EconResonse: Kevin Kelly on... THE FUTURE!

This week's EconTalk is Kelly on the Future, Productivity, and the Quality of Life. This is really a great episode, and I highly recommend giving it a listen, though I am a bit biased because I really like Kevin Kelly. Awkwardly for me, this is essentially the same topic as he wrote on in the previous essay I talked about here. Awkward because I already talked about this a bit, and also because I agree with pretty much everything, so it isn't a target rich environment for me.

The first segment is mostly about that essay, which is a critique of Robert Gordon's paper Is US Economic Growth Over? in which Gordon makes the case that stagnation is pretty much the norm for all human economies over our history, and seeing as how the growth from the third industrial revolution (computers) was pretty minimal, we might well be reverting back to the norm of stagnation after our ~300 yea boom. Kelly makes some excellent points about this, the first being that Gordon himself states that changes in previous industrial revolutions took nearly 100 years to really play themselves out, yet we are only 20-50 years into the whole computer thing, depending on how we look at it. (Gordon starts his clock basically when the first mainframes were used in the 60's-70's, Kelly argues the beginning is really in the mid 90's with networking.) 
The second point, and really an over arching theme for the entire podcast is that productivity as we usually measure it, as either GDP or how much stuff we can produce with set inputs, is really only the basis for our growth and well being, and not the end. I really think this is a key insight, not just to understanding what the hell is going on with our economy lately, not just looking at what the future holds, but even understanding just why we bother making things in the first place.

Skipping ahead a bit, because I think this is the most important point in the entire podcast (and maybe the world?) Kevin and Russ talk a bit about how many of the things we make are made because they are "cool" and not because they are practical in some sense. Whether or not "cool" is the right word is sort of besides the point, but one can substitute wonderful, pleasing, awesome, delightful or beautiful and get to the same point. In fact, do that, for each word, and think about things you own or have created that fit the bill. I suspect that nearly everything hits one of those six words, but relatively few fall only into the category of merely productive or efficient. (I would note that those of us who produce things often find things that are more productive or efficient to also be wonderful and pleasing, with a tiny increase in the former generating a huge increase in the latter.) 
The larger point here is that while making from less is nice, we do it largely so that we can do all the other things we like more. Things like discovery, experimentation, play, and just plain goofing off. One of the key factors of early, stagnant economies was that there was only just enough production to cover material needs plus a tiny bit extra, and so we had a hard time devoting resources to science and invention, as well as straight up pleasurable things like theater. Russ points out that in all of Elizabethan England there might have been only about 100 people engaged in the production of plays, but now there are far more than that who have employment making a single movie. We spend a great deal of time making things that are just to make us happy, more than at any other time in our history, and that is both awesome, and really difficult to fully measure in terms of productivity. But really, what is the point of doing anything if not to increase over all human happiness and well being?

Related to this point, that sometimes you need to trade production of stuff for researching new ways of making things, there is an interesting discussion of how rather pointless computers were for a long time. Computers just didn't produce much value for companies for quite a while, but it wasn't because they were inherently useless, but because they were new, and everything is difficult the first time. Much like learning to play the piano because you like piano music, for a long time you are going to be objectively worse at producing music compared to a CD player, but after a lot of investment you can reap far better results than if you just relied on CDs, not just in joy from hearing music, but also in new joy in learning new things and creating things yourself. This is important, because optimizing current resources often leads to sub-optimal long term results, as you limit your ability to advance and find yourself stuck on local peaks while greater peaks are just out of reach. I will repeat that, because it bears repeating (and perhaps rephrasing):

Optimizing current resources for production is going to lead to sub-optimal results due to a lack of growth.

Take, for example the case of a college student deciding how to spend his meal budget. He can spend all of his money on campus buying meals, and eat pretty well every day. Alternately, he can attempt to cook at home every day for the same amount of money, or do a mix of both on campus and home cooking. The trouble with home cooking is that his skill at cooking is only about enough to make cold cereal and ramen, and so he won't be able to eat at well at home. Anything more complicated will likely fail, and so waste money.
Now, off the bat, it looks like our poor student should just eat on campus all the time. This gets him the most food for the same money, and probably saves him some time. However, if he has the capacity to improve his skills in the kitchen, such as by borrowing a cook book and trying things out, he might well eat less well in the short run, but over time he may develop skills that allow him to eat much better food than he could get on campus. 
Things get more complicated of course when you consider that time spent learning to cook might be better spent studying for class, and that he might only learn that he is a terrible cook no matter what, and so have no more skills than before but less food. On the other hand, he might discover that he loves to cook and finds a new calling in life, or maybe use his cooking skills to impress a mate. If he only eats at the cafeteria, figuring after he gets a job he can either hire someone to cook for him or get married and have his wife do it, only to find he can't get a job or a wife that cooks. Whatever. The key is that due to the uncertainty in the system he can not globally optimize at all at the beginning. Without knowing all the possible outcomes and their probabilities he is limited to guessing what the right mix of stuff now and investment for later is. And while it is impossible to know exactly what the correct mix of those two is, we can be pretty sure it is not all of one and none of the other. 
What... EconTalk? Oh, right. Bringing it back to the EconTalk episode, Kevin Kelly might put it as "Seeking productivity and production at all costs is bound to fail. We want people to try out new things, experimenting and playing, regardless of whether it looks like waste or not, because that's the only way we can discover new things that will push our ability to produce farther." He would probably say it better, though.

