Intentions and Consequences

Monday, June 2nd, 2014

In a complicated world, good intentions can have terrible consequences, Arnold Kling reminds us — in his hypothetical high school graduation speech:

If you judge people by how their life’s work contributed to better lives for people and less poverty in the world, then I will gladly stack up the Henry Fords and Thomas Edisons against the Mother Theresas. Collectively, the capitalists and entrepreneurs have a much better claim on our gratitude than do the icons of community service.

What would you rather have in your community? Would you rather have the Wal-mart that hires the workers that other businesses cannot use and for whom politicians can offer no assistance–people with little education or training, including people with disabilities? Or would you rather have the “activists” who fight to keep out Wal-Mart or who insist that they should dictate Wal-Mart’s labor policies?

In a complicated world, good intentions can have terrible consequences. One hundred years ago, many well-intentioned people championed Communism. When Lenin took power in Russia in 1917, he actually believed that the economy would organize itself, and that without profits production would be more efficient and more equitable. When both his ideas and his leadership proved unpopular, he responded with ruthless tyranny. His took his self-righteousness to a mad extreme, but I am afraid that there is a little bit of Lenin lurking among all of those who are so certain that community service is morally superior to business.

If those of you who are graduating today go on to attend a liberal arts college, you will hear constantly from people who equate moral character with political expressions of approval for non-profits and disapproval of business. They judge you not be the content of your character but by the conformity of your political expression. I urge you to reject their doctrines.

Posted in Economics, Education, Policy | 10 Comments »

Can China Best the West at Statecraft?

Tuesday, May 27th, 2014

For centuries, China’s mandarins ran the world’s most advanced government, until the Europeans and then the Americans forged ahead, Micklethwait and Wooldridge point out:

Better government has long been one of the West’s great advantages. Now the Chinese want that title back.

Western policy makers should look at this effort the same way that Western businessmen looked at Chinese factories in the 1990s: with a mixture of awe and fear. Just as China deliberately set out to remaster the art of capitalism, it is now trying to remaster the art of government. The only difference is a chilling one: Many Chinese think there is far less to be gained from studying Western government than they did from studying Western capitalism. They visit Silicon Valley and Wall Street, not Washington, D.C.

The West pulled ahead of “the rest” because it created a permanent contest to improve its government machinery. In particular, it pioneered four great revolutions. The first was the security revolution of the 16th and 17th centuries, when Europe’s princes created modern nation states. As Spain, England and France competed around the globe, they improved statecraft in a way that introverted China never did.

The second great revolution, of the late 18th and 19th centuries, championed liberty and efficiency. Aristocratic patronage systems were replaced with leaner, more meritocratic governments, focused on providing services like schools and police. Under Britain’s thrifty Victorians, the world’s most powerful country reduced its tax take from £80 million in 1816 to less than £60 million in 1860 — even as its population increased by 50%.

This vision of a limited but vigorous state was swept away in the third revolution. In the 20th century, Western government provided people with ever more help: first health care and unemployment pay but eventually college education and what President Lyndon B. Johnson called the Great Society. Despite counterattacks, notably the 1980s half-revolution of Ronald Reagan and Margaret Thatcher, the sprawling welfare state remains the dominant Western model.

In the U.S., government spending increased from 7.5% of GDP in 1913 to 19.7% in 1937, to 27% in 1960, to 34% in 2000 and to 42% in 2011. Voters continue to demand more services, and politicians of all persuasions have indulged them — with the left delivering hospitals and schools, the right building prisons, armies and police forces, and everybody creating regulations like confetti.

In all three of these revolutions, the West led the way. But now, as China’s ambitions illustrate, the emerging world is eager to compete again.

And why not? Over the past two years, while the U.S. political system has torn itself apart over Obamacare, China has extended pension coverage to an additional 240 million rural people. Lee Kwan Yew’s authoritarian Singapore offers dramatically better education and health care than Uncle Sam, with a state that is a fraction of the U.S.’s size. If you are looking for the future of health care, India’s attempt to apply mass-production techniques to hospitals is part of the answer. So too, Brazil’s conditional cash transfers are part of the future of welfare. At the very least, the West no longer has a monopoly on ideas.

