Tag Archives: Inequality

Range

A wide-ranging review of research … rocked psychology because it showed experience simply did not create skill in a wide range of real-world scenarios, from college administrators assessing student potential to psychiatrists predicting patient performance to human resources professionals deciding who will succeed in job training. In those domains, which involved human behavior and where patterns did not clearly repeat, repetition did not cause learning. Chess, golf, and firefighting are exceptions, not the rule. …

In wicked domains, the rules of the game are often unclear or incomplete, there may or may not be repetitive patterns and they may not be obvious, and feedback is often delayed, inaccurate, or both. In the most devilishly wicked learning environments, experience will reinforce the exact wrong lessons. (more)

David Epstein’s book Range is a needed correction to other advice often heard lately, that the secret of life success is to specialize as early as possible. While early specializing works in some areas, more commonly one learns more by ranging more widely, collecting analogies and tools which can be applied too many new problems, and better learning which specialties fits you best.

I’ve done a lot of wide ranging in my life, so I naturally like this advice. However, as one can obviously take this advice too far, the hard question is how widely to range for how long, and then how quickly to narrow when.

Alas, Epstein seems less useful on this hard tradeoff question. He does make it plausible that your chance of achieving the very highest success in creative areas like art or research is maximized by a wider range than is typical. But as most people have little chance of reaching such heights, this doesn’t say much to them.

I’m struck by the fact that all of his concrete examples of wide rangers who succeeded are people who at some point specialized to enough gain status within a particular speciality area. He gives stats which suggest that wide rangers continue to be productive and useful to society even if they never specialize so much, but those people are apparently not seen as personal successes.

For example, Epstein cites a study showing that innovative academic papers which cite journals never before cited in the same paper are published at first in less prestigious journals, but eventually get more citations. Yet in fields like economics, status depends much more on journal prestige than eventual citations.

So while you might contribute more to the world by continuing to range widely, you often succeed more personally by ranging somewhat widely at first, and then specializing enough to make specialists see you as one of them.

The hard problem then is how to get specialists to credit you for advancing their field when they don’t see you as a high status one of them. Epstein quotes people who say we should just fund all research topics even if they don’t seem promising, but that obviously just won’t work.

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Low Prestige Hurts More

It can feel terrible to feel unwanted. Unwanted by schools, labor markets, sport teams, music bands, acting troupes, or romantic partners. We feel bad when we feel unwanted, and we often pity others to see them unwanted. Though we don’t usually pity enough to actually choose them over alternatives. And they can feel even worse to see our pity, as it affirms the visibility of their rejection.

Ever since we were foragers, humans have distinguished two kinds of status: dominance and prestige. Dominance is illicit, and we have norms saying to prevent and resist it, while prestige is not only allowed but encouraged. So one way to sympathize with and support someone who is unwanted is to frame their rejection as illicit dominance.

Since rich folks and big for-profit firms are easily portrayed as illicit dominators, it is easy to blame their illicit dominance when they reject people. So many people like to support those rejected by firms, such as for jobs at firms or loans from banks, by blaming firm dominance. Big firms can also be blamed when the products and services they sell explain why people are rejected by others. E.g., video games, tobacco, and payday lending.

This all helps explain why so many are so quick to blame “capitalist” firms and a larger culture and “system” of capitalism, such as for many kinds of discrimination leading to unfair rejection. Such blamers can then self-righteously sympathize with the rejected without having to actually choose them.

Note that economists often blame public pressures to cut firm rejections for bad economic effects, such as high unemployment in Europe where it is hard to fire workers, and excess home loans to risky households before the 2008 financial crisis.

This perspective also helps explain why people are reluctant to blame their “systems” of romance, friendship, conversation, sport, music, arts, which also result in rejections that make so many feel unwanted. Those systems tend to be associated more directly with prestige, and lack identifiable villains to blame for dominance. Except when big business gets involved. Rejection there can also be blamed on a larger “capitalist” culture causing discrimination, such as re sexual preferences or gender identities.

But here’s the thing: even without any illicit domination, some will have lower prestige than others, and that will hurt. Badly. In fact, it probably hurts even more than having low dominance, as that can be self-righteously blamed on others’ illicit pursuit of high dominance. Being low prestige, in contrast, elicits little sympathy from others, as showing sympathy toward such folks risks being pushed to not reject them, and being seen has having poor evaluation abilities regarding prestige.

The only simple solutions I see are an easy one, ignore it all, and a hard one: sometimes actually and honestly sympathize with the low in prestige. And let them see that sympathy. Which yes, will sometimes lead you to make “pity” choices you might not otherwise make. Do it because it hurts. (Some propose more complex solutions; they must wait for another post.)

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The Persistence of Poverty

On Bryan Caplan’s recommendation, I just read The Persistence of Poverty, by Charles Karelis (2007). Karelis seeks to explain these patterns:

Five patterns that have been common among the poor in many times and places, then, and that played a role in keeping them poor or making them poorer, are: 1. not working much for pay; 2. not getting much education; 3. not saving for a rainy day; 4. abusing alcohol; and 5. taking risks with the law. … [And] having children early and out of wedlock … is doubtless a big factor in poverty in the United States today.

