Matt Nolan

The trouble with desiring change for the sake of it

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In a good post by Doug Reich (ht Not PC) he discusses why the current protests appear to have a great deal of “protesting for the sake of it” rather than having explicit – or testable – desires.

The dangerous thing with such protests is the ability for someone to capture the crowd with a false goal – coming up with a solution that is not good just because it can be sold via an underlying urge of the protesters to do something that makes them look altruistic … or more generally makes them look like they were part of some change.

Unlike Doug, I am not willing to call this a problem of the left – instead, this is what I view as a problem of holism – something that exists among all political groups.  For example, the “right” in New Zealand have their measurable goals – meaningless targets that are not based on anything, targets that give them the satisfaction of thinking that are causing progress (here, here, here).

Before we can really say what change in desirable, we need to understand WHY things happen and HOW changes to organisation and policy have an impact on them.

Doing this is hard – it is costly.  People want the satisfaction that comes from “feeling like you are progressing society” without taking on the cost of actually thinking about the policies – as a result there is an incentive to demand change more often, and with a smaller amount of understand, than is actually “optimal”.  This is obvious, it sounds obvious, people will tell me its obvious – and yet the logical conclusion of actually trying to have a real argument before pushing change is IGNORED by both the left and right.

Now some will say “its not ignored, there are studies/evidence”.  But 99% of the time the studies or evidence that are used are either cherry picked, poor research, or were set up with the conclusion already in mind – forcing change down peoples throats in the face of this type of evidence is just as bad as protesting for no real reason.

When it comes to policy, the best changes we can make are in areas where we have the best understand and information – it just happens that we have the best understanding and information about ourselves.  As a result, as a person our main focus on “change” and “fairness” should be within ourselves and related to our own actions.  What’s that saying … be the change you want to see.

We all want to – and should – fight the inequity around us.  But we can’t do this until we understand why it occurs and how it can be influenced.  However, we can only get to this point by doing the hard yards and playing in the “lab in our minds” (and in conjunction with the research of other on these issues) and discerning what can be called “tendency laws“.

A willingness to work out these tendencies, and implicitly treat other people on the same intellectual level as ourselves, is the way to understand the need for change – not overwrought simplifications of what defines “others”, which appears to the basis of both the 99% protests and the push for a measurable GDP target for NZ.

Matt Nolan

A message to tomorrow’s protesters

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Update:  The protest that I’m arguing against in the first half of the post isn’t till the 5th of November (thanks Seamus!).  However, my main critique in the second half applies to both protests insofar as the first protest is focused on inequality again.

Personally I AGREE with a some of the issues being put down for the first protest – and would potentially head along if it wasn’t that the bullshit inequality line is being sold so hard (including in the picture for the site).  Sigh

I see that a number of people have decided that, on Saturday, they are going to camp outside the Reserve Bank of New Zealand in Wellington to protest.  After seeing a similar protest on Wall Street these protesters have stated that they are the “99%” (a statement that implies that they aren’t part of the 1% that is assumed to own most of the capital) – and they are protesting for “change”.

I understand why people feel worn down, I understand the power and importance of non-violent protest, but I have to say something that will likely upset the protesters and many of my closest friends:

This protest and its message are wrong, and by doing it you both ignoring the real issues in the world and acting in a selfish way – and for that reason I think less of every single one of you.

That’s a pretty damned cutting statement – so let me discuss why I believe this.

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Matt Nolan

Wealth distribution and demographics

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A very good point from Stephen Gordon at Worthwhile Canadian Initiative that the growing concentration of wealth may, in part, be to do with changing demographics.

Although I doubt this is the sole factor behind the growing concentration of wealth, it is a factor I’ve been thinking about – and that I’m keen to see someone else quantify.

One thing we have to keep in mind is that standard economic theory does predict a growing concentration of wealth as

  • the idea of  “rational expectations” when some agents are not rational implies that rational agents will tend to suck up wealth from irrational agents – it is a common misconception that “rational expectations” requires any agents to be “rational” in the strictest sense …  however, it does imply that agents that are “more rational” do receive transfers through time from their “irrational” buddies.
  • the fact that individuals have different discount factors suggests that more patient individuals who are more patient will tend to accumulate more wealth.

Now this isn’t necessarily even an issue, after all if people built up wealth due to their own choices they deserve it.  However, trying to understand how much of the recent change is due to the full functioning of financial markets in recent decades, how much is due to demographics, and how much is due to other policy change is important to understand before we really know anything.