Posted in Economics, Policy | 1 Comment »

How People Get Good at Their Jobs

Wednesday, May 21st, 2014

Schools teach few job skills, transfer of learning is mostly wishful thinking, and the effect of education on intelligence is largely hollow, Bryan Caplan notes, so how on earth do people get good at their jobs?

The same way you get to Carnegie Hall: practice. People learn by doing specific tasks over and over. To get better at piloting, you fly planes; to get better at obstetrics, you deliver babies; to get better at carpentry, you build houses.

For the unskilled, progress is easy. Given common-sense conditions, it’s almost guaranteed. In the words of K. Anders Ericsson, the world’s leading expert on expertise, novices improve as long as they are, “1) given a task with a well-defined goal, 2) motivated to improve, 3) provided with feedback, and 4) provided with ample opportunities for repetition and gradual refinements of their performance.”[1] Before long, though, the benefit of mere practice plateaus. To really get good at their jobs, people must advance to deliberate practice. To keep learning, they must exit their comfort zone — raise the bar, struggle to surmount it, repeat. As Ericsson and co-authors explain:

You need a particular kind of practice — deliberate practice — to develop expertise. When most people practice, they focus on the things they already know how to do. Deliberate practice is different. It entails considerable, specific, and sustained efforts to do something you can’t do well — or even at all.[2]

Attaining world-class expertise in chess, music, math, tennis, swimming, and long-distance running requires roughly ten years of deliberate practice.[3] Even champions only deliberately practice for two or three hours a day, so ten years roughly equals ten thousand hours.[4] Malcolm Gladwell famously dubbed this the “Ten Thousand Hour Rule.”[5] Reaching the pinnacle of achievement in writing and science takes even longer.

Fortunately, the labor market offers plenty of sub-pinnacle opportunities. A few thousand hours of deliberate practice won’t make you a superstar, but is ample time to get good in most occupations.[6] What really counts, of course, is not the mere passage of time, but the amount of practice.[7]

The Ten Thousand Hour Rule is widely seen as an intellectual victory for effort over talent. This is a serious misinterpretation. The Ten Thousand Hour Rule doesn’t say that anyone can become a master if he tries hard and long enough.[8] What the Rule says, rather, is that even the best and brightest must spend years practicing their craft to reach the top. People don’t become skilled workers by dabbling in a dozen different school subjects. They become skilled workers by devoting years to their chosen vocation — by doing their job and striving to do it better.

Posted in Economics, Education | 1 Comment »

In Praise of Shanghai

Tuesday, May 20th, 2014

David Friedman speaks out in praise of Shanghai:

There is street food everywhere, people are friendly, the architects who built the skyscrapers were crazy enough to put a model of half a planet on top of one and of a space station on another.

The evening before I left I went for a walk in the park near my hotel. There was music playing, I suspect from a boom box, and couples, many of them middle aged, dancing to it, not very well. In the same park the next morning there were people doing tai chi exercises, others doing slow motion dance moves, in groups, to music. The feel of the place is almost the precise opposite of a communist stereotype—it feels as though everyone is energetically doing what he wants and half the population are small scale entrepreneurs. The typical “department store” is a large building occupied by (I’m guessing) a couple of hundred tiny stores, with what they sell sorted to some degree by floors of the building.

One interesting question is whether China, at this point, is more or less capitalist than the U.S. So far as Shanghai is concerned, my guess is less in theory but more in practice. I was told that there are regulations on who can cut hair or sell food out of a cart on the street but they are not enforced very energetically and can be dealt with if necessary by a modest bribe to the policeman who is supposed to enforce them.

Posted in Economics, Policy | 1 Comment »

Fixing Income Inequality

Monday, May 19th, 2014

If you could snap your fingers and magically double the wealth and income of every human on earth, Scott Adams (Dilbert asks), would you do it?

Before you answer with some version of “Duh, yes.” keep in mind that you would be severely worsening income inequality. And that, as we are often reminded by the media, will destroy civilization.

I’m not entirely clear why income inequality leads to doom, all other things being equal, but I hear it has something to do with the French. The analogy, as I understand it, is that Marie Antoinette and her historically inaccurate philosophy “Let them eat cake” is exactly like Bill Gates pledging his fortune to eradicating malaria, fixing education, and providing clean water to the poor.

