"If the World Cooperates…" Jeffrey Sachs' Esoteric Doctrine of Impending Doom

If we continue on our current course – leaving fate to the markets, and leaving governments to compete with each other over scarce oil and food – global growth will slow under the pressures of resource constraints. But if the world cooperates on the research, development, demonstration, and diffusion of resource-saving technologies and renewable energy sources, we will be able to continue to achieve rapid economic progress. [emphasis added]

A good place to start would be the climate-change negotiations, now underway. The rich world should commit to financing a massive program of technology development – renewable energy, fuel-efficient cars, and green buildings – and to a program of technology transfer to developing countries.

Almost every Sachs book and op-ed contains something like this, which seems to me to amount to little more than hopeful exhortation. The cynical view is that Sachs is involved mostly in signaling. It's worked well for him so far. But I think he really cares. So a somewhat less cynical view is that Sachs is a grim pessimist who sees catastrophic market failure everywhere and sees immensely improbable global collective action as the only possible solution. Because he is always so incredibly vague about the institutional mechanisms that would be needed to solve the assurance problems necessary to get this kind of enormous cooperative effort off the ground, we ought to infer that Sachs doesn't know what those mechanisms are, and so he probably suspects that global cooperation at the necessary scale is impossible. That is Sachs' esoteric doctrine: We are probably doomed. But Sachs, strangely for an economist, also believes strongly in the power of propaganda, especially the power of elevating rhetoric from high-status figures, to transform social norms. It's a longshot that Bono and Angelina can really bring about a fundamental transformation of public sentiment in a way that makes the global coordination problem tractable, but since it's the only hope we've got, exhortation must continue.

If Sachs straightforwardly said what he really thinks, people would panic, which would be bad. So he really is doing us all a favor.

New on Free Will: Award-Winning Journalist Kerry Howley!

On Saturday, after several disastrous attempts, Kerry and I suceeded (sort of) in recording a new diavlog. We talk mainly about her latest Reason cover on fertility panics, but also about the tyranny of old people, and scrapbooking. Botched ending makes it special!

I'm insanely recording three this week. They are: Robin Hanson on Hansonism, Bruce Caldwell on Hayek, and Jim Holt on jokes. What would you like me to ask them?


Most of this week's NYT Magazine cover piece on Europe's fertility decline is old news to me,  thanks to my household demographics specialist, but I did find the bits at the end about the efforts to shrink Dessau, Germany pretty fascinating.

The plan, therefore, calls for demolishing underused sections of the city and weaving the nature on the periphery into the center: to create “urban islands set in a landscaped zone,” as Sonja Beeck, a Bauhaus planner, told me. “That will make the remaining urban areas denser and more alive.” The city has lost 25 percent of its population in recent years. “That means it is 25 percent too big,” Gröger said. “So far we have erased 2,500 flats from the map, and we have 8,000 more to go.” Beeck and Gröger walked with me through an area where a whole street had been turned into a grassy sward. Many residents were dubious at first, they told me, but as we walked, a woman recognized the government official and marched up to chat about when promised trees and flowers would be planted in front of her building.

As far as I know, this kind of urban planner's dream is a property owner's nightmare. But every time I take the train up the east coast and see the sprawling, delapidated, half-abandoned, outer slums of Baltimore and Philadelphia, I realize that these cities are never going to be as big as they once were, and that good ideas about how to effectively shrink cities are in very short supply. This can be a problem even if the population isn't shrinking, but is just moving around.

Feedback Loops and the Matthew Effect

From the Boston Globe:

WHILE DIFFERENCES IN talent explain at least some of the gap between haves and have-nots, two economists at MIT and Harvard think another factor is also at work. They theorize that the ability to dedicate yourself to work – and not worry about problems at home – has an amplified effect on your productivity and, thus, your income. This can happen simply because a higher income allows you to more easily accommodate or outsource many of the hassles of home life, which then sets up a virtuous cycle of more dedication to work, more productivity, more income, easier home life, more dedication to work, etc. Conversely, to the extent that you cannot dedicate yourself completely to work, you may find yourself in a poverty trap. This explains some of the nation's income disparity, the authors say, but it can also explain some of the gap between the developed and developing world.

Banerjee, A. and Mullainathan, S., “Limited Attention and Income Distribution,” American Economic Review (May 2008).

I think that there are many, many different interrelated virtuous and vicious circles that help explain increasing wage dispersion. Consider the fashionable  “Getting Things Done” personal productivity system. Highly educated people with complex schedules and multiple responsibilities not only find these kinds of systems helpful in getting things done, but also  for maintaining a sense of control and self-efficacy, which diminishes stress. If productivity goes up while anxiety goes down, more can be done in a period of time, more happily. Increased productivity tends to increase wages. Higher wages create an extra incentive to work more hours. But if productivity and workflow management technologies and practices increase a sense of control and self-efficacy, the wage incentive will be amplified, and even more labor will be supplied. Of course, practice makes you better, so people who work more also tend to work better, which eventually gets reflected in wages. And so on.

