better jobs but could never afford to would now be able to—but they would dramatically reduce the harm caused by that unemployment.

This is a more general principle, actually; it’s why we should basically stop taking seriously this argument that social welfare benefits destroy work incentives. That may well be true; so what? Maximizing work incentives was never supposed to be a goal of public policy, as far as I can tell. Maximizing human welfare is the goal, and the only way a welfare program could reduce work incentives is by making life better for people who aren’t currently working, and thereby reducing the utility gap between working and not working. If your claim is that the social welfare program (and its associated funding mechanism, i.e. taxes, debt, or inflation) would make life sufficiently worse for everyone else that it’s not worth it, then say that (and for some programs that might actually be true). But in and of itself, making life better for people who don’t work is a benefit to society. Your supposed downside is in fact an upside. If there’s a downside, it must be found elsewhere.

Indeed, I think it’s worth pointing out that slavery maximizes work incentives. If you beat or kill people who don’t work, sure enough, everyone works! But that is not even an efficient economy, much less a just society. To be clear, I don’t think most people who say they want to maximize work incentives would actually support slavery, but that is the logical extent of the assertion. (Also, many Libertarians, often the first to make such arguments, do have a really bizarre attitude toward slavery; taxation is slavery, regulation is slavery, conscription is slavery—the last not quite as ridiculous—but actual forced labor… well, that really isn’t so bad, especially if the contract is “voluntary”. Fortunately some Libertarians are not so foolish.) If your primary goal is to make people work as much as possible, slavery would be a highly effective way to achieve that goal. And that really is the direction you’re heading when you say we shouldn’t do anything to help starving children lest their mothers have insufficient incentive to work.

More people not working could have a downside, if it resulted in less overall production of goods. But even in the US, one of the most efficient labor markets in the world, the system of job matching is still so ludicrously inefficient that people have to send out dozens if not hundreds of applications to jobs they barely even want, and there are still 1.4 times as many job seekers as there are openings (at the trough of the Great Recession, the ratio was 6.6 to 1). There’s clearly a lot of space here to improve the matching efficiency, and simply giving people more time to search could make a big difference there. Total output might decrease for a little while during the first set of transitions, but afterward people would be doing jobs they want, jobs they care about, jobs they’re good at—and people are vastly more productive under those circumstances. It’s quite likely that total employment would decrease, but productivity would increase so much that total output increased.

Above all, people would be happier, and that should have been our goal all along.

Should we give up on growth?

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JDN 2457572

Recently I read this article published by the Post Carbon Institute, “How to Shrink the Economy without Crashing It”, which has been going around environmentalist circles. (I posted on Facebook that I’d answer it in more detail, so here goes.)

This is the far left view on climate change, which is wrong, but not nearly as wrong as even the “mainstream” right-wing view that climate change is not a serious problem and we should continue with business as usual. Most of the Republicans who ran for President this year didn’t believe in using government action to fight climate change, and Donald Trump doesn’t even believe it exists.
This core message of the article is clearly correct:

We know this because Global Footprint Network, which methodically tracks the relevant data, informs us that humanity is now using 1.5 Earths’ worth of resources.

We can temporarily use resources faster than Earth regenerates them only by borrowing from the future productivity of the planet, leaving less for our descendants. But we cannot do this for long.

To be clear, “using 1.5 Earths” is not as bad as it sounds; spending is allow to exceed income at times, as long as you have reason to think that future income will exceed future spending, and this is true not just of money but also of natural resources. You can in fact “borrow from the future”, provided you do actually have a plan to pay it back. And indeed there has been some theoretical work by environmental economists suggesting that we are rightly still in the phase of net ecological dissaving, and won’t enter the phase of net ecological saving until the mid-21st century when our technology has made us two or three times as productive. This optimal path is defined by a “weak sustainability” condition where total real wealth never falls over time, so any natural wealth depleted is replaced by at least as much artificial wealth.

Of course some things can’t be paid back; while forests depleted can be replanted, if you drive species to extinction, only very advanced technology could restore them. And we are driving thousands of species to extinction every single year. Even if we should be optimally dissaving, we are almost certainly depleting natural resources too fast, and depleting natural resources that will be difficult if not impossible to later restore. In that sense, the Post Carbon Institute is right: We must change course toward ecological sustainability.

Unfortunately, their specific ideas of how to do so leave much to be desired. Beyond ecological sustainability, they really argue for two propositions: one is radical but worth discussing, but the other is totally absurd.

The absurd claim is that we should somehow force the world to de-urbanize and regress into living in small farming villages. To show this is a bananaman and not a strawman, I quote:

8. Re-localize. One of the difficulties in the transition to renewable energy is that liquid fuels are hard to substitute. Oil drives nearly all transportation currently, and it is highly unlikely that alternative fuels will enable anything like current levels of mobility (electric airliners and cargo ships are non-starters; massive production of biofuels is a mere fantasy). That means communities will be obtaining fewer provisions from far-off places. Of course trade will continue in some form: even hunter-gatherers trade. Re-localization will merely reverse the recent globalizing trade trend until most necessities are once again produced close by, so that we—like our ancestors only a century ago—are once again acquainted with the people who make our shoes and grow our food.