A related point that Kelly makes is that measuring new things is really hard. We see this in the CPI when it comes to cell phones (which were not even in there for the first 15 years or so of their existence), or in how to measure the GDP gain of free things. We produce a lot of value in YouTube cat videos, but we have no idea how to measure that as part of GDP because people don't pay for them other than with time. Really what we need is a measure in how productive we are at pleasing ourselves which requires what, brain chips? I don't know, maybe we could measure that with FMRI machines for everyone?

Another point in the talk, and I am completely abandoning the framework of the podcast to talk about what I want to here, is that machines are good for optimizing and productivity, while humans are good at goofing off and creating new things. This is a major point in the essay, and really branches from the over all theme of productivity as economists think of it being only the foundation for what we do, not the end all be all. This gets to the future, in terms of "what will we do when machines do everything we do better than people?" The answer seems to be "find new things that we are best at, then make machines to do those, and then repeat." For every thing we stop doing because a machine is better, we end up finding a dozen other things to work on to make ourselves happier. There is a good bit of discussion on this, and it is a really important point. 

All in all, a great EconTalk, and highly recommended!

Gun Control Redux

There were a few other points I wanted to make in response to Nick's article, but I kind of felt they were secondary and didn't want to shoe horn them into an already overly long post.

Assuming for a moment that guns in the hands of citizens are neither deterrent nor defense against tyranny, what exactly is? Legislation seems to do very little, and often is the very source of tyrant's power. Constitutions are a start, but as we have seen can be eroded pretty well over the years. So what keeps a given president, say possessed by the ghost of F.D.R. from just declaring himself dictator for life? Were it not for disease, the original might well have, after all.
If you say culture and institutions, ask who or what creates and enforces those. The answer of course are the citizens themselves. But once deprived of the power to vote for a different government, what enforcement mechanism is left? What defense does the minority have against a majority in an unlimited government?

If you want to say "None; all free societies are only so at the whim of their governments," well, I might be willing to accept that on some level, but I think it still requires demonstrating then why some nations remain free while others do not, why tyranny takes hold in some and not others. Why isn't every national revolution a replay of the "one man, one vote, one time" cliche we see so frequently in the third world?

I think the answer there is that all governments require at least the tacit support of their people and their military. If no one is willing or able to resist in a meaningful way, things can just keep going on. However, if some can actually directly oppose a government, show that it is unable to enforce its will, that not only affects the power of the direct area the uprising occurs in, but also demonstrates the weakness of the government, encouraging others to stand up.

Now, meaningful resistance is a little vague, and for good reason. In India during British occupation, Ghandi's "passive resistance" was meaningful and effective, encouraging others to push out the unpopular rulers instead of simply grumbling under their breath. Now, one might argue that what worked against the rather human rights oriented British would have failed against say the Russians of the time; Ghandi probably would have wound up with a bullet in him shortly after he became a problem. But the key here is that stopping Ghandi's actions would have required killing him, a line the British were apparently unwilling to cross. Doing so would likely have seriously undermined the British citizens' support of their government, to say the least.
Considering now the case of a US tyrant, one might be able to keep order so long as one could do it with police, both local and federal. If, however, an armed uprising was too much for the normal law enforcement groups and the tyrant had to resort to calling in the National Guard or regular army, that would be a huge step, one which would put serious strain on both the order in the military (which traditionally never operates against US citizens at home) as well as eroding any support the tyrant might have among the citizenry, likely sparking further uprisings. Consider how much the 90's Waco massacre shook a lot of law and order types' (myself at the time included) faith in the government's dedication to law and order.

This is not to say that it wouldn't happen; it is quite possible that fellow Americans could distance themselves enough from those resisting to see them fully as 'the other' and not care what happens to them. However, consider how unhappy Americans were with civilian casualties in any of the wars the US has involved itself in in the past 40 years. And even if you think that say New Yorkers would be fine with the idea of nuking Dallas if Texas secedes, you have to admit that having weapons at your disposal makes any form of resistance more powerful. You can always choose to not use them and go the full passive resistance route, but it is good to have the option.