BUT WHAT ABOUT THAT HEDGE FUND GUY AND HIS HIGH FREQUENCY TRADING????

You can kill that guy with a shovel. That has jury nullification written all over it. I haven’t looked into it, but I’m fairly sure there are a few assholes among the middle class and poor too. Can we ignore the outliers for now?

One of the odd things about my career, and where I live, is that I meet a lot of billionaires and hundred-millionaires in the normal course of my work. Allow me to label my experience anecdotal and rare before you do. Anyway, my experience is that all the super-rich people I meet seem to have a few things in common:

  • They don’t need to work.
  • They all work 60+ hours per week.
  • Every penny they make from now on will be spent by others.
  • They are trying to find the best way to give away their money.
  • No one likes higher taxes.

I don’t think we want the rich to stop working. We’re all lucky that Steve Jobs didn’t quit before Pixar. But if the rich keep working, inequality is likely to keep getting worse. So how do you solve the problem of helping the rich give away their money in ways that help low-income folks the most while being meaningful to the givers?

Rich people wish they had a better and more meaningful way to get rid of excess wealth than buying jets or paying taxes:

How about a private entity creating some sort of venture capital funding program that allows the rich to leverage their experience and their cash in ways that best help the economy? Think of it as micro-loans to low-income borrowers but with the kicker that the lender can offer mentoring, contacts, and even training.

Yeah, let’s harness all those low-income people with good business ideas…

Posted in Business, Economics, Policy | 1 Comment »

The Next Age of Invention

Tuesday, May 13th, 2014

The future of technology is likely to be bright, Joel Mokyr says, because past pessism has been wrong:

The first thing to note is that the twentieth century experienced probably as many headwinds, albeit of a different kind, as Gordon foresees for the twenty-first. Industrialized nations fought two massive world wars and experienced the Great Depression, the Cold War, and the rise of totalitarian regimes in much of Europe and Asia. In the past, such catastrophes might have been enough to set economies back for hundreds of years or even to condemn entire societies to stagnation or barbarism. Yet none of them could stop the power of ever-faster innovation in the twentieth century to stimulate rapid growth in much of the industrialized and industrializing world.

Keep in mind, too, that economic growth, measured as the growth of income per capita (corrected for inflation), is not the best measure of what technological change does. True, technology increases productivity by making it possible to produce goods and services more efficiently (at lower cost). But much of what it does is to put on the market new products (or vastly improved ones) that may be quite inexpensive relative to their benefits. Many of the most important inventions of the late nineteenth and twentieth centuries are things that we would not want to do without today; yet they had little effect on the national accounts because they were so inexpensive: aspirin, lightbulbs, water chlorination, bicycles, lithium batteries, wheeled suitcases, contact lenses, digital music, and more.

Further, our outdated conventions of national income accounting fail to capture fully the many ways in which technology can transform human life for the better. For instance, national income calculations do not count “leisure” as a valuable good. People who are not working are not producing, and this is simply “bad,” in Gordon’s view, because they are not adding to economic output. But it may well be that a leisurely life is the best “monopoly profit,” as Nobel Prize winner John Hicks already noted in 1935. And thanks to new technology, leisure—even involuntary leisure such as unemployment—can be more enjoyable than ever before. At little cost, anyone can now watch a bewildering array of sports events, movies, and operas from the comfort and safety of a living room on a high-definition flat-screen TV. If the technology of the twentieth century did anything, it vastly augmented our ability to have a good time when we are not working. Yet, while the average individual in an industrialized country nowadays has far more leisure hours and many more enjoyable things in his or her life than the typical person did a century ago, such things hardly show up in the national income statistics.

Posted in Economics, Technology | 7 Comments »

Why climate change is good for the world

Monday, May 12th, 2014

Climate change has done more good than harm so far, Matt Ridley notes, and is likely to continue doing so for most of this century:

There are many likely effects of climate change: positive and negative, economic and ecological, humanitarian and financial. And if you aggregate them all, the overall effect is positive today — and likely to stay positive until around 2080. That was the conclusion of Professor Richard Tol of Sussex University after he reviewed 14 different studies of the effects of future climate trends.