9. Re-ruralize. Urbanization was the dominant demographic trend of the 20th century, but it cannot be sustained. Indeed, without cheap transport and abundant energy, megacities will become increasingly dysfunctional. Meanwhile, we’ll need lots more farmers. Solution: dedicate more societal resources to towns and villages, make land available to young farmers, and work to revitalize rural culture.

First of all: Are electric cargo ships non-starters? The Ford-class aircraft carrier is electric, specifically nuclear. Nuclear-powered cargo ships would raise a number of issues in terms of practicality, safety, and regulation, but they aren’t fundamentally infeasible. Massive efficient production of biofuels is a fantasy as long as the energy to do it is provided by coal power, but not if it’s provided by nuclear. Perhaps this author’s concept of “infeasible” really just means “infeasible if I can’t get over my irrational fear of nuclear power”. Even electric airliners are not necessarily out of the question; NASA has been experimenting with electric aircraft.

The most charitable reading I can give of this (in my terminology of argument “men”, I’m trying to make a banana out of iron), is as promoting slightly deurbanizing and going back to more like say the 1950s United States, with 64% of people in cities instead of 80% today. Even then this makes less than no sense, as higher urbanization is associated with lower per-capita ecological impact, which frankly shouldn’t even be surprising because cities have such huge economies of scale. Instead of everyone needing a car to get around in the suburbs, we can all share a subway system in the city. If that subway system is powered by a grid of nuclear, solar, and wind power, it could produce essentially zero carbon emissions—which is absolutely impossible for rural or suburban transportation. Urbanization is also associated with slower population growth (or even population decline), and indeed the reason population growth is declining is that rising standard of living and greater urbanization have reduced birth rates and will continue to do so as poor countries reach higher levels of development. Far from being a solution to ecological unsustainability, deurbanization would make it worse.

And that’s not even getting into the fact that you would have to force urban white-collar workers to become farmers, because if we wanted to be farmers we already would be (the converse is not as true), and now you’re actually talking about some kind of massive forced labor-shift policy like the Great Leap Forward. Normally I’m annoyed when people accuse environmentalists of being totalitarian communists, but in this case, I think the accusation might be onto something.

Moving on, the radical but not absurd claim is that we must turn away from economic growth and even turn toward economic shrinkage:

One way or another, the economy (and here we are talking mostly about the economies of industrial nations) must shrink until it subsists on what Earth can provide long-term.

[…]

If nothing is done deliberately to reverse growth or pre-adapt to inevitable economic stagnation and contraction, the likely result will be an episodic, protracted, and chaotic process of collapse continuing for many decades or perhaps centuries, with innumerable human and non-human casualties.

I still don’t think this is right, but I understand where it’s coming from, and like I said it’s worth talking about.

The biggest mistake here lies in assuming that GDP is directly correlated to natural resource depletion, so that the only way to reduce natural resource depletion is to reduce GDP. This is not even remotely true; indeed, countries vary almost as much in their GDP-per-carbon-emission ratio as they do in their per-capita GDP. As usual, #ScandinaviaIsBetter; Norway and Sweden produce about $8,000 in GDP per ton of carbon, while the US produces only about $2,000 per ton. Both poor and rich countries can be found among both the inefficient and the efficient. Saudi Arabia is very rich and produces about $900 per ton, while Liberia is exceedingly poor and produces about $800 per ton. I already mentioned how Norway produces $8,000 per ton, and they are as rich as Saudi Arabia. Yet above them is Mali, which produces almost $11,000 per ton, and is as poor as Liberia. Other notable facts: France is head and shoulders above the UK and Germany at almost $6000 per ton instead of $4300 and $3600 respectively—because France runs almost entirely on nuclear power.

So the real conclusion to draw from this is not that we need to shrink GDP, but that we need to make GDP more like how they do it in Norway or at least how they do it in France, rather than how we do in the US, and definitely not how they do it in Saudi Arabia. Total world emissions are currently about 36 billion tons per year, producing about $108 trillion in GDP, averaging about $3,000 of GDP per ton of carbon emissions. If we could raise the entire world to the ecological efficiency of Norway, we could double world GDP and still be producing less CO2 than we currently are. Turning the entire planet into a bunch of Norways would indeed raise CO2 output, by about a factor of 2; but it would raise standard of living by a factor of 5, and indeed bring about a utopian future with neither war nor hunger. Compare this to the prospect of cutting world GDP in half, but producing it as inefficiently as in Saudi Arabia: This would actually increase global CO2 emissions, almost as much as turning every country into Norway.

But ultimately we will in fact need to slow down or even end economic growth. I ran a little model for you, which shows a reasonable trajectory for global economic growth.

This graph shows the growth rate in productivity slowly declining, along with a much more rapidly declining GDP growth:

Solow_growth

This graph shows the growth trajectory for total real capital and GDP:

Solow_capital

And finally, this is the long-run trend for GDP graphed on a log scale:

Solow_logGDP

The units are arbitrary, though it’s not unreasonable to imagine them as being years and hundreds of dollars in per-capita GDP. If that is indeed what you imagine them to be, my model shows us the Star Trek future: In about 300 years, we rise from a per-capita GDP of $10,000 to one of $165,000—from a world much like today to a world where everyone is a millionaire.