His explanation is that often we experience diminishing returns for “relievers” that reduce our pain. Which actually gives us increasing, not diminishing returns for getting “more” in that area. For example:

Consider housing. Suppose we take the perspective of a couple whose house has a bedroom for them and each of their six children, plus adequate room for entertaining and other functions besides. Clearly they are consuming or using housing in the more-than-sufficient range. Their house is a source of positive experience. As each child leaves for college (let us say), the amount of space available for the use of the couple goes up by roughly equal amounts, but probably their enjoyment of the house goes up by smaller and smaller amounts. …

Now imagine a couple whose dwelling is a one-bedroom house that is barely adequate for themselves. If a child arrives, then given the crowded conditions, the couple’s privacy is much reduced, their peace and quiet is disturbed, and they may have to start sleeping in shifts. Whatever the compensating joys of parenthood may be, these are impressive deteriorations in their physical comfort. By the time child number six arrives, the couple may hardly notice the further deterioration in their situation that occurs as a result. One more voice outside the bedroom door when you cannot sleep anyway on account of the five that are already audible probably will not make much difference.

That is, you don’t notice as much of a difference between very and mildly crowded, as you do between mildly and not at all crowded. Karelis further claims (though without sufficient support in my opinion) that this sort of things happens much more often for people who are poor relative to their culture:

Whether something is functioning as a reliever for a given consumer is relative. It is only partly a question of objective economic circumstances, because it depends too upon how the consumer sees those circumstances. … A more anthropological view responds that the difference lies in neither discipline nor opportunity but in the values of the various sub-cultures. … No one doubts that different cultural groups within the United States have different histories, and that these different histories create different economic norms and expectations. For instance, having come from much poorer countries, Asian immigrants to the United States often have relatively low norms and expectations. By contrast, African-Americans, who are closely acquainted with the lifestyles of middle-class whites, and who have long been exposed to “the American dream” and all it implies, often have relatively high norms, if not exactly expectations. … this … predicts that the felt relief of the marginal dollar will be greater for poor Asian immigrants than the felt relief of the marginal dollar for similarly poor African-Americans.

Karelis first published this idea in 1986, and he notes that similar ideas were published by van Praag in 1968 and Friedman & Savage in 1948. I find the idea coherent and mildly plausible, but just based on Karelis’ arguments, I wouldn’t put it much above other common poverty explanations, such as stupidity, sickness, impatience, impulsiveness, and lack of self-control.

However, I gave more weight to this account after I realized that it is implied by my usual favorite account of income status: utility linear in income rank. As income is usually distributed lognormally, the function relating rank to log income must be convex below and concave above median income. This implies diminishing returns in income above median income, and a range below median income with increasing returns to income. When you have increasing returns to income, you value each unit of income more when you have more of it, rather than the usual diminishing returns case, where you value each unit of income less, the more income you have.

Karelis suggests some policy implications:

Seeing that the income effect and the substitution effect of strategies to make work pay will be mutually reinforcing, making work pay [via increased wages] is a double-barreled anti-poverty approach. By contrast, no-strings assistance is a single-barreled approach, since it lacks a positive substitution effect. …

Thirty-five years ago the speeches and writings of American civil rights leaders often framed or interpreted the circumstances of their audiences by “comparing them up”—measuring them against the circumstances of the middle-classes and the upper-middle classes, or even against the images of the good life found within the American Dream. This was openly done for the sake of energizing audiences with discontent. The goal was reasonable enough, but according to our theory, the strategy was probably counterproductive. …

Increasing the differential between the income from crime and the income from honest work—by raising the odds of punishment, lengthening sentences, or making (honest) work pay better—is likelier to be effective than strategies built on the assumption that criminals are dysfunctional and hence unresponsive to sticks and carrots of this kind; and it is likelier to be effective than strategies built on the assumption of atypical preferences. …

Our utility function could [correctly] be used to justify putting the least poor people ahead of the very poorest people in distributing assistance.

Though Karelis didn’t mention it, the same logic says to allow and even promote more gambling among the poor; within the convex region gambles look like a net gain. For the same reason, it would be good to promote inequality among the poor.

However, all these policy recommendations are based on assuming that the preferences of other poor people don’t change when you help one poor person move up their utility function. But if the transition from convex to concave utility, and other aspects of the utility of money, result from the actual distribution of income in one’s reference culture, then helping one person changes the distribution against which others compare themselves.

For example, if utility is linear in rank, the help you give one person is exactly cancelled by the hurt you thereby inflict on the others who this one person has jumped over in rank. Yes, with some other functional form, the help might outweigh the hurt, but with other forms the hurt might outweigh the help. This effect of changing the reference distribution is not small, and shouldn’t be ignored as Karelis does.

Finally, Karelis focuses entirely on immediate choices, rather than on long-term strategies. Young poor people who care about the long run should focus on trying to dig their way out of poverty, and so much less display the six patterns of poverty that Karelis tries to explain. So to predict typical poor behaviors, we need to add a substantial degree of impatience or lack of self-control to Karelis’ account.