To be precise, Prof Tol calculated that climate change would be beneficial up to 2.2?C of warming from 2009 (when he wrote his paper). This means approximately 3?C from pre-industrial levels, since about 0.8?C of warming has happened in the last 150 years. The latest estimates of climate sensitivity suggest that such temperatures may not be reached till the end of the century — if at all. The Intergovernmental Panel on Climate Change, whose reports define the consensis, is sticking to older assumptions, however, which would mean net benefits till about 2080. Either way, it’s a long way off.

Now Prof Tol has a new paper, published as a chapter in a new book, called How Much have Global Problems Cost the World?, which is edited by Bjorn Lomborg, director of the Copenhagen Consensus Centre, and was reviewed by a group of leading economists. In this paper he casts his gaze backwards to the last century. He concludes that climate change did indeed raise human and planetary welfare during the 20th century.

You can choose not to believe the studies Prof Tol has collated. Or you can say the net benefit is small (which it is), you can argue that the benefits have accrued more to rich countries than poor countries (which is true) or you can emphasise that after 2080 climate change would probably do net harm to the world (which may also be true). You can even say you do not trust the models involved (though they have proved more reliable than the temperature models). But what you cannot do is deny that this is the current consensus. If you wish to accept the consensus on temperature models, then you should accept the consensus on economic benefit.

Posted in Economics, Science | 4 Comments »

On Survivalism

Thursday, May 8th, 2014

T. Greer shares his thoughts on survivalism and the proper balance between resilience and efficiency:

Robustness and facility are two virtues fundamentally at odds, and all complex systems, be they organisms, economies, or militaries, are subject to the trade off between them. While the relation between specialization and efficiency was noted by both Xenophon and Ibn Khaldun centuries earlier, widespread acceptance of the “drag” redundancy places on a system’s productivity did not come until publication of Adam Smith‘s The Wealth of Nations. Mr. Smith uses the example of a pin factory to teach the general principle.

[...]

Mr. Smith does not present the primary drawback of this arrangement. With efficiency comes fragility. Ten men working by their lonesome produce a paltry number of pins, but the faults of one man do not destroy the efforts of another. In contrast, if something happens to one of the ten factory men and; his equipment, no pins get made and the factory must shut down. One bad cog puts a stop to the entire machine.

For the survivalist this is a problem pervading not only the pin factories, but all of modern society. Over the last century two trends have decidedly shifted society’s balance away from robustness and towards efficiency. Modern dependence on technology and the specialized knowledge needed to maintain it is the first of these trends; the second is the fusion of local communities with the global economy and larger political units. The day is past where a man is expected to know how to repair all that is on his property, grow his own food, or make and use his own fuel. In some cases this is simply the fruits of geographic isolation and economic specialization – the knowledge needed to raise livestock and plant crops is quite useless to the city dweller. Other cases reflect the ‘division of knowledge’ that inevitably comes with man’s growing understanding of and ability to manipulate the universe in which he dwells (e.g. few Americans know how to build a hard drive, much less a nuclear power plant). The rise of multinational conglomerates and global supply networks ensure that most of what we need is made far away; the eclipse of local civic and political institutions by national agencies erodes our communities’ capacity to solve problems without outside help. What we are left with is a culture of dependency, so ingrained as to be seen in our aesthetics. Explains Matthew Crawford in his excellent essay, “Shop Class as Soulcraft“:

At the same time, an engineering culture has developed in recent years in which the object is to “hide the works,” rendering the artifacts we use unintelligible to direct inspection. Lift the hood on some cars now (especially German ones), and the engine appears a bit like the shimmering, featureless obelisk that so enthralled the cavemen in the opening scene of the movie 2001: A Space Odyssey. Essentially, there is another hood under the hood. This creeping concealedness takes various forms. The fasteners holding small appliances together now often require esoteric screwdrivers not commonly available, apparently to prevent the curious or the angry from interrogating the innards. By way of contrast, older readers will recall that until recent decades, Sears catalogues included blown-up parts diagrams and conceptual schematics for all appliances and many other mechanical goods. It was simply taken for granted that such information would be demanded by the consumer.