Gun Control and Tyranny

Recently Nick Gillespie over at Reason wrote a piece about gun control discussing his discomfort with many of the proponents and their arguments. He makes a quite reasonable argument overall, one I think reflects the thoughts of many people who are pro-gun rights on principle. I am particularly happy he makes the general point that free people are free to own what they will without justification. The notion that people need sufficient justification to own guns (the only thing they are made for is killing people!) has continually come up in the past few months, and I have seen precious few people even challenge it.

However, there is one passage I want to challenge, as people seem very comfortable making the argument without really considering it:

The notion that a rag-tag band of regular folks armed with semi-automatic weapons and the odd shotgun are a serious hedge against tyranny strikes me as a stretch (and I even saw the remake of Red Dawn!).

This is a counter point to the common argument by gun rights activists that gun ownership protects against tyranny, particularly that of our own government. Others who have elaborated (Nick didn't bother) point out that the US government has tanks, bombs, nukes and the like, so how could a few semi-auto rifles and shotguns in the hands of the citizens matter? Likewise, if China gets crazy and invades, are some citizens with rifles going to make the difference?

The main issue of this argument is that it does not acknowledge the different stages of warfare, and how the tools apply to them. I am going to lay out three different types of warfare, and show how the tools, the tanks, missiles, bombs, and guns are used to very different effect. But first, some talk about goals. Because you gotta have goals. 

The classic understanding of how to win a war is to take away your opponent's ability or desire to resist. Effectively this is the economic approach to war as well: it is cheaper over all, both in lives and resources, to either leave your opponent unable to fight any longer, or compel them to stop fighting of their own accord. You do this by either destroying their capability to compete (say by destroying their navy in a primarily maritime conflict) or by making it so costly to continue that they decide that their best option is to quit the war early (say by nuking a city or two.) No matter which path you choose (Can't or Won't) the goal is to avoid having to kill your opponent down to the last man, the worst possible way to win. (If you are in a hurry, skip to the TL:DR heading below.)

So now that we know how wars are won on a high level, we need to look at the types of wars people fight. I am going to go really broad and say there are three types:

1: Conquest

2: Defense

3: Internal

The interesting thing about these categories is that one side is always Conquest, with the other side beginning in the Defense type and transitioning into Internal. The interactions between these types determine the methods that are most useful.

Conquest is effectively "You have stuff, and I want to take it." This is the idea behind China invading the US; they want to control our country or what have you. The second Iraq war (let's just call it that for now) was basically the same thing. Hussein had control of Iraq, and the US and others wanted to take it away from him. Effectively you have an attacker who has to force control on another.

A Conquest/Defensive war looks a lot like how we see war in movies, with battlefields and sides fighting over territory. The defenders try to keep the attackers out entirely, focusing on removing their ability to attack, such as destroying units, cutting bridges, all the usual things we think of with regard to war. At the same time, the defender is attempting to make the attacker lose interest but making attacking costly, by destroying units, and possibly launching counter attacks into the attacker's territory. The latter tactic was pretty much the underpinning of the whole Cold War strategy: no one will attack because if they do, their cities get nuked shortly thereafter.

If the defense wins at this point in the war, things generally end. The attacker gets repelled, and either the defender stops at their border or starts their own war of conquest into the former aggressor's territory, continuing the war from the other side. If the defense loses, however, the war is not over and instead transitions into the internal phase.

The Internal phase begins when the attacker has control of territory, but has not removed resistance to their will. We often think of this as revolution, insurgency or a dozen other terms, but the general point is that while the attacker has control of an area and cannot be stopped from rolling tanks and troops into it they still do not face a populace who will do as they say without direct, individual violence. This is the stance of most resistance fighters, civil uprisings, and underground fighters, either when their preferred government is overthrown or when they deem their government as illegitimate. The internal phase is often referred to as asymmetric warfare, as the would be conqueror has all the military might compared to the insurgents. 

Now, how the attacker goes about things is very different depending on the phase of the war. In the Conquest/Defense stage, there is often a mix of destruction of ability to resist and destroying willingness to resist, but the focus tends to be on the latter for the simple reason that if you destroy everything you are obviating your reason to attack in the first place. You don't want to destroy the very things you want to take. The major exceptions to this are wars of genocide, where the goal isn't so much taking as destroying, and wars that begin to drag on to the point that getting things over with becomes more desirable than any particular city or what not.

The defender in the Conquest/Defense phase, however, often uses destruction of means and will at the same time. Destroying enemies in the field accomplishes both goals, and launching counter attacks, such as destroying factories, often does as well. Importantly the Defender needs to show much less restraint, as if they are only defending, they can destroy their opponent's country freely. Having not had interest in taking it in the first place, nuking a city or two does not change their cost/benefit analysis.