Matt Nolan

A quick question … and an answer

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From point 3 on this piece on Rates Blog we have the following statement:

It’s good to see the issue of free trade being debated. Frankly, it hasn’t worked for the middle classes of the developed world. They got cheap stuff, but lost their jobs.

How exactly does this make sense when during the “peak” interventions by China (in terms of their devalued currency) our unemployment rate was at record low levels …

I’ll answer, its because the idea of “taking jobs” doesn’t really make sense – they subsidised their exports, and lent the money to buy them at a low rate of interest (driving down real interest rates, and driving up borrowing).  This imbalance creates losers – the solution isn’t to copy it.

“Jobs” aren’t being created now because of uncertainty – that is the key.  We need to talk about ways that we can deal with uncertainty at the moment (if at all) – not start arbitrarily restricting trade.

Protectionism is not the way to go.  There are two types of people who want protectionism:  People like Bernard who want us to do something they believe will improve outcomes, and people like car manufacturers in Aussie who are just self-interested.  I promise you that if we go down the protectionist root route (turns out I’m illiterate, especially when writing these things at 1am), the only people that will be happy will be these car manufacturers – not society, and not many of the people asking for such measures now.

 

 

Matt Nolan

Robots, uber richness, unemployment: Points to keep in mind

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I think the statement “points to keep” in mind is currently my favourite thing around … however, I digress and I haven’t actually started the post yet.

Over at the Dim Post Danyl has an interesting point, derived from this post:

If some future entrepreneur invents a labour saving device that makes them a multi-trillionaire but puts dozens of millions of people out of work, should the government redistribute their private wealth?

To put my value judgments on the line, yes I do think that the more technological advancement we have, and the less “scarcity” exists, the more sense it makes to have more redistribution.  However, that is my values – as an economist I want to put them to the side for a moment and think about the idea of allocation objectively.  Here we go:

tl;dr labour saving devices are really just cost reductions – as society adjusts either people are no worse off, or everyone is better off.

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jamesz

Wants, needs and production

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What is a ‘want’ and what is a ‘need’? Do these things change over time and how do we provide for them? These are the issues being considered by Pablo at Kiwipolitico in a fashion that may confuse many economists. He says:

The current phase of globalised capitalism brought with it the uncoupling of production from consumption even as the “wants into needs” syndrome persists. The specific result is that, relatively speaking, global production of goods has declined while the consumption of non-productive commodities has increased. That means that there is an excess of wants with respect to needs. In fact, mass focus on obtaining a proliferation of wants has served to obscure the basics of needs.

When I read that I had no idea what it meant and I think that is because of some definitional problems. First, what are ‘wants’ and ‘needs’? To an economist the distinction is fairly meaningless because there are only ‘things that people want to varying degrees’. Of course, there are trade-offs that one must make — I can’t buy a car and a bicycle with the same $5,000 — but the things we want are not inherently different and the degree to which we want them differs between individuals.

So, when Pablo talks of ‘wants’ being converted to ‘needs’, what does he really mean? What I think he means is that, as technology advances, our incomes rise and the relative cost of purchasing complex goods drops. Consequently, more people buy them and they become ubiquitous. You don’t need the nature of goods to change for that to happen. You don’t even need peoples’ preferences to change — although that may have happened, too — for smartphones to be in every pocket, either. It is enough that the cost of manufacturing has dropped and our incomes have risen due to technological progress.

What of his contention that these smartphones are ‘unproductive consumption’? I’m a bit baffled by that because it suggests that everything we purchase should be useful for producing something else. As if enjoying our purchases were not enough in itself. Either he is suggesting he knows better than we do about what makes us happy or, more likely, I am reading too much into a poetic flourish!

Finally, he suggests that there has been a ‘decoupling of production from consumption’, which is probably the most confusing statement of all. All production is consumption – as it is either consumption now, or it is investment which translates into consumption in the future. There can be no sustained difference between production and consumption in modern, market-based economies.

Rather than railing against the way he perceives society to be, it would be helpful for Pablo to refine the problems he sees and ask why things are the way they are. Once we understand the problems we can ask whether there has been a systematic misallocation of resources that has caused these problems. At the moment it appears that these issues are being clouded by some confusion over what wants, needs, production and consumption really are.