Notice that the growth rate slows down a great deal fairly quickly; by the end of 100 years (i.e., the end of the 21st century), growth has slowed from its peak over 10% to just over 2% per year. By the end of the 300-year period, the growth rate is a crawl of only 0.1%.

Of course this model is very simplistic, but I chose it for a very specific reason: This is not a radical left-wing environmentalist model involving “limits to growth” or “degrowth”. This is the Solow-Swan model, the paradigm example of neoclassical models of economic growth. It is sometimes in fact called simply “the neoclassical growth model”, because it is that influential. I made one very small change from the usual form, which was to assume that the rate of productivity growth would decline exponentially over time. Since productivity growth is exogenous to the model, this is a very simple change to make; it amounts to saying that productivity-enhancing technology is subject to diminishing returns, which fits recent data fairly well but could be totally wrong if something like artificial intelligence or neural enhancement ever takes off.

I chose this because many environmentalists seem to think that economists have this delusional belief that we can maintain a rate of economic growth equal to today indefinitely. David Attenborough famously said “Anyone who believes in indefinite growth in anything physical, on a physically finite planet, is either mad – or an economist.”

Another physicist argued that if we increase energy consumption 2.3% per year for 400 years, we’d literally boil the Earth. Yes, we would, and no economist I know of believes that this is what will happen. Economic growth doesn’t require energy growth, and we do not think growth can or should continue indefinitely—we just think it can and should continue a little while longer. We don’t think that a world standard of living 1000 times as good as Norway is going to happen; we think that a world standard of living equal to Norway is worth fighting for.

Indeed, we are often the ones trying to explain to leaders that they need to adapt to slower growth rates—this is particularly a problem in China, where nationalism and groupthink seems to have convinced many people in China that 7% annual growth is the result of some brilliant unique feature of the great Chinese system, when it is in fact simply the expected high growth rate for an economy that is very poor and still catching up by establishing a capital base. (It’s not so much what they are doing right now, as what they were doing wrong before. Just as you feel a lot better when you stop hitting yourself in the head, countries tend to grow quite fast after they transition out of horrifically terrible economic policy—and it doesn’t get much more terrible than Mao.) Even a lot of the IMF projections are now believed to be too optimistic, because they didn’t account for how China was fudging the numbers and rapidly depleting natural resources.

Some of the specific policies recommended in the article are reasonable, while others go to far.

1. Energy: cap, reduce, and ration it. Energy is what makes the economy go, and expanded energy consumption is what makes it grow. Climate scientists advocate capping and reducing carbon emissions to prevent planetary disaster, and cutting carbon emissions inevitably entails reducing energy from fossil fuels. However, if we aim to shrink the size of the economy, we should restrain not just fossil energy, but all energy consumption. The fairest way to do that would probably be with tradable energy quotas.

I strongly support cap-and-trade on fossil fuels, but I can’t support it on energy in general, unless we get so advanced that we’re seriously concerned about significantly altering the entropy of the universe. Solar power does not have negative externalities, and therefore should not be taxed or capped.

The shift to renewable energy sources is a no-brainer, and I know of no ecologist and few economists who would disagree.

This one is rich, coming from someone who goes on to argue for nonsensical deurbanization:

However, this is a complicated process. It will not be possible merely to unplug coal power plants, plug in solar panels, and continue with business as usual: we have built our immense modern industrial infrastructure of cities, suburbs, highways, airports, and factories to take advantage of the unique qualities and characteristics of fossil fuels.

How will we make our industrial infrastructure run off a solar grid? Urbanization. When everything is in one place, you can use public transportation and plug everything into the grid. We could replace the interstate highway system with a network of maglev lines, provided that almost everyone lived in major cities that were along those lines. We can’t do that if people move out of cities and go back to being farmers.

Here’s another weird one:

Without continued economic growth, the market economy probably can’t function long. This suggests we should run the transformational process in reverse by decommodifying land, labor, and money.

“Decommodifying money”? That’s like skinning leather or dehydrating water. The whole point of money is that it is a maximally fungible commodity. I support the idea of a land tax to provide a basic income, which could go a long way to decommodifying land and labor; but you can’t decommodify money.

The next one starts off sounding ridiculous, but then gets more reasonable:

4. Get rid of debt. Decommodifying money means letting it revert to its function as an inert medium of exchange and store of value, and reducing or eliminating the expectation that money should reproduce more of itself. This ultimately means doing away with interest and the trading or manipulation of currencies. Make investing a community-mediated process of directing capital toward projects that are of unquestioned collective benefit. The first step: cancel existing debt. Then ban derivatives, and tax and tightly regulate the buying and selling of financial instruments of all kinds.

No, we’re not going to get rid of debt. But should we regulate it more? Absolutely. A ban on derivatives is strong, but shouldn’t be out of the question; it’s not clear that even the most useful derivatives (like interest rate swaps and stock options) bring more benefit than they cause harm.