In the Conquest/Internal phase, the attacker is further restricted in their behavior. Unless they absolutely see no value in the populace (which is possible, but unlikely) they have strong incentives to not be destructive for two reasons. Firstly, they have already taken control of non-human resources, and so destroying the area to remove resistance is counterproductive. Secondly, while some portion of the populace might be willing to accept the killing of insurgents (say in the case of civil war, or simply those who don't want to fight the attacker any more) indiscriminate killing will only create backlash against the attackers, making their occupation more expensive, and possibly being counterproductive. It is possible that massacres and extermination will decrease resistance to an attacker, but in general it is not considered likely. So, between destroying the very resources and people you wish to control, and likely increasing resistance over all, the attacker needs to be careful to only choose tactics which will on whole reduce the insurgents’ willingness to resist, as destroying ability is generally extremely costly. 

The insurgents, however, have a somewhat clearer position, with many more degrees of freedom. Destroying the attacker, say by ambushing patrols, convoys or the like, is easier because it is clear who the attacker is. If this is not an option, simply making control of an area extremely expensive is very much an option, by very much the same tactics. By being able to blend back into the populace, the insurgents become effectively the prize and the enemy, making the attacker use very labor intensive methods to root them out. From the insurgent's side, all they need to do is make the cost of control more than the benefit.

To add just one more layer to these considerations, let’s look quickly at how you fight from an economic standpoint. That is to say, do you fight in a labor intensive manner, or capital intensive?

Labor intensive is how wars used to be fought: more bodies, each with very limited capability, but there are lots of them. As technology improved over the eons, however, things start to shift towards capital intensive warfare, where you spend more on each soldier to make them more effective. Fewer bodies, but they are individually more effective. 

Some examples over time would be the Aztec hordes (labor intensive) vs. the Conquistadors in their armor (capital intensive); the Russians in WW2 (labor intensive) vs. the Germans (capital intensive); the North Koreans (labor) vs. the United States (capital.) Essentially, it is a question whether a side has more access to lots of people compared to lots of equipment, training, defensive positions, etc. 

The difficulty with capital means of warfare is that they generally destroy indiscriminately. Bombs do not kill only those who fight you, but everyone nearby. A tank is not effective for guarding anything you don't want big holes in except against other tanks. Only human capital in the form of highly trained troops and personal equipment for those troops can function as a scalpel in combat, but that still leaves the difficulty of knowing just who your target is. Importantly, those forms of capital make shifting to a labor intensive process such as policing and occupation even more expensive, as each soldier is more expensive individually. (Arguably, this is why the USA currently fields very elite units such as Marine, Rangers, etc. in addition to the regular army; the highly trained troops take areas, and the lesser trained, and thus less expensive, troops hold them.) 

TL:DR

So, consider the scenarios brought up by both Nick and anti-gun advocates: gun owners against domestic tyranny, and a foreign power invading.

In the first case, we see a direct move to an attacker in tyrannical government vs. an insurgent force. As recent events in Iraq and Afghanistan, this is a difficult position for the attacker. In fact, the entire war on terror demonstrates the difficulties of an attacker attempting to destroy an insurgency armed only with basic weapons. The improved capital of the attacker, the tanks, bombs, and missiles that we are in awe of in the battle between states do the attacker very little good unless they are willing to destroy indiscriminately. The conflict quickly turns into one of small arms and improvised weapons, and in many cases the insurgents have the advantages. If the general populace is generally supportive of the insurgence, the job of the attacker of even knowing who to shoot is exceedingly difficult, while the insurgents can easily determine their enemies. Further in such conflicts the difference between small arms is very small; a good deer rifle is an effective sniper rifle, a semi-automatic AR-15 is roughly as good as an M-16, an IED works as well as a landmine. Making things impossibly expensive for the attacker is well within the ability of a small armed group if they have support of the populace. The Second World War and many later conflicts clearly demonstrate that even irregular troops can make a very effective fortress out of a city, against which tanks and planes are only effective if the attacker is willing to outright destroy the entire city. In the case of Stalingrad even that was not sufficient.

In the case of a foreign invasion, it is true that the small arms of the citizenry will do little in the Conquest/Defense phase of the war, but all wars of conquest devolve into an attacker required to control ground, at which point we are back the situation of tyrannical government vs. an insurgent force discussed above. 

The question people often ask when confronted with the statement that personal firearms are needed to defend against their own government is often "What is granddad's shotgun going to do vs. a tank or bombs?" This is, however the wrong question. Tyrants cannot use tanks and bombs effectively to enforce their will on the people, they need soldiers performing a police role, and shotguns work perfectly well against people. The oppressed do not even need to destroy every tank and every soldier, but only make the cost of control greater than the tyrant is willing to pay. A tyrant or conqueror who wants to take control of a country for its resources must preserve the population, as people are the most valuable resource. Being able to resist this control by multiple means is the key to freedom.