A decline in tool use would seem to betoken a shift in our mode of inhabiting the world: more passive and more dependent. And indeed, there are fewer occasions for the kind of spiritedness that is called forth when we take things in hand for ourselves, whether to fix them or to make them. What ordinary people once made, they buy; and what they once fixed for themselves, they replace entirely or hire an expert to repair, whose expert fix often involves installing a pre-made replacement part.

Posted in Economics, War | 3 Comments »

Profiting from the News

Wednesday, May 7th, 2014

Scott Adams (Dilbert) has been profiting from the news:

The investment idea is that the news always exaggerates risks. This is an extension of the Adams Law of Slow Moving Disasters that says humans generally figure out how to avoid big disasters when they see them coming.

So, for example, when BP stock was in the toilet, and the news media kept telling us the Gulf would be ruined for decades, I loaded up on BP stock because I predicted the opposite: a better-than-expected clean-up. That prediction turned out right. So far, that investment has paid about a 5% dividend in recent years and the stock itself is up 19%. (You should interpret that as just “up” because I haven’t compared the performance to the market in general that is also up.)

When the news was reporting that Iranian leaders were on a suicide mission to develop a nuclear bomb to destroy Israel and their own country, I assumed it would all work out peacefully and I invested heavily in a beaten-down EFT of Israeli stocks. It’s the biggest single investment I’ve ever made. That’s up 26%.

When the news indicated that the government of Turkey was circling the drain and disaster was near, Turkish stocks crashed. I predicted that Turkey would work things out and get back to business in due time. So I loaded up on the biggest cell phone company in Turkey. As bad luck would have it, that company also has a big position in Ukraine, so it took a hit after I bought it, but now it’s up 10%.

Posted in Business, Economics, Policy | No Comments »

Three Graphs About Trying and Failing

Tuesday, May 6th, 2014

Bryan Caplan presents three graphs about trying and failing:

Three Graphs About Trying and Failing 1

Three Graphs About Trying and Failing 2

Three Graphs About Trying and Failing 3

Although kids in the bottom quartile became much more likely to try college, they became no more likely to finish.  The fruits of effort for the second quartile are also underwhelming.  How can this be?  Because the probability of finishing college if you try college actually fell for the bottom three-quarters of the distribution!  This is the fruit of America’s college-for-all mania.

Posted in Economics, Education | 1 Comment »

Human capital or signaling? No, doing the Right Thing!

Tuesday, May 6th, 2014

Bryan Caplan has argued that students’ actions — not sitting in for free on classes and rejoicing at class cancellations — suggest a belief in the signaling model of education, rather than the human capital model.

Vipul Naik says, no, it’s about doing the Right Thing:

I don’t think they usually think of it as “education is useless, but I’ll go through it anyway because that allows me to signal to potential employers that I have the necessary intelligence and personality traits to succeed on the job.” Instead, I believe that people’s model of school education is linked to the idea of karma: they do what the System wants them to do, because that’s their duty and the Right Thing to do. Many of them also expect that if they do the Right Thing, and fulfill their duties well, then the System shall reward them with financial security and a rewarding life. Others may take a more fateful stance, saying that it’s not up to them to judge what the System has in store for them, but they still need to do the Right Thing.

Caplan might call that signaling conformity.

Posted in Economics, Education | 8 Comments »

You Must First Invent the Universe

Monday, May 5th, 2014

Sid Meier describes the allure of Civilization, his groundbreaking 1991 game:

We really didn’t design it in, but as I look back, I realize there is a really interesting growth path in the game. In the beginning, you have one or two military units, just a couple of technologies, and just a couple choices to make. The game opens up and unfolds gradually at your own pace. And before you know it, you’re dealing with lots of interesting decisions.

There is also that one-more-turn quality. There are enough different things going on that there is never really a good time to stop. In one city, you’re building something, and when that is done, you’re exploring this other continent. And then you meet the leader of another civilization, and you’re wondering how that is going to turn out. There are enough different threads in your imagination at any one time. One of the reasons that Civ has become this well-known phenomenon is that people remember the night when they stayed up to 3 a.m. playing it. It’s these experiences that stick with you.

So true.

The game was originally going to be about the rise and fall of civilizations:

There would be occasional setbacks, such as the Dark Ages, that you would have to overcome, and the glory of overcoming them would be satisfying. But what we found was that when bad things happen, people would just reload the game. They were not interested in the fall of civilizations. Just the rise of them.