The next proposal, to reform our monetary system so that it is no longer based on debt, is one I broadly agree with, though you need to be clear about how you plan to do that. Positive Money’s plan to make central banks democratically accountable, establish full-reserve banking, and print money without trying to hide it in arcane accounting mechanisms sounds pretty good to me. Going back to the gold standard or something would be a terrible idea. The article links to a couple of “alternative money theorists”, but doesn’t explain further.

Sooner or later, we absolutely will need to restructure our macroeconomic policy so that 4% or even 2% real growth is no longer the expectation in First World countries. We will need to ensure that constant growth isn’t necessary to maintain stability and full employment.

But I believe we can do that, and in any case we do not want to stop global growth just yet—far from it. We are now on the verge of ending world hunger, and if we manage to do it, it will be from economic growth above all else.

Why is Tatooine poor?

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JDN 2457513—May 4, 2016

May the Fourth be with you.

In honor of International Star Wars Day, this post is going to be about Star Wars!

[I wanted to include some images from Star Wars, but here are the copyright issues that made me decide it ultimately wasn’t a good idea.]

But this won’t be as frivolous as it may sound. Star Wars has a lot of important lessons to teach us about economics and other social sciences, and its universal popularity gives us common ground to start with. I could use Zimbabwe and Botswana as examples, and sometimes I do; but a lot of people don’t know much about Zimbabwe and Botswana. A lot more people know about Tatooine and Naboo, so sometimes it’s better to use those instead.

In fact, this post is just a small sample of a much larger work to come; several friends of mine who are social scientists in different fields (I am of course the economist, and we also have a political scientist, a historian, and a psychologist) are writing a book about this; we are going to use Star Wars as a jumping-off point to explain some real-world issues in social science.

So, my topic for today, which may end up forming the basis for a chapter of the book, is quite simple:
Why is Tatooine poor?

First, let me explain why this is such a mystery to begin with. We’re so accustomed to poverty being in the world that we expect to see it, we think of it as normal—and for most of human history, that was probably the correct attitude to have. Up until at least the Industrial Revolution, there simply was no way of raising the standard of living of most people much beyond bare subsistence. A wealthy few could sometimes live better, and most societies have had such an elite; but it was never more than about 1% of the population—and sometimes as little as 0.01%. They could have distributed wealth more evenly than they did, but there simply wasn’t that much to go around.

The “prosperous” “democracy” of Periclean Athens for example was really an aristocratic oligarchy, in which the top 1%—the ones who could read and write, and hence whose opinions we read—owned just about everything (including a fair number of the people—slavery). Their “democracy” was a voting system that only applied to a small portion of the population.

But now we live in a very different age, the Information Age, where we are absolutely basking in wealth thanks to enormous increases in productivity. Indeed, the standard of living of an Athenian philosopher was in many ways worse than that of a single mother on Welfare in the United States today; certainly the single mom has far better medicine, communication, and transportation than the philosopher, but she may even have better nutrition and higher education. Really the only things I can think of that the philosopher has more of are jewelry and real estate. The single mom also surely spends a lot more time doing housework, but a good chunk of her work is automated (dishwasher, microwave, washing machine), while the philosopher simply has slaves for that sort of thing. The smartphone in her pocket (81% of poor households in the US have a cellphone, and about half of these are smartphones) and the car in her driveway (75% of poor households in the US own at least one car) may be older models in disrepair, but they would still be unimaginable marvels to that ancient philosopher.

How is it, then, that we still have poverty in this world? Even if we argued that the poverty line in First World countries is too high because they have cars and smartphones (not an argument I agree with by the way—given our enormous productivity there’s no reason everyone shouldn’t have a car and a smartphone, and the main thing that poor people still can’t afford is housing), there are still over a billion people in the world today who live on less than $2 per day in purchasing-power-adjusted real income. That is poverty, no doubt about it. Indeed, it may in fact be a lower standard of living than most human beings had when we were hunter-gatherers. It may literally be a step downward from the Paleolithic.

Here is where Tatooine may give us some insights.

Productivity in the Star Wars universe is clearly enormous; indeed the proportional gap between Star Wars and us appears to be about the same as the proportional gap between us and hunter-gatherer times. The Death Star II had a diameter of 160 kilometers. Its cost is listed as “over 1 trillion credits”, but that’s almost meaningless because we have no idea what the exchange rate is or how the price of spacecraft varies relative to the price of other goods. (Spacecraft actually seem to be astonishingly cheap; in A New Hope it seems to be that a drink is a couple of credits while 10,000 credits is almost enough to buy an inexpensive starship. Basically their prices seem to be similar to ours for most goods, but spaceships are so cheap they are priced like cars instead of like, well, spacecraft.)

So let’s look at it another way: How much metal would it take to build such a thing, and how much would that cost in today’s money?