Oh... oh my. This might actually contain the best real sentence ever. Really.

Kids Prefer Cheese: The Culture that is Germany: "Why he threw a puppy at the Hell's Angels isn't clear"

Thanks to Mungowitz for posting this... I, I can't even explain how happy it made me.

RIP James Buchanan

This piece by the recently deceased James Buchanan is fantastic, and I think explains exactly what is wrong with most people's concept of economics, political economy, and really how any such system works.

The nut shell version is that we often think of people as having utility functions written into them, and all the people trading are maximizing those functions to get some result. In fact, this is not the case, rather the process defines the utility functions. Which is to say, the conditions under which we exist help define our choices and what we think is optimal; the process defines the utility function. Which means you can not just get a pile of random people, figure out their utility functions, and then organize them such that those are met, coming to the same result as a market; without the process, there are no utility functions to consider! Our concepts of utility functions arise from seeing people make a series of choices, but those functions do not themselves exist independently of those choices.

Ok... pretty soon I am going to end up writing more than Buchanan did, and yet won't explain things one half as well. Just go read the link. Then carve out at least 30 minutes to really think about what the piece means to us as economists, policy analysts, philosophers and voters.

EconResponse: Esther Dyson on the Attention Economy

This week's EconTalk is Esther Dyson on the Attention Economy and the Quantification of Everything. She is approaching two topics, one the on and offline market for attention, and then goes into quantification of things, by which she means keeping metrics on different aspects of like like community etc. I intend to start writing about EconTalk every week as it is probably my favorite thing to listen to. Unfortunately, this was not my favorite episode, but it did spur me to write about some of the things I didn't agree with, so hey, there's that!

In the attention segment, there are a few main insights. Attention is something people both intrinsically desire and intrinsically enjoy giving. Attention is also a service (though she doesn't use the word for some reason); it can not be stored or transferred by arbitrage as far as we can tell. At the tail end of this segment she and Russ discuss briefly the idea that productivity increases seem in part to allow people to do more non-measurable, non-monetized things like walk in the woods, pay attention to each other, etc. which make the measured economy look worse but make us better off. This provides a bit of a segue into the next section on measurement. I say a bit, because while Ms Dyson seems to like the idea that we are moving towards a barter economy (her words) that could not be measured easily, and seems to tacitly realize that many things we care about are neither monetizable or measurable, it isn't clear to me then why she thinks that quantification is so valuable.

She does have some good points about quantification, that as a former supply chain guy I can absolutely appreciate. Actually keeping track of who does what in written form can be a big help, and she makes a good point that we should probably do a bit more of that in our lives. My own example would be keeping track of which suppliers are late on deliveries and by how much. Our brains don't keep good track as we tend to only remember the times such issues became problems, like an order arriving two days late causing us to stop production. Often, when we keep track of things we find that some are consistently late by a day, and some are randomly late by a larger margin. Those all affect how you order and keep inventory, as the former just requires ordering a day earlier than normal, while the latter requires keeping more stock on hand. Not an exciting example, but one that costs companies millions when they get it wrong. 
One issue with her idea, besides the facts that many things that really matter are very difficult or impossible to measure, and we also don't know what we should be doing with those measurements to affect positive changes, or even what normal or good is... and many more... is the other side of the coin: we often get what we measure. In other words, once you start keeping track of something like steps walked, pounds recycled or whatever, with the understanding that more/less is better, people unconsciously start to adjust behaviors to seek making those metrics larger or smaller, even if doing so is worse over all. This is a frequent problem in business, where maybe you measure days to order fulfillment from order date. Well, there are two ways to get that: low inventory and efficient production processes, or just lots of inventory. The former is great and what you are shooting for, but the latter is expensive for the company yet easier to achieve for the workers and managers. Guess which one happens when managers are implicitly graded on the matter. See also my post about whether incentives imply the ability to pursue them; just as incentives tell our brains that we should be able to affect the outcome, metrics tell our brain what to focus on. How many economists talk about over all happiness, or even wealth, instead of GDP, just because GDP can be more easily measured?

Effectively, a good take away would be to pay more attention to what we do in general, and if something really matters, keep written records of what happens that we care about. Our brains are not naturally attuned to give us accurate measures of these things, and can be tricked in various ways, and so keeping a journal or record can really benefit us. Sites like Beeminder can really help us when it comes to such things. However, I think a broader understanding of the topic would point out that many things we care about can not be measured, and even if we can, we don't always know what to think or do about those numbers. Russ brings up this issue, but Esther does not seem comfortable discussing it. I find this to be the case with many engineers and economists I have spoken to, as well as many business managers: a very strong faith that situations can be reduced to numbers, and once we do that, we can then tweak the system to get the numbers we want. 