Added 4p: Karelis responded to my email, and asked me to post this comment:

Thank you for blogging so thoughtfully about my book. One comment. The hypothesis of the book can fairly easily be extended to the putative fact that impulsiveness, impatience, and lack of self-control are commoner among the poor by introducing the idea that overcoming these weaknesses is a kind of work. The idea would be that this “will-work” will have less appeal when the material gain produced yields a smaller rather than larger addition to utility, as (the hypothesis contends) is the case in the lower income ranges. As I recall, Andrew Sullivan, Ezra Klein, and Ta-nehisi Coates all noted this extrapolation of my theory around the time the book appeared. The amendment was made possible, really, by research into the nature of willpower subsequent to the publication of my book.

This story can work re efforts to make small gains while poor, but doesn’t work re making big gambles or long-term efforts to dig oneself out of poverty. Those should be seen as large gains, even for someone who can’t find sufficient motivation to work for small gains. So to explain a poor person uninterested in either of those, we need to add something else to our story.

Added 6p: Karelis further responds:

Yes, we need to add something else to our story, but maybe not too much. My hypothesis says that medium-sized  additions to the consumption of someone at the low end of the income scale (additions that leave them shy of sufficiency) will raise and not lower their marginal utility for the good in question, and thereby increase their motivation to secure more of that good. You are right to see that these medium additions need not come from an external source. Self-help can be as effective as exogenous help in raising marginal utility in this way. For instance, if you have ten unwashed dishes in the sink, and someone washes eight of them, the psychological benefit you will get from washing the last two will be more than you would have gotten from washing the first two, and it doesn’t matter whether that “someone” is you or a friend.

So why don’t poor people perform this kind of self-help more often? They may have internalized the law of diminishing marginal utility, just like the policy folks who resist helping the poor for fear of undermining their motivation for self-help. More likely, none of us, rich or poor, is very good at self-gaming, i.e. figuring out and acting upon the likely impact of possible actions on what will seem rational to us when we have completed those actions.
One might plausibly argue that no one ever really makes long term plans. People who seem to be doing so, such as students going to college, are really just executing standard cultural plans, doing “what you are supposed to do”. Then the “extra” we’d need to add, to explain why the poor don’t seem to have long term plans to dig them out of poverty, is to say that the cultures of poor people often don’t have standard cultural plans that induce them to so dig.
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Liability Insurance For All

The world’s first modern limited liability law was enacted by the state of New York in 1811. In England … investors in such companies carried unlimited liability until the Limited Liability Act of 1855. There was a degree of public and legislative distaste for a limitation of liability, with fears that it would cause a drop in standards of probity. … Limited liability has been justified as promoting investment and capital formation by reassuring risk averse investors. … Others argue that while some limited liability is beneficial, the privilege ought not to extend to liability in tort for environmental disasters or personal injury. (more)

General Liability Insurance: Every business, even if home-based, needs to have liability insurance. The policy provides both defense and damages if you, your employees or your products or services cause or are alleged to have caused Bodily Injury or Property Damage to a third party. (more)

If a court finds you guilty and demands that you pay, you are on the hook to pay everything you’ve got. Same for most small businesses. But investors in big firms instead get to play “heads I win, tails we flip again”. If the firm does well they can win cash, but if the firm behaves badly, the court can only take what they’ve put into the firm. That is, the court can extract money that is in the firm, but can’t push further to get more from investors. This usually doesn’t sit well those inclined toward suspicion of big firms; why subsidize big for-profit firms relative to other forms of social organization?

The usual argument for limited liability is that without it investors would be reluctant to invest. Which makes sense and plausibly explains the initial introduction of limited liability. But that happened before the rise of the modern insurance industry. Now that insurance is easy, the obvious solution is liability insurance. Then in case of a court demanding a large payment, the insurance company pays, and the investors are insulated. Small businesses today typically buy such insurance as a matter of good practice, and many contracts with other businesses require them to have it.

Today we require auto accident liability insurance for car drivers. And recently some have proposed requiring gun owners to have liability insurance regarding their gun use. Insurers would then discourage risky people from owning guns, and help others reduce their risk. But many gun owners see this as a back hand way to tax guns; why should guns be singled out relative to lots of other risky products?

Yes, if we require liability insurance for some products and organizations but not others, we are implicitly subsidizing and taxing some relative to others. The obvious simple solution is to require everyone to get liability insurance for everything. The insurance could stand ready to pay the 99th percentile amount demanded of that sort of person or organization. Then we aren’t favoring any particular activity or organization type. And then some new interesting reforms become possible.

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Populists Like Late Bloomers 

Late bloomers … possess qualities that can only be acquired through time and experience. They tend to be more curious, compassionate, resilient and wise than younger people of equal talent. (more)

We don’t treat people as equals in our society; some are seen as more valuable than others. And a key question is: how fast do we learn who is more valuable? The faster that we learn, the faster we can successfully sort people into the more versus less valuable, and the more strongly success and respect will correlate with merit. But the longer it takes to learn who is more valuable, the less we can infer about who is good from who has succeeded so far. 

