If you’re one of the few people that reads this blog, listens to our podcast, and was not aware that we released an episode on Bitcoin…here it is!
March 10, 2014
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March 8, 2014
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A plane in Malaysia has gone missing and everyone is presuming…you know. Aside from the obvious tragedy that goes along with the loss of any human life, I always find it interesting that news outlets frame a story like this by how many Americans may or may not have been on board. I don’t fault them for it, it genuinely is what Americans are interested in knowing. I won’t get into a discussion of what’s ethical in how we should care about different peoples. Instead, I think it’s useful to focus on how this phenomenon has broader implications.
David Hume had “Concentric Circles of Loyalty and Empathy” that basically observed this: if I was told my pinky finger was going to be cut off tomorrow, I wouldn’t be able to sleep; if I was told five people halfway around the world that I have never met and know nothing about are going to die, I probably wouldn’t lose any sleep over it. Then there’s everything in between. Generally speaking, people care about themselves the most. If you want to get annoying about it we can say the first concentric circle is one’s immediate family. After that, you go outward to tribe, village, country, and then all of humanity. Hume observed this centuries ago and I think it’s still largely true.
But there’s a new reality that changes it. Because of globalization, we are more connected to those five people halfway across the world. We might know more about their country, do business with them, or see them on the news. Even the simplest exposure can make us feel more connected and empathetic to them. Jagdish Bhagwati argued in his book In Defense of Globalization that globalization itself fuels most anti-globalization. Globalization has made people empathize more with those starving kids in Africa, so westerners now want to stop a force that allegedly causes those children to starve. If we didn’t feel connected to them, they’d be out in a concentric circle totally irrelevant to us. Today, I think the concentric circles are getting more and more mushed together.
I’ve always found the “buy American” or “buy local” movements to be steeped in a weird nationalism exposing people’s allegiance to group identities. There’s more to these than just “looking out for your people” (people might trust American goods more than Chinese ones or buy local thinking it reduces environmental harm from shipping, for example). But when people tell me they follow these mantras I’m always forced to ask “why should I care more about Americans or people in Austin/Scotland/Chicago?” After all, buying anything is local somewhere. If I buy American for the sake of buying from people whom I share a passport that signifies an arbitrary identity caused by legal borders, I’m just discriminating against people of other nationalities.
As people get richer I think we have less reason to be distrusting. I don’t assume people are going to rob me, the guy I give my credit card to is going to steal my info, or that a product online will show up at my house completely different than the description. It could be that long ago we cared most about our family then tribe then village etc because we knew them best and felt a connection. We felt we could trust them. Perhaps it was a instinctual defense mechanism.
But I don’t think it’s necessary anymore. We do business with people all around the world, we marry people from all around the world, live amongst people from all around the world, experience media from all around the world. It only makes sense that as people feel more connected the concentric circles become blurrier. Humanity is humanity, and hopefully these national borders will become more arbitrary.
March 1, 2014
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If you’re one of the few people that reads this blog, listens to our podcast, and was not aware that we released an episode on the Economics of Parking…here it is!
March 1, 2014
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If you’re one of the few people that reads this blog, listens to our podcast, and was not aware that we released an episode on the Economics of Festivus…here it is!
March 1, 2014
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Paul Krugman, one of the best known economists in the world today, announced he is leaving his position at Princeton University. Krugman writes and blogs frequently for the New York Times, won a Nobel Prize, and is an outspoken liberal force when it comes to left-wing policy. He is a highly skilled writer in communicating economics to a wide audience and appealing to the general population’s intuitive side. He’ll be leaving Princeton for CUNY. That Krugman will likely survive and continue to thrive without the backing of a top university is a part of a growing trend across different industries.
For ever and ever middlemen were needed in different industries to distribute, promote, support, and financially back those more directly connected with the substance of goods and services. Musicians needed record companies to distribute their music to record stores, get them on the radio, promote them, and get them booked on tours. Now, a plethora of bands have made it based on Myspace presence or self-distribution. With spotify, iTunes, and other music services, the consumer no longer needs the record company to get access to music. With internet virality and social media, promotion can be left more in the hands of the masses (for better or for worse).
February 23, 2014
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In the Letters section of The Economist this week, a few people wrote in defending the deportation of illegal immigrants in America. The logic was basically that these people have broken the sovereign laws of America and amnesty only rewards rule-breaking. Why go through the incredible hoops and costs of legal immigration when you know amnesty is just on the horizon? Isn’t this unfair to those who have followed the rules and spent a fortune on fees to get citizenship legally?
I used to agree with this logic, but now I’m not so sure. Illegal immigrants are illegal so in one sense holding them accountable for breaking the law makes sense. But what about when the law is unjust? As I get more sympathetic to a policy closer to basically-open-borders I see any restriction on migration (aka free trade of labor) as unjust.
You can think of it a few ways, though the level of convincing any of these analogies will do is largely dependent on your agreement with the unjustness of the laws. First, I want to let free all non-violent drug offenders from jail. I think the War on Drugs is embarrassing. Pardoning all of them – one might say, well what about all those who went through the hassle of getting their medical marijuana prescription, or who paid to get a license as a dispensary in Colorado or Washington? Aren’t you just forgiving people that broke the law? On the further extreme, if we pardoned all those who refused to pay a poll tax – what about all those poor people who saved up for months so they could vote in the 1800s? They followed the rules, aren’t we just rewarding people for breaking the rules?