Russ asks an interesting question as to whether introspection happens less frequently in the iPhone age, and Esther replies (almost in my own voice) that she wonders how much happened before. I personally suspect that if we took away everyone's little toys we distract ourselves with we wouldn't end up with philosophers, but just really bored people. I often think that sort of belief implies that if you took away all my books and things I would become a great athlete (or at least a runner) which is not likely at all. I think we each have things we like to do, and seek to do such things even when we can't obviously do them, and taking away our ability to do them simply frustrates us, and doesn't drive us in different directions. I would argue people don't engage in introspection as much as we should, but I don't think anything in particular is to blame.

Another point Esther makes along those lines is that "Abraham Lincoln used to give 3 hour speeches, and who would sit through that today?" The important point, besides 'what politician gives good 3 our speeches today?' is "How do you know people sat through all of that?" Russ points out, correctly I think, that people habitually sit through long movies, perhaps with an intermission, and other things. Esther laments a bit that people are more interested in short videos than books or longer things. However, I think that she misses the larger point that there are few things good enough to spend lots of time on, but many that are good enough for a few minutes. The internet has not caused us to only like short things, but rather has allowed people with only two minutes of good story to show us that story instead of only those who have two hours of things to say. I would much rather watch three hours of random cat videos on YouTube than have to sit through Avatar again. Now I have the choice, whereas in the late 80's if I wanted to watch a movie, I was limited to the things the movie industry wanted to make.

She also talks about investing a bit, but I don't really have a lot to say about it. Arguably, she doesn't either; she says a lot of things that are general media boiler plate things I have heard dozens of times yet contain no insights (or even accuracy.)
Then space... but not why people would want to go there other than "Hey! Space!"


All in all, a relatively disappointing episode of EconTalk. Esther is not a dynamic speaker, which is forgivable, but her points and ideas are somewhat fuzzy and poorly thought out and communicated, which is less so. Perhaps the latter is due to the former, as speaking extemporaneously is never easy, even when not in front of people. However, I think many of her ideas are somewhat facile, and contradict each other on deeper reflection. She implies that we should, in the normative, it makes a better person sense, spend more time doing long things like reading or listening to three hour political speeches with little regard to what people actually like, or whether spending that much time on something long is actually ideal. Is reading a long, bad book actually better than reading 30 well written blog posts? Personally, I find much more benefit in terms of thinking from reading a handful of really insightful posts than a long, cumbersome journal article. As Tyler Cowen put it, most articles are just blog posts fluffed out to 15 pages and most books are just articles with more filler. I absolutely agree; length does not imply quality, just length. I don't think this podcast would have benefited from being longer, but maybe I just don't have the attention span.

How to pay for roads?

My colleague in my GMU Econ cohort Zachary posted on his blog today about a proposed change in gasoline tax laws in VA. Effectively, the governor suggests the fixed 17.5 cents per gallon tax on gas be dropped altogether in favor of an increase in the sales tax from 5% to 5.8%, from which gasoline would be excluded. Zachary lays out most of the salient points, such as the fact that this tax is not revenue neutral, would help deal with the issue of the fixed gas tax not being pinned to inflation or anything else, and the like.

While I don't strongly disagree with his over all thesis, I do want to pick apart some of his points, as I think he is letting the perfect be the enemy of the good (or at least not so bad) in his analysis.

1: Lighter cars degrade the road surface less than heavier ones. Interestingly, this isn't always true. The relevant comparison is not just weight, but tire surface on the road per pound. As a result, a car weighing 2,000 pounds with 4 tires that puts 50 square inches of rubber on the road per tire has a factor of 10 lbs per square inch, while a tractor trailer weighing 60,000 pounds with 18 wheels only needs each of its much larger tires to have ~334 square inches of surface area on the road to have the same factor. Sounds like a lot, that that is just an 18.25" square compared to the car's ~7" square. This isn't to say that tractor trailers are always easier on the road than cars, but just that they are not nearly so bad as people think. (Hooray for my supply chain degree becoming suddenly relevant!) So more tractor trailers on the road compared to coupes does not necessarily mean much more road degradation.

2: Pro-cyclical nature of the tax Zachary seems to be suggesting here that the revenue generated would not necessarily increase along with increases in road use. While the magnitude might not always be the same amount, it would seem that only a decrease in prices that mitigates changes in volume such that the total sales dollars stays constant or decreases would matter in this sense. If prices increase while volume stays the same, presumably revenue compared to usage would increase (affected by price changes in maintenance, but more on that shortly.) If prices stay the same and volume increases, total sales dollars would still increase, resulting in more revenue and more usage. The ratio of revenue to costs might go down, but the amount of revenue would still go up. So if say prices are fixed but quantities double, the revenue generated is still doubled. Road degradation might more than double, but it isn't clear that is the case. In light of my previous point, it might not at all.