Americans Hate Redistribution

This is the sort of thing that makes the vein in Krugman's forehead throb:

When given a choice about how government should address the numerous economic difficulties facing today's consumer, Americans overwhelmingly — by 84% to 13% — prefer that the government focus on improving overall economic conditions and the jobs situation in the United States as opposed to taking steps to distribute wealth more evenly among Americans.

Here's the breakdown by income:

This is consistent with other polling data I have seen that shows that even as the percentage of Americans who claim to be concerned about income inequality has risen (as income inequality has risen), support for redistributive programs has been more or less constant. What you see instead is increased support for educational reform, suggesting a widespread belief that the problem worth worrying about is the ability of people toward the bottom to gain the skills they need to be successful, not the fact that some small percentage of people are becoming really fantastically rich.

People often wonder why income inequality is so much higher in the U.S. than in other rich liberal democracies. In a nutshell, the preferences of American voters is why.

Raising Kids in Cages

In response to my claim that:

It is tyrannical for parents to attempt to reproduce their ideologies and prejudices in their children, especially when this requires social isolation and emotional coercion.

Robin Hanson replies:

So is the principle here that parents should go beyond their simple judgment when choosing to what to expose our kids?  For example, should we let polygamists argue for their way of life directly to our kids?  Should we let pedophiles argue their case directly to our kids?  Or is the principle here that we know we are right and those other parents are wrong, obligating us to make those parents give their kids what we judge best?

Yes. Parents morally ought go beyond their “simple judgment.” I'd be happy to have polygamists make their case to my kids. Pedophiles too, as long as they're not philing my peds. The thing is, these will likely be bad arguments that appeal to dubious values and I intend to help my kids develop a sound sense of epistemic and moral judgment. If they can't tell these are bad arguments (by a certain age), then I've probably failed. The principle here is that freedom is good, that psychological freedom is a kind of freedom, and that psychological freedom has some developmental preconditions — it requires the cultivation of certain moral and epistemic capacities. Part of that cultivation comes from practicing judgment in a complex world of moral diversity.

I don't find the fact that people disagree about this any more interesting than the fact that people disagree over the wrongfulness of foot-binding or genital mutilation. Decent people  agree that there are minimal developmental conditions parents must provide their children. No one may raise their kid in total darkness, say, so that the child never develops sight–even if the kid is well-nourished, etc. You can't lock your kid in a cage in the basement and teach it to be your personal slave. And, yes, the minimum is historically and culturally relative. It is simply not OK to intentionally raise an illiterate child, even though illiteracy is the natural human condition. So, yes, “we” just do decide that “we” are right and some other parents are wrong “obligating us to make those parents give their kids what we judge best?” Is this even controversial? Who thinks clitoridectomy or breast ironing ought to be legal in the U.S.?

Libertarians are touchy about this issue. They agree parents can't raise their kids in a cage, but they also don't want the state to be telling parents they can't teach creationism, either. I agree! But it seems like lots of libertarians are so jealous of the right of parents to teach their kids about saddled dinosaurs, that they're a bit too motivated to wave away the very real violence to freedom that comes from neglecting the conditions under which kids come to be able to meaningful exercise their freedom. If you don't think it ought to be legal to raise malnourished kids, or blindfolded kids, or mute cage kids, then I think you've got to think harder about why not. And then you've got to think about whether some actually existing conditions are more like that than you might have thought.

Betsey Stevenson on Happiness on Nightline

Watch, listen, learn.

Link via Justin Wolfers, who asks a tangential question I would very much like to know the answer to:

(An aside: You will note that I referred to Betsey as my co-author, which she is, but that is only a partial description, as she is also my Wharton colleague, and also my longtime significant other. What is the right word for this? “Colleague plus?” I imagine that finding the right language for this is an increasingly common conundrum. Any suggestions?)

CEO Pay and the Mechanisms of Inequality

Like a broken record, I repeat myself: A high level of income inequality means nothing in itself. If you think there is some unfairness or injustice involved then show the mechanism that produced the pattern, and then let's consider whether there is something unjust or unfair about it. Ian Dew-Becker and Robert Gordon's new VoxEU op-ed is notable, and worthy of emulation, for pointing to a very possibly unjust mechanism behind the rapid rate of increase at the top of the top of the distribution.