The point is that granting amnesty to people who have broken an unjust law really shouldn’t be that big of a deal. Yes, illegal immigrants are by definition illegal. But if you think they should be legal this doesn’t really matter. I know there’s a delicate balance between rule of law and civil disobedience. But this seems to be yet another case of the two sides talking past each other.
January 21, 2014
Inequality is increasingly becoming a hot topic lately. I find the way it’s framed in popular discussion to be somewhat nauseating. The two sides tends to present totally incomplete stories that do nothing but perpetuate preconceived notions of class and how people get the incomes they do.
On the right, you have the general perspective that people get the wealth they deserve. Sure, people get some bad breaks, some are born with better genes than others, some have to overcome great obstacles. But in general people end up with a fate significantly related to their work ethic and decision-making. Broadly speaking, wealth inequality isn’t as much of a problem to people on the right because it reflects a difference in contributed value between those at the top of the distribution and those at the bottom. Trying to decrease inequality, then, would be inefficient and unjust since you’d merely be redistributing resources from the productive to the less productive, disincentivizing hard-earned productive work and rewarding unproductive work.
On the left, the general perspective is that rising wealth inequality is the result of people manipulating the system. Rich people are rich because they figured out how to play the game. They were given some opportunities often not presented to others and used it to extract more and more money out of the market. Redistribution is thus justified because the rich aren’t rich because they have provided anything great, nor did they ever really deserve the money in the first place.
These are two polar opposites of the spectrum, but popular commentary tends to take one side of this spectrum without giving much credence to the other side. It is because of this that I find the discussion about inequality is not a discussion at all. It’s two sides talking over each other. Some on the right hear an argument on the left and dismiss it altogether because there’s no acknowledgement of an ethos of hard work nor that many of wealthiest create things that clearly benefit the masses. Some on the left hear an argument on the right and the oversimplification of “hard work > wealth” without any mentioning of significant hurdles and dismiss anything they have to say.
The reality is that a new wealth of economic literature points to an explanation for rising inequality compatible with these points of view and yet suggesting completely different solutions.
A couple decades ago, the idea of the “Economics of Superstars” came to being. Basically, the top 1% of any profession was starting to get a larger share of the industry. It wasn’t just the 1% – I say that proverbially, when I really just mean the distribution is slanted more to the top – of bankers, lawyers, or anyone that tends to be vilified by class warfare. It was dentists, musicians, drug dealers, accountants. Literature shows this change across all professions.
The two strongest explanations for it are technology and globalization. The easiest way to frame it is this: Homer could only tell his stories to 50 people in a night, Shakespeare could only fit a few thousand people in a theater, JK Rowling can sell her books to 7 billion people. A gladiator could perform in front of tens of thousands of people at most at a time, Babe Ruth could perform for tens of thousands and then some because of radio and people reading newspapers, Michael Jordan could perform in front of billions because of television. In each of these cases, the top performer’s audience was enhanced by technology and the emergence of a globalized economy.
The demand for “the best” was satisfied because of the actual ability to be able to get the best. Before, any profession was competing locally or regionally. Now, we compete globally. The best x in the Chicagoland area used to just have to compete with people in Chicago, or maybe just in their neighborhood. Now, the best in Chicago has to compete with the best in London, Dubai, and Sydney. This makes “the best” have a lot more demand in the market. The very slight marginal difference between LeBron James and Kevin Durant is amplified by this globalization and makes LeBron the global icon he is.
You’d rather have the best surgeon doing your heart surgery than the second and third best put together. That’s why the best can demand so much more money. It’s not always clear who “the best is” especially when it comes to subjective entertainment like music, but these mechanisms are still present. Beyonce makes more than Bach ever did not only because of a higher global population that has more money, but because she’s able to reach the audience. The “best” these days might not necessarily be better than “the best” in a less globalized economy. They just have better means to showcase their skills.
The solution I always read in this literature is higher progressive taxation. I’m not convinced. Doing this does nothing to change the roots of the problem. Any solution is particularly tricky because we don’t really want technology to regress nor globalization to stop. And to those who say we should stop globalization, I’ll just say I think it’s impossible. Progressive taxes might increase opportunity and class mobility, but none of this research ever mentions at what point progressive taxation becomes too much. Until I see a convincing analysis of this, I will remain skeptical.
So my take on increasing inequality is different than both of the polar extremes yet still compatible with some of their points. Inequality is not the result of an extra manipulation of the market by the 1%, nor is it purely because of extra hard work from the best of the best. It is instead a result of the changing dynamics of a global labor market. Overall I believe this shift is something to be concerned about because at some point inequality because inefficient, decreased class mobility is against whatever version of social justice most believe in, and there is evidence that it creates credit bubbles as the middle class tries to maintain higher consumption.
However, the rich are not to be vilified for their newly increased wealth. The fact that JK Rowling’s books can reach a global audience should be celebrated. People all over the world have much more access and choice to the music they hear and the movies they watch because of these changing dynamics. This technology and globalization has its plusses and certainly its often more visible minuses. But before oversimplifying the issue as hard work vs manipulation, think about the how the world is changing rather than trying to place blame.