A populist culture will pander more to the typical person, who wants to believe that he or she is really more valuable than their success so far suggests. An elitist culture, in contrast, will pander more to the typical elite, who wants to believe that his or her current high success level is a strong indicator of their higher merit. So is our culture populist or elitist? 

One big clue comes from our attitudes toward late bloomers. The harder it is to tell quality early in life, the more often that people who seemed low quality early in life will be revealed as high quality later in life. That is, in the world that populists want to believe in, there are more late bloomers. So a populist culture should more expect and celebrate late bloomers. An elitist culture, in contrast, should expect few late bloomers, as quality is quickly revealed early in life. Both should expect that at older ages a higher fraction of elites are late bloomers.

The tech industry famously prefers young workers, and rejects older workers, and so takes a more elitist stance. The high status of that industry suggests that our larger culture is also more elitist. Finance, management consulting, and athletics are also high status areas that prefer younger workers who are quickly sorted into high versus low value. Management and politics, in contrast, usually prefer older workers. Overall I’d say our culture leans elitist, though I admit this is hard to tell.

Note that the degree to which people want to believe more in late bloomers depends both on their status and on their age; the strongest difference is that mid-aged unsuccessful people want to believe in late blooming, while mid-aged successful people don’t want to believe in that. Early in life, the indicators are weak, and so everyone can believe that they will eventually succeed. And late in life, people have mostly been sorted, and there’s relatively little chance left for reversals of fortune. It is in the middle of life that the successful most want to believe the game is over, while others most want to believe the game has hardly begun. 

Within traditional gender roles, it takes longer to evaluate men than women. Women are traditionally evaluated more on beauty, fertility, and nurturing, which are revealed earlier. Men are evaluated more on fame, wealth, and career success, which are revealed later. Thus traditionally, men were more the late bloomers. This implies that the populist stance made more sense regarding men, and the elitist stance made more sense regarding women. 

This implied that when men and women paired up with others of the same age, men could more reliably see what they were getting in female partners, while women were taking more of a chance on male partners. So women who prefer older men would tend to believe more in late blooming for men, and thus take a more populist attitude. Similarly, men who prefer younger women would believe less in late blooming for women.  

I was personally a late bloomer; I started my Phd at the age of 34, with two kids age 0 and 2 at the time. I also chose to marry a woman who was four years older than me. So I guess that leans me toward populism regarding how fast value is revealed. Though now that I’m getting relatively old, I guess I’m less vested in such opinions. 

Added 29May: The new book Range argues that late blooming correlates with a more generalist strategy. The longer you search for an area in which to specialize, the more general skills you collect.

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Who Complains How About Whom

We humans like to complain. And while we might pretend that the main purpose of our complaints is to help others adjust their behavior, more likely we like to collect successful complaints as a resource. Collect enough complaints, and maybe you can trade them for some compensation, or at least sympathy. 

One way to collect complaints is to find others who are violating social norms. But complaints are much more socially valuable to us when we can frame them as something done to us personally. Which is why we prefer to complain about people who are associated with us in some concrete way. 

Our associates vary both in how strong is our interaction with them, and also in how much responsibility we have for them, and they for us. Consider the difference between a consultant and an employee, or between a lover and a spouse. The former types of associates can have just as strong an influence on us, but we are seen socially as more responsible for what happens to the latter types, who I will call “allies”.  

Since our associates do things that influence us, we can in principle complain whenever their impact could be framed as negative to observers. But we have to be careful complaining about allies. We often have norms that complaints between allies should be kept private. Also, as we are in part responsible for what our allies do, and thus in part responsible for what they do to hurt us. So we feel more free to complain when less-ally associates do things that impact us negatively.

While we are less able to complain publicly about specific effects of our allies, we are more able to complain about their loyalty as allies. If they are responsible for us, we can complain that they have not done enough to help us, especially when we are in unusual need. We can also complain that by their actions they are taking unjustified risks. Their actions can risk their running into problems that would lead to needing help from us, and can also lead to complaints by others, which would then reflect badly on us because of our ally relation.

Notice that this analysis predicts some general patterns in our relations to allies and to non-ally associates (this is of course really a spectrum). We do more to help allies, but we more limit their behavior. We feel less free to break off our relation with an ally, or even to visibly shop around for substitutes. Non-ally associates, in contrast, can take more risks, and thereby gain both more upsides and downsides. We demand that allies more conform to social norms, and more avoid what we consider risky behavior. It is more okay to have non-ally associates who are greedy, arrogant, or braggarts, even assholes. 

Another important way in which our associates vary is in their dominance “size”.  We humans still feel the pull of egalitarian forager norms, norms which disapprove of some agents having, and seeming willing to use, more “power”, whether physical or monetary. We often have associations where one party is seen as larger in this sense. These include relations between parents and children, firms and individual customers or employees, bosses and subordinates, rich and poor friends or family, and between men and women.  

In an association between a “big” and a “small” agent, observers tend to hold the larger agent to a higher “ally” standard. The larger agent is supposed to do more to help the smaller agent when they are in need, and to do less that might risk the safety of that smaller agent. The larger agent is also seen as more entitled to regulate the behavior of the smaller agent. In contrast, the smaller agent is less obligated to help the larger agent in need, and if they are less allied they are less entitled to regulate the behavior of the larger agent.  