3: Does the tax adjust for inflation? I think Zachary is a bit harsh here. It does adjust to inflation as defined as an increase in the price level. The current fixed number does absolutely nothing of the sort. Now, he is correct that there is no particularly good reason to assume that the rate of inflation will be the same between the road maintenance and consumer goods industries, and thus the tax does not account for that. True, but the current tax does not account for it either. We are not comparing a perfectly priced tax that takes all relative prices into account to the new tax, but rather a current tax that does not shift at all for inflation or any relative prices to one that at least adjusts to changes in prices in the products it affects. (It does it automatically at that, so the CPI doesn't come into the picture at all.)

4: Fuel Efficiency I think Zachary has it largely right here, except that light vehicles are not necessarily easier on the road. Generally more efficient vehicles have smaller tires. (Think of road racing bikes vs mountain bikes, and why the former have tiny little inch wide tires while the latter have nearly 2-3 inch tires.) So that Prius might not in fact cause more wear on the road than that van per mile. Just saying... pricing the damage from use is really tough. Amish buggies play hell on the roads with their metal shod horse hooves and often metal rimmed wheels, yet they get a total pass on gas taxes.

While I generally agree that gas taxes do generally tax those most who use the roads most, and thus helps internalize the cost, I also don't believe that the funds raised for road work actually go only to it, or that other funds don't get moved towards it. I also think that the current fixed number tax is quite poor even as applied. The fact is that government is very poor at directing the taxes at those who actually use the good, and thus their internalizing measures do very little to affect behaviors. Before reading his post, I had no idea the gas tax in VA was 17.5 cents a gallon. I used less gas as the price went up perhaps, but not because a bureaucrat was tweaking the tax level.

Perhaps a better compromise would be a percentage tax on the price of gas, a sales tax that applies only to gas, at say 5%. That punishes those who use premium has instead of standard, but every tax is randomly punishing. Of course, those who don't own cars but still purchase goods shipped by motor vehicle would not directly pay the tax, but it would still be reflected in the price of their goods assuming the truck drives refueled in state. Then again, unless you live ~100 miles inside state lines, or the shipping/truck depot is inside state lines and thus buying their tax there, you would not be paying anymore necessarily.

All that to say: taxing things accurately is nearly impossible for government, and often private firms as well. Sometimes you have to live with some externalities and go with efficiency. A higher state sales tax and no gas tax might well be the optimal along those lines. I think that Zachary is in this case letting the theoretical perfect tax be the enemy of this change, and not the current tax.

Then again, he doesn't drive as far to school as I do, so maybe I am biased; who wants to pay more in taxes? Maybe I would be more strongly against the change if my personal tax expenditures were shown to up as a result of the change.

Excellent Article Review

Hat Tip to Marginal Revolution

This is a fantastic review by Kevin Kelly of an article by Robert Gordon claiming that the 3rd industrial revolution, the whole computer thing, isn't actually a big deal, and didn't do much compared to the other two. The review pretty well eviscerates that claim I think, and is totally worth reading in its entirety. If you can't, here's my favorite segment

Generally any task that can be measured by the metrics of productivity -- output per hour -- is a task we want automation to do. In short, productivity is for robots. Humans excel at wasting time, experimenting, playing, creating, and exploring. None of these fare well under the scrutiny of productivity. That is why science and art are so hard to fund. But they are also the foundation of long-term growth. Yet our notions of jobs, of work, of the economy don't include a lot of space for wasting time, experimenting, playing, creating, and exploring.

Seriously though, you want to read this. It is really quite an excellent monologue on how we as economists measure progress, and what progress even means.

 

Lessons from Gaming: We are playing different games.

So, earlier I was babbling on about levels of rules and trying to make some sense of things in my head. Laying a ground work for us to stand on as we turn our faces to the world, to see from the same perspective, if you will. (Metaphors mixed: 3?)

Now that we have a shared lens to see through, I want to tell you a secret. For I know why we think lawyers are scummy, why we look down on lobbyists and politicians (those who are not on our team, at least) as little more than criminals in suits, and why we find it so easy to demonize corporate heads etc. We think it is because they are immoral, take advantage of us little guys, or just generally do things wrong. The answer is quite different. The answer is:

They are playing the actual game, by the actual rules.

What the hell is everyone else doing then? We are playing a similar game, with the same pieces, same board, but we are ignoring many of the rules, while coming up with entirely different ones that are not in the book. To explain, allow me to use a parallel from gaming.