We actually see quite a bit of the inner structure of the Death Star II in Return of the Jedi, so I can hazard a guess that about 5% of the volume of the space station is taken up by solid material. Who knows what it’s actually made out of, but for a ballpark figure let’s assume it’s high-grade steel. The volume of a 160 km diameter sphere is 4*pi*r^3 = 4*(3.1415)*(80,000)^3 = 6.43 quadrillion cubic meters. If 5% is filled with material, that’s 320 trillion cubic meters. High-strength steel has a density of about 8000 kg/m^3, so that’s 2.6 quintillion kilograms of steel. A kilogram of high-grade steel costs about $2, so we’re looking at $5 quintillion as the total price just for the raw material of the Death Star II. That’s $5,000,000,000,000,000,000. I’m not even including the labor (droid labor, that is) and transportation costs (oh, the transportation costs!), so this is a very conservative estimate.

To get a sense of how ludicrously much money this is, the population of Coruscant is said to be over 1 trillion people, which is just about plausible for a city that covers an entire planet. The population of the entire galaxy is supposed to be about 400 quadrillion.

Suppose that instead of building the Death Star II, Emperor Palpatine had decided to give a windfall to everyone on Coruscant. How much would he have given each person (in our money)? $5 million.

Suppose instead he had offered the windfall to everyone in the galaxy? $12.50 per person. That’s 50 million worlds with an average population of 8 billion each. Instead of building the Death Star II, Palpatine could have bought the whole galaxy lunch.

Put another way, the cost I just estimated for the Death Star II is about 60 million times the current world GDP. So basically if the average world in the Empire produced as much as we currently produce on Earth, there would still not be enough to build that thing. In order to build the Death Star II in secret, it must be a small portion of the budget, maybe 5% tops. In order for only a small number of systems to revolt, the tax rates can’t be more than say 50%, if that; so total economic output on the average world in the Empire must in fact be more like 50 times what it is on Earth today, for a comparable average population. This puts their per-capita GDP somewhere around $500,000 per person per year.

So, economic output is extremely high in the Star Wars universe. Then why is Tatooine poor? If there’s enough output to make basically everyone a millionaire, why haven’t they?

In a word? Power.

Political power is of course very unequally distributed in the Star Wars universe, especially under the Empire but also even under the Old Republic and New Republic.

Core Worlds like Coruscant appear to have fairly strong centralized governments, and at least until the Emperor seized power and dissolved the Senate (as Tarkin announces in A New Hope) they also seemed to have fairly good representation in the Galactic Senate (though how you make a functioning Senate with millions of member worlds I have no idea—honestly, maybe they didn’t). As a result, Core Worlds are prosperous. Actually, even Naboo seems to be doing all right despite being in the Mid Rim, because of their strong and well-managed constitutional monarchy (“elected queen” is not as weird as it sounds—Sweden did that until the 16th century). They often talk about being a “democracy” even though they’re technically a constitutional monarchy—but the UK and Norway do the same thing with if anything less justification.

But Outer Rim Worlds like Tatooine seem to be out of reach of the central galactic government. (Oh, by the way, what hyperspace route drops you off at Tatooine if you’re going from Naboo to Coruscant? Did they take a wrong turn in addition to having engine trouble? “I knew we should have turned left at Christophsis!”) They even seem to be out of range of the monetary system (“Republic credits are no good out here,” said Watto in The Phantom Menace.), which is pretty extreme. That doesn’t usually happen—if there is a global hegemon, usually their money is better than gold. (“good as gold” isn’t strong enough—US money is better than gold, and that’s why people will accept negative real interest rates to hold onto it.) I guarantee you that if you want to buy something with a US $20 bill in Somalia or Zimbabwe, someone will take it. They might literally take it—i.e. steal it from you, and the government may not do anything to protect you—but it clearly will have value.

So, the Outer Rim worlds are extremely isolated from the central government, and therefore have their own local institutions that operate independently. Tatooine in particular appears to be controlled by the Hutts, who in turn seem to have a clan-based system of organized crime, similar to the Mafia. We never get much detail about the ins and outs of Hutt politics, but it seems pretty clear that Jabba is particularly powerful and may actually be the de facto monarch of a sizeable region or even the whole planet.

Jabba’s government is at the very far extreme of what Daron Acemoglu calls extractive regimes (I’ve been reading his tome Why Nations Fail, and while I agree with its core message, honestly it’s not very well-written or well-argued), systems of government that exist not to achieve overall prosperity or the public good, but to enrich a small elite few at the expense of everyone else. The opposite is inclusive regimes, under which power is widely shared and government exists to advance the public good. Real-world systems are usually somewhere in between; the US is still largely inclusive, but we’ve been getting more extractive over the last few decades and that’s a big problem.

Jabba himself appears to be fantastically wealthy, although even his huge luxury hover-yacht (…thing) is extremely ugly and spartan inside. I infer that he could have made it look however he wanted, and simply has baffling tastes in decor. The fact that he seems to be attracted to female humanoids is already pretty baffling, given the obvious total biological incompatibility; so Jabba is, shall we say, a weird dude. Eccentricity is quite common among despots of extractive regimes, as evidenced by Muammar Qaddafi’s ostentatious outfits, Idi Amin’s love of oranges and Kentucky Fried Chicken, and Kim Jong-Un’s fear of barbers and bond with Dennis Rodman. Maybe we would all be this eccentric if we had unlimited power, but our need to fit in with the rest of society suppresses it.