Of course it is possible for a large and a small agent to have a strong ally relation, in which case the small agent will then be expected do a lot to help the large one when that agent is in need. It is just less acceptable for the larger agent to not treat the smaller one more like an ally. When the small agent is not held to an ally standard, the large agent is seen as more free to take risks, as the smaller agent will less be held responsible for them.  

Note that a smaller agent who is to be treated by a larger associate as an ally, but who need not treat that associate as an ally, has maximal opportunities to complain. They are less restrained from complaining about particular negative effects, and they can also complain if their associate isn’t sufficiently loyal or fair in ally terms.

This whole analysis seems to be particularly useful for understanding relations between men and women, and between firms and their customers and employees. Women tend to complain more about men, compared to vice versa, women tend more to initiate breakups, and they tend more to be protected from downside risks (e.g. via welfare). More conformity is demanded of women, while men are allowed to take more risks, from which they can gain larger upsides but suffer larger downsides. It is more okay for men to act harshly, even as assholes, such as in management.

Similarly, individuals tend to complain more about big business, and it is more okay for an individual to quit a firm than for a firm to quit an individual. We protect individuals much more from downsides, and also regulate their behaviors more. We mainly regulate firms to limit the harm they might cause to individuals, and to ensure they treat individuals “fairly” as an ally should, e.g., avoiding unfair discrimination.

Note that I’m not claiming that these patterns are genetic, or that they can’t be changed. (I’m not claiming the opposite either.) These patterns have a logic, but there may be other important logics at play. These may also be only patterns in social perceptions in our society, which need not exist in all societies and which need not correspond to reality in our society.

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Firms Are Not Aliens

The title of Tyler Cowen’s new book, Big Business: A Love Letter to an American Anti-Hero, is pretty clear on its topic and stance:

Business, quite simply, has become underrated, and thus I am writing a contrarian book that ought not to be contrarian at all. All of the criticisms one might mount against the corporate form—some of which are valid—pale in contrast to two straightforward and indeed essential virtues. First, business makes most of the stuff we enjoy and consume. Second, business is what gives most of us jobs.

You might think Cowen would defend the claim that big business is a better source for stuff and jobs, compared to other sources like government agencies, non-profits, worker cooperatives, small business, communes, sharing, or self-employment & home production. But in fact Cowen shows little interest in comparing big business to such alternatives. Instead, his book seems to be all about “mood affiliation”, to use a Cowen term. Two reviewers agree:

His theme is correct. Big Business is not the ogre it is made out to be. It is no more deserving of being scapegoated than are other familiar targets. (more)

The book does have a slightly catalogue-ish feel to it, as though Professor Cowen has been (as I suspect) keeping a list of college students’ most common complaints about Big Business (and about capitalism generally) and addressing them in series. (more)

While most of Cowen’s responses to complaints seem spot on to me, this whole situation seems a sad commentary on our complainy culture. Complaints are mainly useful when they push us to evaluate particular proposed fixes. But our political culture today seems largely a game of trying to max the people* time*loudness volume of complaints heard about rivals, regardless of the relative validity or importance of such complaints. Supporting this game, Cowen doesn’t talk much about possible fixes; his focus seems on the overall complaint score.

My main disagreement with Cowen, and its a big one, is that, in his last chapter, his “love” letter reads more like this “praise” of men from the movie Dangerous Liaisons: 

Men enjoy the happiness they feel. We [women] can only enjoy the happiness we give. [Men] are not capable of devoting themselves exclusively to one person. So [for a woman] to hope to be made happy by love is a certain cause of grief. (more)

Cowen tells us to love big businesses, but not to expect them to love us back, as they are incurably selfish aliens:

Why is business so often so unpopular? I think the answers are pretty deeply rooted in human nature: we cannot help judging business by many of the same standards we apply to people. …We turn corporations into people in our minds, and also in our hearts. … we imbue them with human qualities. … It can mislead us, and it is a kind of shorthand that has pitfalls and hazards. … [are] external, autonomous, selfish corporate agents — agents who take our wishes into account only insofar as it suits them. … should be judged not as friends but as abstract, shark-like legal entities devoted to commercial profit. … It is emotionally very hard for people to internalize emotionally the true and correct picture of those businesses as partaking in an impersonal order based on mostly selfish, profit-seeking behavior. …

We judge companies as we might judge a person, sometimes even a family member: in terms of connection and standards of integrity. This is a mistake, because corporations are legal constructs and abstract entities, and they do not have purposes, goals, or feelings of their own. … Precisely because we tend to judge corporations by the standards we use to judge people, it is hard for us to accept the partially venal or sometimes amoral pecuniary or greedy motives operating behind the scenes, and so we moralize about companies instead of trying to understand them. …

When it comes to politics and public policy, we need to distance ourselves from such emotional and anthropomorphized attitudes. We need to stop being loyal to corporations for the sake of loyalty and friendship, and we also need to stop being disappointed in corporations all the time, as if we should be judging them by the standards we apply to individual human beings and particularly our friends. Instead, we should view companies more dispassionately, as part of an abstract legal and economic order with certain virtues and also plenty of imperfections. …

It doesn’t quite work to think of businesses as our friends. Friendship is based in part on an intrinsic loyalty that transcends the benefit received in any particular time and place. Many friendships also rely on an ongoing exchange of reciprocal benefits, yet without direct consideration each and every time of exactly how much reciprocity is needed. In addition to the self-interested joys of friendly togetherness, friendship is about commonality of vision, a wish to see your own values reflected in another, a sense of potential shared sacrifice, and a (partial) willingness to put the interest of the other person ahead of your own, without always doing a calculation about what you will get back.