So we ended up with a game of constant progress. We actually started to understand the psychology of gamers. When something bad happens, often they blame it on the computer, or the designer, or some other outside force. They would think it wasn’t fair, and they would reload the game.

We also found the same phenomenon when nuclear weapons came into play in the game. Players did not have much hesitation in using nuclear weapons against the AI-controlled civilizations. But if somehow the AI used a nuclear weapon against them, it would be: “wait a minute, that’s not fair.” The message of Civ is that [nuclear weapons are] a lose-lose for everybody. But we found that we couldn’t allow the AI to use them, because it was destroying the player’s experience. If the player is destroying the AI’s experience, then it’s only the computer that suffers.

Stupid computer…

Posted in Economics, Games, Policy, War | 4 Comments »

Gary Becker, RIP

Monday, May 5th, 2014

Russ Roberts offers this eulogy for Gary Becker, his advisor at the University of Chicago:

We graduate students were in awe of him and more than a little bit afraid of him. He had a very big brain and was never one for casual conversation or chit-chat.

He called on students randomly and challenged us with questions during class. He would bark out your last name and ask a question. Usually, the student would then ask him to repeat the question as a way to stall for time, mental wheels spinning furiously, hoping to find the right response. Knowing we might be called on, we paid close attention to the lecture, desperately trying to figure out the implications of the analysis so we could be ready for the question. They were not easy questions. Mostly he was patient with our imperfections. The only exception I remember was when a student declared that Becker didn’t understand Coase’s work. A collective gasp filled the air. We half-expected a lightning bolt to come down through the roof and kill the student on the spot.

When I was working on my dissertation and I wanted to see Becker, I would go to his secretary (Myrna Hieke) and she would give me a 15 minute time slot. When the time came, I would sit down and he would greet me with something like “Well?” I would tell him whatever I was struggling with and he would tell me how I could fix it. Even in that casual setting, the laser-like quality of his mind was apparent. I usually didn’t use the whole 15 minutes.

When you presented your paper at his workshop, the expectation was that all of the participants had read your paper and there was no need for you to present it. You were given five minutes to mention anything you felt might be of interest and then the participants grilled you for 90 minutes. Becker was the main griller. His copy of the paper being presented had a special look that we students envied. It was covered in comments, but more than that, it looked like it had been run over by a car a few times. It was a scary place for a student to present but we were helped by the fact that a lot of illustrious guests from outside of Chicago also seemed to find it somewhat challenging.

His interview on EconTalk was the ninth episode of what is now over 400 episodes. It was a kindness on his part that helped me recruit other guests. We talked last fall about doing another interview but it fell through. I wish now I had tried a little harder to make it happen.

He exuded honesty and a desire to discover the truth. He gave all of us intellectual license to pursue economics to wherever it might lead. His confidence in economics inspired us. His curiosity and his reasoning powers were unparalleled. George Stigler liked to say about economics and economists that there is only one social science and we are its practitioners. Gary Becker, more than anyone, gave empirical support to Stigler’s claim. He was a giant. I’ll miss him.

Posted in Economics | No Comments »

Positional Correctness

Saturday, May 3rd, 2014

Political correctness is not about protecting anyone, but rather about expressing one’s own moral superiority — making it what economists call a positional good:

A positional good is a good that people acquire to signalise where they stand in a social hierarchy; it is acquired in order to set oneself apart from others. Positional goods therefore have a peculiar property: the utility their consumers derive from them is inversely related to the number of people who can access them.

Positionality is not a property of the good itself, it is a matter of the consumer’s motivations. I may buy an exquisite variety of wine because I genuinely enjoy the taste, or acquire a degree from a reputable university because I genuinely appreciate what that university has to offer. But my motivation could also be to set myself apart from others, to present myself as more sophisticated or smarter. From merely observing that I consume the product, you could not tell my motivation. But you could tell it by observing how I respond once other people start drinking the same wine, or attending the same university.

If I value those goods for their intrinsic qualities, their increasing popularity will not trouble me at all. After all, the enjoyment derived from wine or learning is not fixed, so your enjoyment does not subtract from my enjoyment. I may even invite others to join me — we can all have more of it.