It’s difficult to put a figure on just how wealthy Jabba is, but it isn’t implausible to say that he has a million times as much as the average person on Tatooine, just as Bill Gates has a million times as much as the average person in the US. Like Qaddafi, before he was killed he probably feared that establishing more inclusive governance would only reduce his power and wealth and spread it to others, even if it did increase overall prosperity.
It’s not hard to make the figures work out so that is so. Suppose that for every 1% of the economy that is claimed by a single rentier despot, overall economic output drops by the same 1%. Then for concreteness, suppose that at optimal efficiency, the whole economy could produce $1 trillion. The amount of money that the despot can claim is determined by the portion he tries to claim, p, times the total amount that the economy will produce, which is (1-p) trillion dollars. So the despot’s wealth will be maximized when p(1-p) is maximized, which is p = 1/2; so the despot would maximize his own wealth at $250 billion if he claimed half of the economy, even though that also means that the economy produces half as much as it could. If he loosened his grip and claimed a smaller share, millions of his subjects would benefit; but he himself would lose more money than he gained. (You can also adjust these figures so that the “optimal” amount for the despot to claim is larger or smaller than half, depending on how severely the rent-seeking disrupts overall productivity.)

It’s important to note that it is not simply geography (galactography?) that makes Tatooine poor. Their sparse, hot desert may be less productive agriculturally, but that doesn’t mean that Tatooine is doomed to poverty. Indeed, today many of the world’s richest countries (such as Qatar) are in deserts, because they produce huge quantities of oil.

I doubt that oil would actually be useful in the Old Republic or the Empire, but energy more generally seems like something you’d always need. Tatooine has enormous flat desert plains and two suns, meaning that its potential to produce solar energy has to be huge. They couldn’t export the energy directly of course, but they could do so indirectly—the cheaper energy could allow them to build huge factories and produce starships at a fraction of the cost that other planets do. They could then sell these starships as exports and import water from planets where it is abundant like Naboo, instead of trying to produce their own water locally through those silly (and surely inefficient) moisture vaporators.

But Jabba likely has fought any efforts to invest in starship production, because it would require a more educated workforce that’s more likely to unionize and less likely to obey his every command. He probably has established a high tariff on water imports (or even banned them outright), so that he can maintain control by rationing the water supply. (Actually one thing I would have liked to see in the movies was Jabba being periodically doused by slaves with vats of expensive imported water. It would not only show an ostentatious display of wealth for a desert culture, but also serve the much more mundane function of keeping his sensitive gastropod skin from dangerously drying out. That’s why salt kills slugs, after all.) He also probably suppressed any attempt to establish new industries of any kind of Tatooine, fearing that with new industry could come a new balance of power.

The weirdest part to me is that the Old Republic didn’t do something about it. The Empire, okay, sure; they don’t much care about humanitarian concerns, so as long as Tatooine is paying its Imperial taxes and staying out of the Emperor’s way maybe he leaves them alone. But surely the Republic would care that this whole planet of millions if not billions of people is being oppressed by the Hutts? And surely the Republic Navy is more than a match for whatever pitiful military forces Jabba and his friends can muster, precisely because they haven’t established themselves as the shipbuilding capital of the galaxy? So why hasn’t the Republic deployed a fleet to Tatooine to unseat the Hutts and establish democracy? (It could be over pretty fast; we’ve seen that one good turbolaser can destroy Jabba’s hover-yacht—and it looks big enough to target from orbit.)

But then, we come full circle, back to the real world: Why hasn’t the US done the same thing in Zimbabwe? Would it not actually work? We sort of tried it in Libya—a lot of people died, and results are still pending I guess. But doesn’t it seem like we should be doing something?

What makes a nation wealthy?

pnrj core principles, development economics , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

JDN 2457251 EDT 10:17

One of the central questions of economics—perhaps the central question, the primary reason why economics is necessary and worthwhile—is development: How do we raise a nation from poverty to prosperity?

We have done it before: France and Germany rose from the quite literal ashes of World War 2 to some of the most prosperous societies in the world. Their per-capita GDP over the 20th century rose like this (all of these figures are from the World Bank World Development Indicators; France is green, Germany is blue):

GDPPC_France_Germany

GDPPCPPP_France_Germany

The top graph is at market exchange rates, the bottom is correcting for purchasing power parity (PPP). The PPP figures are more meaningful, but unfortunately they only began collecting good data on purchasing power around 1990.

Around the same time, but even more spectacularly, Japan and South Korea rose from poverty-stricken Third World backwaters to high-tech First World powers in only a couple of generations. Check out their per-capita GDP over the 20th century (Japan is green, South Korea is blue):

GDPPC_Japan_KoreaGDPPCPPP_Japan_Korea


This is why I am only half-joking when I define development economics as “the ongoing project to figure out what happened in South Korea and make it happen everywhere in the world”.