A corporation just doesn’t fit this mold in the same way. A business may wish to appear to be an embodiment of friendly reciprocity, but it is more like an amoral embodiment of principles that usually but not always work out for the common good. The senior management of the corporation has a legally binding responsibility to maximize shareholder profits, at least subject to the constraints of the law and perhaps other constraints embodied in the company’s charter or bylaws. The exact nature of this fiduciary responsibility will vary, but it never says the company ought to be the consumer’s friend, at least not above and beyond when such friendship may prove instrumentally valuable to the ends of the company, including profit.

In this setting, companies will almost always disappoint us if we judge them by the standards of friendship, as the companies themselves are trying to trick us into doing. Companies can never quite meet the standards of friendship. They’re not even close acquaintances. At best they are a bit like wolves in sheep’s clothing, but these wolves bring your food rather than eat you.

Oddly, Cowen spends much of his book arguing differently, saying why firms have incentives to, and in fact do, act more trustworthy and reliably than do most humans and other organizations. And that firms are not in fact simple profit maximizers:

The common portrait of corporations as consisting entirely of selfish or greedy individuals is not the best understanding of big business. … Goals other than simple profit maximization often end up boosting both business profits and social benefits. For example, the people who work at SpaceX, … often really do believe in the dream of colonizing other planets and the stars. … Friedman failed to understand that the cultural, intellectual, ideological, and even emotional foundations of business go far beyond an attachment to profit. People care about what they do, and they seek meaning through their jobs. Profit maximization is best thought of as a convenient fiction that does a fairly good job boosting profits precisely because it rejects a sole emphasis on profits as a goal. … most successful businesses have a kind of messianic view of their role in society … A business that instills in its workers and managers a sincere belief in such goals has a better chance of building a durable competitive advantage than a business that does not. …

I’m more likely to think of a corporation as a carrier of reputation and a kind of metaphorical personhood, and less likely to think of a corporation as a means of minimizing transactions costs, as many mainstream economists have suggested.

Yet in the end Cowen wants to warn us that all this good stuff is an illusion covering an incurably selfish core. His whole picture seems greatly at odds with the view I elaborate in my book The Elephant in the Brain: Hidden Motives in Everyday Life: that we humans are similarly selfish at core and yet induced to act and look good by our social context and incentives. As friends, we may not consciously consider “each and every time of exactly how much reciprocity is needed”, but unconsciously we very much consider such things. I say that big business is no more essentially selfish than are ordinary humans, and that Cowen has offered no evidence to the contrary.

We humans have had many thousands of years of experience relating to people who need us but are much more powerful than us, and to large social organizations that sit in similar human-like social roles. These are the kinds of human-like relations that we can reasonably expect to have with big business today, and that we do actually have. In those expected roles, big business is not disappointing us nor fooling us; they are in fact more reliable and trustworthy than most of our other relation partners. They can and do meet high standards of integrity. In their roles, they very much do have understandable and relatable “purposes, goals, or feelings of their own”. After so many millennia, this isn’t some strange new situation to which we are poorly adapted. We aren’t at all fooled into thinking of big business as equal lovers or drinking buddies.

Why then do we complain so much about big business, via words, taxes, regulations, and a low political influence? Because just by being big, having money, and seeking money, big business violates ancient forager norms against inegalitarian distribution, overt selfishness, and especially against overtly selfish efforts to achieve unequal dominance. (Money is seen a power to dominate).

We know that the continued existence of those forager norms primes audiences to accept most any complaint we might make against big business. And as in a marriage, we are happy to take advantage of opportunities to complain, even when we have no intention of breaking off the relationship.

Added 5p 22Apr: On his blog, Cowen cryptically replies:

For purposes of context, I see Robin as leading a sustained mood affiliation crusade against hypocrisy, rather than performing comparative analysis of hypocrisy vs. the relevant alternatives.

That may be true, but I don’t see how it is responsive to my critique. Hypocrisy is when someone’s real motives differs from those they present. But I’m struggling to understand Cowen’s comment via somehow mapping the hypocrisy concept onto my post above. The most obvious example of hypocrisy in the above is when ordinary folks pretend to mind big firms behavior, but really mind don’t mind nearly as much as they pretend. I didn’t complain about that hypocrisy in the above, and I can’t see how that application of the hypocrisy concept is relevant to the disagreement that I identify, where he says firms at core just can’t and shouldn’t be trusted and I say they can be trusted as well as other individuals and organizations. So I guess I’m just not understanding him.

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How Lumpy AI Services?