But if you see me moaning that the winemakers/the university have ‘sold out’, if you see me whinging about those ignoramuses who do not deserve the product because they (unlike me, of course) do not really appreciate it, you can safely conclude that for me, this good is a positional good. (Or was, before everybody else discovered it.) We can all become more sophisticated wine consumers, and we can all become better educated. But we can never all be above the national average, or in the top group, in terms of wine-connoisseurship, education, income, or anything else. We can all improve in absolute terms, but we cannot all simultaneously improve in relative terms. And that is what positional goods are all about — signalising a high position in a ranking, that is, a relation to others.  This leads to a problem. Positional goods are used to signalise something that is by definition scarce, and yet the product which does the signalling is not scarce, or at least not inherently. You can increase the number of goods which signal a position in the Top 20 (of whatever), but the number of places in that Top 20 will only ever be, er, twenty. Increasing the number of signalling products will simply destroy their signalling function. Which is why the early owners of such a signalling product can get really mad at you if you acquire one too.

We have all seen this phenomenon. Those of my age (1980 vintage) have probably witnessed it for the first time in their early teens, when an increasing number of their schoolmates tried to look like Nirvana singer Kurt Cobain, and being a fan of that band lost its ‘edginess’. ‘Being alternative’ is a positional good. We cannot all be alternative [1]. Literally not.

Now remember how the ‘early adopters’ responded when Nirvana fandom went mainstream, and their social status was threatened, because there are clear parallels with PC: some of them went on to more extreme styles; others tried to repair the broken signal by giving endless sermons about the differences between ‘those who are in the know’ and ‘the poseurs’.

PC-brigadiers behave exactly like owners of a positional good who panic because wider availability of that good threatens their social status. The PC brigade has been highly successful in creating new social taboos, but their success is their very problem. Moral superiority is a prime example of a positional good, because we cannot all be morally superior to each other. Once you have successfully exorcised a word or an opinion, how do you differentiate yourself from others now? You need new things to be outraged about, new ways of asserting your imagined moral superiority.

You can do that by insisting that the no real progress has been made, that your issue is as real as ever, and just manifests itself in more subtle ways. Many people may imitate your rhetoric, but they do not really mean it, they are faking it, they are poseurs (here’s a nice example). You can also hugely inflate the definition of an existing offense (plenty of nice examples here.) Or you can move on to discover new things to label ‘offensive’, new victim groups, new patterns of dominance and oppression.

If I am right, then Political Correctness is really just a special form of conspicuous consumption, leading to a zero-sum status race. The fact that PC fans are still constantly outraged, despite the fact that PC has never been so pervasive, would then just be a special form of the Easterlin Paradox.

Steve Sailer has made the same point before, without so much econ jargon.

(Hat tip to Peter Dimov.)

Posted in Economics, Policy | No Comments »

Why Toyota Moved to Texas

Tuesday, April 29th, 2014

Toyota is moving its North American sales headquarters from Torrance, south of Los Angeles, to Plano, north of Dallas, which offers a 21st-century version of the middle-class California dream that built towns like Torrance:

In contrasting Texas and California, politicians and pundits tend to emphasize taxes and business regulation. But for most people on a day-to-day basis, the biggest difference between the two is the cost of housing.

Although Plano is one of the country’s richest cities, with a highly educated population and a median income of $85,333 compared to Torrance’s $70,061, it offers a much wider range of housing options. You can pay nearly $7 million for a five-acre estate in Plano — $3 million more than the most expensive listing in Torrance — but the average home costs less than $200,000, compared to $552,000 in Torrance. A Redfin search for three-bedroom houses costing less than $400,000 turns up 149 in Plano versus four in Torrance; lowering the threshold to $300,000 cuts the Plano supply to 73, while yielding nothing in Torrance.

As I’ve written elsewhere, Plano’s combination of inexpensive real estate and excellent public schools has cultural consequences. It allows for more traditional lifestyles, since many families don’t need a second income to live a comfortable middle-class life. Many mothers choose to stay at home or to work, often part-time, for personal fulfillment and luxuries such as family vacations. For both men and women, a life oriented around work rather than family is less common than in coastal enclaves of similarly highly educated people.

Posted in Business, Economics, Policy, Urbanism | 7 Comments »

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