While the demand and supply story of SBTC and Goldin and Katz can help explain the 90-10 ratio, increased skewness of incomes above the 90th percentile has been driven by a set of fundamentally different factors. To help understand the evolution of the highest incomes, we divide these workers into three categories. Superstars include the top members of any occupation that provides disproportionate rewards to the first-best as contrasted with the second-best. The superstar phenomenon has at its core the magnification of audiences, the fact that a single performance can be witnessed by an audience of one person or ten million people, depending on the perceived attraction and talent. The second category includes law partnerships, investment bankers, and hedge fund managers, where there is no obvious analogy to audience magnification but where there are steep wage premia for the very best in an occupational niche, and where it is apparent that incomes are highly market-driven.

The most contentious question regards the third category, top executives in public corporations. The core distinction is that CEO compensation is chosen by their peers in a system that gives CEOs and their hand-picked boards of directors, rather than the market, control over top incomes. The idea that managers, rather than stockholders, control directors goes back to Berle and Means (1932). This idea that the principal-agent control of stockholders should be reversed has been applied fruitfully by such authors as Bebchuk and Fried (2004). They argue that managerial power lies behind some of the outsized gains in CEO pay.

In general, we believe that better disclosure and better laws regarding corporate governance can help deal with high CEO pay. Precisely determining what counts as reasonable pay is beyond the government’s abilities. However, there is some evidence, reviewed by Dew-Becker (2008), showing that increases in mandatory disclosure lead to better corporate performance and better designed pay packages.

For some time now, I've seen overlapping directorates and reciprocal self-dealing by tightly socially connected corporate board members to be a plausible unjust mechanism behind the level of income inequality. Arnold Kling has a good post that outlines an alternative theory of CEO pay, but he also seems inclined to the view that there is some kind of malfeasance going on here.

Do notice, however, that the authors concede SBTC as a good explanation for much of the gap between the 10th and 90th percentiles. And, within the top 10 percent, superstar markets and the increasing value of talent in certain niches explains a lot of the gap between the 90th and 99th percentiles. It's not clear just how much of the outsized income gains at the top of the top are due to CEO pay. So even were reforms put in place that would prevent collusive yachting buddies from making each other that much richer, the overall effect on income inequality might be small. Of those who benefit from pure market mechanisms, Dew-Becker and Gordon write,

Their earnings are an outcome of market forces, and the only policy measure available to achieve greater after-tax equality is an increase in tax rates at the top balanced by a decrease at the bottom.

That is to say, they identify nothing untoward about the institutional mechanisms that produce inequality in this way, so there is no reason to try to intervene with new policy to change them. But this of course raises the question of why, in this kind of case, greater after-tax equality is morally desirable at all, or why an equality-aiming increase in tax rates on those with justly-earned incomes would morally permissible.

I Am a Howleyite, or Osama bin Laden Is Right

Why reply to McArdle, Douthat, and Poulos' replies to my post about Kerry's demography article when Kerry does it better than I could have? I think she's exactly right that cultural change occurs on many margins at once and that individuals are not Zombie-like hosts of static, monolithic culture. And I especially like the conclusion:

Part of the reason we find it so difficult to think about demographic change is that we fail to notice the goalposts changing around us. It’s true that the people we call social conservatives in this country are reproducing faster than the people we call socials liberals. But what will it mean to be “conservative” in America a century from now? In 1908 being a social conservative meant something far less amenable to tolerance than “legal marriage is for straight people!” Yes, Utah’s birthrate is higher than that of Bangladesh. I don’t know how to worry about that particular factoid, because I have no idea what it will mean to be a socially conservative Mormon in 30 years. It certainly means something different today than it did 30 years back.

People constantly make the simple error of thinking categories of identity have stable content just because the labels don't change. But you can have literally no one “converting” from one creed to another and still find the culture and world utterly changed. Indeed, the sect of Mormonism I grew up in, the Reorganized Church of Jesus Christ of Latter Day Saints, is now deeply different than it was when I was baptized into it at the age of eight. Not only does it now have women in the priesthood and a non-Joseph Smith-descended Prophet-President, but it doesn't even have the same name! If I had children I couldn't raise them in the religion of my youth, because it doesn't exist any more. Conservatives of all religions in the liberal world constantly complain about this. Though there is institutional continuity, neither ritual form not doctrinal content stay the same — not even in relatively conservative religious traditions.

Part of my whiggish conviction is the thought that, in these latter days, the transmission of culture from one generation to the next is increasingly low fidelity, because the culture parents grew up in does not last long enough to pass to their kids. There is fairly rapid cultural selection going on, and it has been very friendly to broad liberalization and very unfriendly to conservative norms. That's why some religious folk think they have to raise their kids on isolated compounds. I had not-that-distant ancestors who spoke Norwegian, German, Lakota, et al, but I don't really even know who they were, much less what they stood for. Maybe some natalist can convince the Taliban there is really no problem if they can just keep their birthrates up. But certain radical fundamentalist Muslims think they need to destroy liberal capitalist modernity for a very good reason. Unless they do, it really will destroy their creed and its culture.