Long ago people like Marx and Engels predicted that the familiar capitalist economy would naturally lead to the immiseration of workers, huge wealth inequality, and a strong concentration of firms. Each industry would be dominated by a main monopolist, and these monsters would merge into a few big firms that basically run, and ruin, everything. (This is somewhat analogous to common expectations that military conflicts naturally result in one empire ruling the world.)

Many intellectuals and ordinary people found such views quite plausible then, and still do; these are the concerns most often voiced to justify redistribution and regulation. Wealth inequality is said to be bad for social and political health, and big firms are said to be bad for the economy, workers, and consumers, especially if they are not loyal to our nation, or if they coordinate behind the scenes.

Note that many people seem much less concerned about an economy full of small firms populated by people of nearly equal wealth. Actions seem more visible in such a world, and better constrained by competition. With a few big privately-coordinating firms, in contrast, who knows that they could get up to, and they seem to have so many possible ways to screw us. Many people either want these big firms broken up, or heavily constrained by presumed-friendly regulators.

In the area of AI risk, many express great concern that the world may be taken over by a few big powerful AGI (artificial general intelligence) agents with opaque beliefs and values, who might arise suddenly via a fast local “foom” self-improvement process centered on one initially small system. I’ve argued in the past that such sudden local foom seems unlikely because innovation is rarely that lumpy.

In a new book-length technical report, Reframing Superintelligence: Comprehensive AI Services as General Intelligence, Eric Drexler makes a somewhat similar anti-lumpiness argument. But he talks about task lumpiness, not innovation lumpiness. Powerful AI is safer if it is broken into many specific services, often supplied by separate firms. The task that each service achieves has a narrow enough scope that there’s little risk of it taking over the world and killing everyone in order to achieve that task. In particular, the service of being competent at a task is separate from the service of learning how to become competent at that task. In Drexler’s words: Continue reading "How Lumpy AI Services?" »

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Stubborn Attachments

Tyler Cowen’s new book, Stubborn Attachments, says many things. But his main claims are, roughly, 1) we should care much more about people who will live in the distant future, and 2) promoting long-run economic growth is a robust way to achieve that end. As a result, we should try much harder to promote long-run economic growth.

Now I don’t actually think his arguments are that persuasive to those inclined to disagree. On 1), the actions of most people suggest that they don’t actually care much about the distant future, and there exist quite consistent preferences (including moral preferences) to represent this position. (Also, I have to wonder how much Tyler cares, as in the 20 years I’ve known him I’ve often worked on distant future issues, and he’s shown almost no interest in such things.)

On 2), while Tyler mainly argues for econ growth by pointing to good trends over the last few centuries, many people see bad trends as outweighing the good, and many others see recent trends as temporary historical deviations. Tyler also doesn’t consider that future techs which speed population growth could cut the connection observed recently between total and per-capita growth; I describe such a scenario in my book Age of Em.

Tyler being Tyler, he is generally vague and gives himself many outs to avoid criticism. For example, he says that rights should take priority over growth, but he doesn’t specify those rights. He says he only advocates growing “wealth plus” which includes any good thing you could want, so don’t complain that growth will hurt a good thing. He notes that the priority on growth can justify the usual intuition excusing limited redistribution, but doesn’t mention that this won’t at all excuse not doing everything possible to promote growth. He says he isn’t committed to econ growth being possible forever, but only to a finite chance of eternal growth. Yet focusing all policy on trying to increase growth within some tiny-chance eternal growth scenario is overwhelmingly likely to seem a huge mistake later.

However, as I personally happen to agree with his main claims, at least the way I phrased them, I’d rather focus on their implications, which Tyler severely neglects. The following are the only “concrete” things he says about how exactly to promote long term econ growth:

For some more concrete recommendations, I’ll suggest the following: a) Policy should be more forward-looking and more concerned about the more distant future. b) Governments should place a much higher priority on investment than is currently the case, in both the private sector and the public sector. … c) Policy should be more concerned with economic growth, properly specified, and policy discussion should pay less heed to other values. … d) We should be more concerned with the fragility of our civilization. … e) We should be more charitable on the whole, but we are not obliged to give away all of our wealth. … f) We can embrace much of common sense morality with the knowledge that it is not inconsistent with a deeper ethical theory. … g) When it comes to most “small” policies affecting the present and the near-present only, we should be agnostic.

More “investment” and “growth”, that’s it?! We actually know of many more specific ways to encourage choices that promote long term growth, but they mostly come at substantial costs. I don’t how much you actually support faster long-term growth until I hear which such policies you’ll support. Continue reading "Stubborn Attachments" »

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Compulsory Licensing Of Backroom IT?

We now understand one of the main reasons that many leading firms have been winning relative to others, resulting in higher markups, profits, and wage inequality:

The biggest companies in every field are pulling away from their peers faster than ever, sucking up the lion’s share of revenue, profits and productivity gains. Economists have proposed many possible explanations: top managers flocking to top firms, automation creating an imbalance in productivity, merger-and-acquisition mania, lack of antitrust regulation and more. But new data suggests that … IT spending that goes into hiring developers and creating software owned and used exclusively by a firm is the key competitive advantage. It’s different from our standard understanding of R&D in that this software is used solely by the company, and isn’t part of products developed for its customers.