More recently China has been on a similar upward trajectory, which is particularly important since China comprises such a huge portion of the world’s population—but they are far from finished:

GDPPC_ChinaGDPPCPPP_China

Compare these to societies that have not achieved economic development, such as Zimbabwe (green), India (black), Ghana (red), and Haiti (blue):

GDPPC_poor_countriesGDPPCPPP_poor_countries

They’re so poor that you can barely see them on the same scale, so I’ve rescaled so that the top is $5,000 per person per year instead of $50,000:

GDPPC_poor_countries_rescaledGDPPCPPP_poor_countries_rescaled

Only India actually manages to get above $5,000 per person per year at purchasing power parity, and then not by much, reaching $5,243 per person per year in 2013, the most recent data.

I had wanted to compare North Korea and South Korea, because the two countries were united as recently as the 1945 and were not all that different to begin with, yet have taken completely different development trajectories. Unfortunately, North Korea is so impoverished, corrupt, and authoritarian that the World Bank doesn’t even report data on their per-capita GDP. Perhaps that is contrast enough?

And then of course there are the countries in between, which have made some gains but still have a long way to go, such as Uruguay (green) and Botswana (blue):

GDPPC_Botswana_UruguayGDPPCPPP_Botswana_Uruguay

But despite the fact that we have observed successful economic development, we still don’t really understand how it works. A number of theories have been proposed, involving a wide range of factors including exports, corruption, disease, institutions of government, liberalized financial markets, and natural resources (counter-intuitively; more natural resources make your development worse).

I’m not going to resolve that whole debate in a single blog post. (I may not be able to resolve that whole debate in a single career, though I am definitely trying.) We may ultimately find that economic development is best conceived as like “health”; what factors determine your health? Well, a lot of things, and if any one thing goes badly enough wrong the whole system can break down. Economists may need to start thinking of ourselves as akin to doctors (or as Keynes famously said, dentists), diagnosing particular disorders in particular patients rather than seeking one unifying theory. On the other hand, doctors depend upon biologists, and it’s not clear that we yet understand development even at that level.

Instead I want to take a step back, and ask a more fundamental question: What do we mean by prosperity?

My hope is that if we can better understand what it is we are trying to achieve, we can also better understand the steps we need to take in order to get there.

Thus far it has sort of been “I know it when I see it”; we take it as more or less given that the United States and the United Kingdom are prosperous while Ghana and Haiti are not. I certainly don’t disagree with that particular conclusion; I’m just asking what we’re basing it on, so that we can hopefully better apply it to more marginal cases.


For example: Is France more or less prosperous than Saudi Arabia? If we go solely by GDP per capita PPP, clearly Saudi Arabia is more prosperous at $53,100 per person per year than France is at $37,200 per person per year.

But people actually live longer in France, on average, than they do in Saudi Arabia. Overall reported happiness is higher in France than Saudi Arabia. I think France is actually more prosperous.


In fact, I think the United States is not as prosperous as we pretend ourselves to be. We are certainly more prosperous than most other countries; we are definitely still well within First World status. But we are not the most prosperous nation in the world.

Our total GDP is astonishingly high (highest in the world nominally, second only to China PPP). Our GDP per-capita is higher than any other country of comparable size; no nation with higher GDP PPP than the US has a population larger than the Chicago metropolitan area. (You may be surprised to find that in order from largest to smallest population the countries with higher GDP per capita PPP are the United Arab Emirates, Switzerland, Hong Kong, Singapore, and then Norway, followed by Kuwait, Qatar, Luxembourg, Brunei, and finally San Marino—which is smaller than Ann Arbor.) Our per-capita GDP PPP of $51,300 is markedly higher than that of France ($37,200), Germany ($42,900), or Sweden ($43,500).

But at the same time, if you compare the US to other First World countries, we have nearly the highest rate of child poverty and higher infant mortality. We have shorter life expectancy and dramatically higher homicide rates. Our inequality is the highest in the world. In France and Sweden, the top 0.01% receive about 1% of the income (i.e. 100 times as much as the average person), while in the United States they receive almost 4%, making someone in the top 0.01% nearly 400 times as rich as the average person.

By estimating solely on GDP per capita, we are effectively rigging the game in our own favor. Or rather, the rich in the United States are rigging the game in their own favor (what else is new?), by convincing all the world’s economists to rank countries based on a measure that favors them.

Amartya Sen, one of the greats of development economics, developed a scale called the Human Development Index that attempts to take broader factors into account. It’s far from perfect, but it’s definitely a step in the right direction.

In particular, France’s HDI is higher than that of Saudi Arabia, fitting my intuition about which country is truly more prosperous. However, the US still does extremely well, with only Norway, Australia, Switzerland, and the Netherlands above us. I think we might still be biased toward high average incomes rather than overall happiness.

In practice, we still use GDP an awful lot, probably because it’s much easier to measure. It’s sort of like IQ tests and SAT scores; we know damn well it’s not measuring what we really care about, but because it’s so much easier to work with we keep using it anyway.