Let us consider poker (though almost all deep, competitive games have similar dynamics.) The rules are not too complicated, mostly about how you put in chips, when and how you get cards, and what the hands mean. Lots of people play with their friends, trying to get good hands, playing percentages and guessing what their buddies have. Maybe they read a little on tactics or strategy on the side, but nothing serious. These are the casual players, and they have fun with each other.
Then you have the professionals. These are the people who hardly look at their cards, but stare intently at their opponents. These are the folks who will fold 25 hands in a row just to see what others's behaviors are before actually sticking in for a hand. They study up a great deal, and can tell you percentages off the top of their heads, but will assure you the game isn't about the cards but the players. They play by all the rules, both the written rules of the game and the rules of the world that apply. And they have fun with each other.

Mixing the two types of players though, that is a recipe for trouble. Having one player in your casual game who is a pro means he walks away with the pot every night and everyone else wonders why they pay 50$ a week to sit around and drink but without any strippers. Likewise, one casual player sitting with a table of pros just becomes a chunk of meat for the other sharks to compete for the biggest bites of before he is shredded. Why? Because they are playing essentially different games.
Consider the casual fellow in the high stakes pro game. He goes in perhaps expecting to be beat, but to have fun on the terms he is used to. Instead, he gets smashed, completely unable to even grasp what he is doing wrong and how he can even adjust to improve. He doesn't feel happy with the game, as the feeling of complete impotence makes all of us deeply unhappy. He might not even learn much, as he doesn't even know where to start. He just goes home with a slight feeling  of resentment.
Now imagine that he didn't realize he was going to a high stakes pro game, and just thought it was goof off and smoke cigars time with his buddies. He would be really angry, and likely suspecting he had been cheated.

Let's get back to the regular world. We, the general folks, we are all generally casual players of this game of life. We play largely by the broad brush social rules of "Don't Hurt People, and Don't Take Their Things." At least in the US, our sense of things is basically those rules with a rough sense of fairness and helping each other out when it isn't too inconvenient. We spend most of our lives (if we are lucky) ignoring the existence of nearly all of the Natural and Legislative Rules. We generally don't need to know much chemistry for example, and we believe that most legislation just doesn't apply to us. Who pays state sales taxes on eBay items?
In fact, this is so ingrained into our sense of how things work that when we see someone getting arrested for something we think is silly, our response is usually "Hey, he wasn't hurting anyone!"

But those are not all the rules. There are many thousands of pages of legislation and regulation that apply, never mind the Natural Rules. The average person may think they are following the rules in general (no one cares about speeding violations...) but in reality they don't even know what the rules are except in very narrow areas that affect them personally or professionally. The pros, that is the lawyers and politicians etc., those are the ones who really learn them, because they make a living knowing them better than other people. Even then, they specialize because they can't know them all, but the important point is that they are playing a different game than most; they are playing by the full rule book, not just the basic outline version we live with.

This has some very important implications.

1: More rules means more power for those who specialize in knowing rules. Every line of new regulation, every special cut out in the tax code, every random bit of legislation makes specializing in the rules more powerful. If you are unhappy that big corporations can pay nearly zero taxes, or that big farmers can make money by not producing food, or that cops can pull you over and harass you for being black due to a broken tail light, consider that the rules as set up allow for that, just as the rules for poker allow for bluffing.

2: More rules than anyone can keep track of might be a feature for those who exercise power than it is a bug. Those who don't know the rules as well are at a disadvantage compared to those who do, and so if you get to write the rules you want so many that no one knows what all of them are. It then becomes a competition to see who knows the most obscure rules, and the specialist wins that.

3: Discretionary rules allow for immense power for those who enforce them, especially when those they exercise power over do not know all of those rules, or those that protect them. Police very often behave as though they are absolute dictators of the area around them, because they know that most people are violating some minor regulation, and that most people don't know enough to push their rights when the cops assert they have to do something.

4: Fuzzy knowledge of the rules allows those that create and enforce them to be essentially above the rules. For example, many things the Federal Government does are quite outside the bounds set by the US constitution, but we as a citizenry are largely unaware, relying on legislators and the Supreme Court to tell us whether things are ok. In essence, we allow those who make the rules to tell us if they are following the rules they are supposed to be. As it turns out, the answer is generally "Yes. Yes we are."

We hate these pros because we feel they are cheating us, using fancy rules to screw us over. But really, we are hating the player when we should hate the game. These are rules we tacitly accepted by not voting out of office (or lynching) our elected officials when they passed them. We decided that it was ok to make these the rules of the game, and are quite happy to ignore them just so long as there is someone looking over things and making the little irritations against the law.

But every time we utter "there ought to be a law," every time we allow politicians to add to the ever increasing pile of legislation, we are divorcing our lives as we wish to live them farther and farther from the actual game of life. And when those who specialize in playing that game come along and win using strategies we didn't even know existed, we have no one to blame but ourselves.