Today’s big winners went all in. …Tech companies such as Google, Facebook, Amazon and Apple—as well as other giants including General Motors and Nissan in the automotive sector, and Pfizer and Roche in pharmaceuticals—built their own software and even their own hardware, inventing and perfecting their own processes instead of aligning their business model with some outside developer’s idea of it. … “IT intensity,” is relevant not just in the U.S. but across 25 other countries as well. …

When new technologies were developed in the past, they would diffuse to other firms fast enough so that productivity rose across entire industries. … But imagine instead of power looms, someone is trying to copy and reproduce Google’s cloud infrastructure itself. … Things have just gotten too complicated. The technologies we rely on now are massive and inextricably linked to the engineers, workers, systems and business models built around them. … While in the past it might have been possible to license, steal or copy someone else’s technology, these days that technology can’t be separated from the systems of which it’s a part. … Walmart built an elaborate logistics system around bar code scanners, which allowed it to beat out smaller retail rivals. Notably, it never sold this technology to any competitors. (more)

A policy paper goes into more detail. First, why is the IT of some firms so much better?

Proprietary IT thus provides a specific mechanism that can help explain the reallocation to more productive firms, rising industry concentration, also growing productivity dispersion between firms within industries, and growing profit margins. … There is a significant literature that identifies IT-related differences in productivity arising from complementary skills, managerial practices, and business models that are themselves unevenly distributed. Skills and managerial knowledge needed to use major new technologies have often been unevenly distributed initially because much must be learned through experience, which tends to differ substantially from firm to firm.

Yes, skills vary, but there are also just big random factors in the success of large IT systems, even for similar skills. What can we do about all this?

While there may be other reasons to question antitrust policies, the general rise in industry concentration does not appear to raise troubling issues for antitrust enforcement at this point by itself. …

Both IP law and antitrust law pay heed to … balancing innovation incentives against the need for disclosure and competition, balancing concerns about market power against considerations of efficiency. … This balance has been lost with regard to information technology … the policy challenge is to offset this trend. … This problem might require some lessening of innovation incentives. … The challenge both today and in the future for both IP and antitrust policy is to facilitate the diffusion of new technical knowledge and right now the trend seems to be in the wrong direction. …

To the extent that rising use of employee noncompete agreements limits the ability of technical employees to take their skills to new firms, diffusion is slowed. Similarly, for extensions of trade secrecy law to cover knowhow or the presumption of inevitable disclosure. Patents are required to disclose the technical information needed to “enable” the invention, but perhaps these requirements are ineffective, especially in IT fields. And if patents are not licensed, they become a barrier to diffusion. Perhaps some forms of compulsory licensing might overcome this problem. Moreover, machine learning technologies portend even greater difficulties encouraging diffusion in the future because use of these technologies requires not only skilled employees, but also access to critical large datasets.

It seems that making good backroom software, to use internally, has become something of a natural monopoly. Creating such IT has large fixed costs and big random factors. So an obvious question is whether we can usefully regulate this natural monopoly. And one standard approach to regulating monopolies is to force them to sell to everyone at regulated prices. Which in this context we call “compulsory licensing”; firms could be forced to lease their backroom IT to other firms in the same industry at regulated prices.

Note that while compulsory licensing of patents is rare in the US, it is common worldwide, and it one of the reasons that US drug firms get proportionally less of their revenue from outside the US; other nations force them to license their patents at particular low prices. So worldwide there is a lot of precedent for compulsory licensing.

The article above claimed that backroom IT is:

inextricably linked to the engineers, workers, systems and business models built around them. … While in the past it might have been possible to license, steal or copy someone else’s technology, these days that technology can’t be separated from the systems of which it’s a part.

I’m not yet convinced of this, and so I want to hear independent IT folks weigh in on this key question. I can see that different IT subsystems could be mixed up with each other, but I’m less convinced that the total set of backroom IT of a firm depends that much on its particular products and services. Maybe other firms in an industry would have to take the entire backroom IT bundle of the leading firm, rather than being able to pick and choose among subsystems. But when the leading IT bundle is so much better, I could see this option being attractive to the other firms.

The leading firm might incur some costs in making its IT package modular enough to separate it from its particular products and services. But such modularity is a good design discipline, and a compulsory licensing regime could compensate firms for such costs.

Note that I’m not saying that it is obvious that this is a good solution. I’m just saying that this is a standard obvious policy response to consider, so someone should be looking into it. At the moment I’m not seeing other good options, aside from just accepting the increased IT-induced firm inequality and its many consequences.

Added 12:30: Okay, so far the pretty consistent answer I’ve heard is that it is very hard to take software written for internal use and make it available for outside use. Even if you insist outsiders do things your way.

So assuming we are stuck with industry leaders winning big compared to others due to better IT, one worry for the future is what happens when leaders of different industries start to coordinate their IT with each other. Like phone firms are now coordinating with car firms. Such firms might merge to encourage their synergies. They we might have single firms as big winning leaders in larger economic sectors.

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