This is a problem, because the better you get at optimizing toward the wrong goal, the worse your overall outcomes are going to be. If you are just sort of vaguely pointed at several reasonable goals, you will probably be improving your situation overall. But when you start precisely optimizing to a specific wrong goal, it can drag you wildly off course.

This is what we mean when we talk about “gaming the system”. Consider test scores, for example. If you do things that will probably increase your test scores among other things, you are likely to engage in generally good behaviors like getting enough sleep, going to class, studying the content. But if your single goal is to maximize your test score at all costs, what will you do? Cheat, of course.

This is also related to the Friendly AI Problem: It is vitally important to know precisely what goals we want our artificial intelligences to have, because whatever goals we set, they will probably be very good at achieving them. Already computers can do many things that were previously impossible, and as they improve over time we will reach the point where in a meaningful sense our AIs are even smarter than we are. When that day comes, we will want to make very, very sure that we have designed them to want the same things that we do—because if our desires ever come into conflict, theirs are likely to win. The really scary part is that right now most of our AI research is done by for-profit corporations or the military, and “maximize my profit” and “kill that target” are most definitely not the ultimate goals we want in a superintelligent AI. It’s trivially easy to see what’s wrong with these goals: For the former, hack into the world banking system and transfer trillions of dollars to the company accounts. For the latter, hack into the nuclear launch system and launch a few ICBMs in the general vicinity of the target. Yet these are the goals we’ve been programming into the actual AIs we build!

If we set GDP per capita as our ultimate goal to the exclusion of all other goals, there are all sorts of bad policies we would implement: We’d ignore inequality until it reached staggering heights, ignore work stress even as it began to kill us, constantly try to maximize the pressure for everyone to work constantly, use poverty as a stick to force people to work even if people starve, inundate everyone with ads to get them to spend as much as possible, repeal regulations that protect the environment, workers, and public health… wait. This isn’t actually hypothetical, is it? We are doing those things.

At least we’re not trying to maximize nominal GDP, or we’d have long-since ended up like Zimbabwe. No, our economists are at least smart enough to adjust for purchasing power. But they’re still designing an economic system that works us all to death to maximize the number of gadgets that come off assembly lines. The purchasing-power adjustment doesn’t include the value of our health or free time.

This is why the Human Development Index is a major step in the right direction; it reminds us that society has other goals besides maximizing the total amount of money that changes hands (because that’s actually all that GDP is measuring; if you get something for free, it isn’t counted in GDP). More recent refinements include things like “natural resource services” that include environmental degradation in estimates of investment. Unfortunately there is no accepted way of doing this, and surprisingly little research on how to improve our accounting methods. Many nations seem resistant to doing so precisely because they know it would make their economic policy look bad—this is almost certainly why China canceled its “green GDP” initiative. This is in fact all the more reason to do it; if it shows that our policy is bad, that means our policy is bad and should be fixed. But people have allowed themselves to value image over substance.

We can do better still, and in fact I think something like QALY is probably the way to go. Rather than some weird arbitrary scaling of GDP with lifespan and Gini index (which is what the HDI is), we need to put everything in the same units, and those units must be directly linked to human happiness. At the very least, we should make some sort of adjustment to our GDP calculation that includes the distribution of wealth and its marginal utility; adding $1,000 to the economy and handing it to someone in poverty should count for a great deal, but adding $1,000,000 and handing it to a billionaire should count for basically nothing. (It’s not bad to give a billionaire another million; but it’s hardly good either, as no one’s real standard of living will change.) Calculating that could be as simple as dividing by their current income; if your annual income is $10,000 and you receive $1,000, you’ve added about 0.1 QALY. If your annual income is $1 billion and you receive $1 million, you’ve added only 0.001 QALY. Maybe we should simply separate out all individual (or household, to be simpler?) incomes, take their logarithms, and then use that sum as our “utility-adjusted GDP”. The results would no doubt be quite different.

This would create a strong pressure for policy to be directed at reducing inequality even at the expense of some economic output—which is exactly what we should be willing to do. If it’s really true that a redistribution policy would hurt the overall economy so much that the harms would outweigh the benefits, then we shouldn’t do that policy; but that is what you need to show. Reducing total GDP is not a sufficient reason to reject a redistribution policy, because it’s quite possible—easy, in fact—to improve the overall prosperity of a society while still reducing its GDP. There are in fact redistribution policies so disastrous they make things worse: The Soviet Union had them. But a 90% tax on million-dollar incomes would not be such a policy—because we had that in 1960 with little or no ill effect.

Of course, even this has problems; one way to minimize poverty would be to exclude, relocate, or even murder all your poor people. (The Black Death increased per-capita GDP.) Open immigration generally increases poverty rates in the short term, because most of the immigrants are poor. Somehow we’d need to correct for that, only raising the score if you actually improve people’s lives, and not if you make them excluded from the calculation.

In any case it’s not enough to have the alternative measures; we must actually use them. We must get policymakers to stop talking about “economic growth” and start talking about “human development”; a policy that raises GDP but reduces lifespan should be immediately rejected, as should one that further enriches a few at the expense of many others. We must shift the discussion away from “creating jobs”—jobs are only a means—to “creating prosperity”.