Tag Archives: Wealth

Engineering v. Design

Silicon Valley has always been obsessed with efficiency. But lately, it is also obsessed with beauty. In a place where engineers have reigned supreme, the new tech talent war is for designers. (more)

In those parts of the economy that are well modeled by the introductory economics textbook treatment of widgets – firms producing a thing with workers with increasing marginal costs in a somewhat competitive industry, such as durables, clothes, and cars – we’ve seen continuing, very substantial growth in real wages as measured by the purchasing power of things that our economy produces. The reason that real wages in aggregate have stagnated is that much of what people buy are things where there are issues of fundamental scarcity: energy, the land under the houses we buy, and goods and services that are produced in complicated, heavily public-sector-inflected ways. Medical care and educational services are examples of the latter category. (more; HT Tyler)

Many long-term trends over the last few centuries can be plausibly attributed to people getting richer, and thus wanting different things than poor people want. One interesting example: the decline of engineering relative to design.

All products and services have to negotiate between the two extremes of the raw physical world and complex human preferences. That is, products must deal with the physical world in order to give humans what they want. Engineers tend to focus on the physical world, trying to minimize the effects of key resource constraints, while designers tend to focus on how a product looks and feels to customers.

Because we have simple powerful general theories of how the world works, engineering can make use of a lot of math and computer modeling, and can often transfer inventions to very different products. In contrast, since humans are very complex and poorly understood, designers must instead develop intuitions by seeing many specific examples of good and bad design.

As we have become richer, we have become less concerned about raw physical constraints. When we have enough calories in our food, enough insulation in our clothes and walls, and enough mass moved fast enough in our transportation, we focus more on how exactly our food, clothes, etc. make us feel. This includes how we feel about how the product is abstractly described to us – marketing also gets more important as design gets more important.

Rich people also care more about product variety. When we can barely make any affordable car that functions, car design focuses on making one working car at sufficient scale to be cheap enough. Such as the Model T. But when we get better at cars, customers are willing to pay extra to get cars in more variety, to better match the self-image they want to project. So design and marketing come to matter more than simple engineering.

These trends have many implications. Since innovations that accumulate and transfer well are more easily found in engineering, our focus on design slows our rate of economic growth. Also, since local tastes vary, our focus on product variety that better adapts to local tastes gives us fewer gains from globalization. Finally, a focus on design weakens the connection between economic and military power. An economy that is better at making more varied products to make more customers feel good about themselves is less obviously better able to make weapons that kill. After all, engineering matters much more than design and marketing when it comes to weapons of war.

In the em future scenario that I’ve been exploring, income per em falls to subsistence levels. This should increase economic growth rates, the importance of engineering relative to design and marketing, and emphasize scale economies relative to product variety. Our descendants would return to focus more on conquering nature, and on acquiring economic power that translates better into military power.

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What Cost Variety?

In 1930 Keynes famously predicted that by 2030 we’d be four to eight times more productive, and we’d use those gains to work far fewer hours. Though we could get by on less, we might work fifteen hours a week just to feel useful.

It is clear now that this won’t happen. But it is interesting to wonder what sort of lifestyle we could manage if we worked three to ten times fewer hours on average. And it occurs to me that we could probably work far less, and still have just as much stuff, of just as high a quality, if only we’d sacrifice product variety.

Imagine that we made just as many cars, houses, clothes, meals, furniture, etc., each one just as big with just as high quality materials and craftsmanship. But instead of the making these in the stupefying variety that we do today, imagine that we made only a few standard variations, and didn’t update those variations as often. A few standard cars, standard clothes, standard meals, etc. Enough variety to handle different climates, body sizes, and food allergies, but not remotely enough to let each person look unique. (An exception might be made for variety in music, books, movies, etc., since these are such a tiny fraction of total costs.)

I’d guess that this alternative could plausibly cost three to ten times or more less than what we pay now. Let me explain.

First, most products have fixed costs of production. That is, not only does it cost more to make more items, it costs to be ready to make that kind of item. For example, in addition to costing more to give you another gallon of gas, it costs to make a gas station and have it ready to sell you gas. With product variety, there is usually an added fixed cost for each new product variation.

Second, industry has worked hard to enable “mass customization,” i.e., product variety, by lowering fixed costs at the expense of increased per-item costs. Without product variety, industry would instead work hard to reduce per-item costs, at the expense of higher fixed costs.

Third, there is a lot of learning during most production processes, learning that makes it cheaper to make more items, even when the scale of the production process doesn’t change. A typical estimate is that costs fall in half when ten times as many items are made. So with a thousand times less product variety, costs would be eight times lower.

Fourth, there are lots of ways to save on costs when you produce at larger scales. For example, for most chemical processing, like making gas from oil, the cost of a production plant goes roughly as the surface area of its devices, while the amount processed goes roughly as the volume of the devices. Since volumes grow faster than surface areas, the per-volume cost goes down. There are also lots of ways to save on costs when you distribute and store more standardized items.

Even with a lot of bad management, the early communist revolution in Russia was still able to make impressive gains in output by using these scale economies. They didn’t have much variety, but they did make a lot of cars, etc.

What fraction of us would prefer to live in a world where they work only 10% as many hours, have just as much high quality stuff, but lose most of our product variety. If many of us would rather switch to this alternate world, then we may suffer from a coordination failure, of failing to switch together to more standard products.

I suspect that status competition is the problem here. We see those who don’t use distinctive products as lower status, either because they can’t afford them, or don’t have enough taste to pick ones well matched to them. Consider the distain expressed in the famous Pete Seeger Malvina Reynolds song Little Boxes for houses that look the same, and people who act similar. Consider the horror two women might feel to arrive at a party wearing the same dress. Or how folks at a restaurant are reluctant to order an item chosen by someone else at their table.

It isn’t like we are each born with detailed preferences for varied products, so I must own a tall white leather couch while you must own a short red cotton one. Instead we each try to construct a product-use-identity that is the right distance from other identities around us, and that well matches our few distinctive features. The more different others around us are from each other, the more different we must also be to not seem low status.

But it isn’t clear we are any happier, or that our lives have more meaning. This seems to just be part of the human status treadmill. A treadmill we don’t seem able or even much inclined to coordinate to avoid. Welcome to the human condition.

Added 20Feb: See a nice quote from Murray’s Coming Apart on increasing variety.

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Status Drives Poverty?

A book on poor single moms, discussing why moms break up with guys:

Conflicts over money do not usually erupt simply because the man cannot find a job or because he doesn’t earn as much as someone with better skills or education.  Money usually becomes an issue because he seems unwilling to keep at a job for any length of time, usually because of issues related to respect.  Some of the jobs he can get don’t pay enough to give him the self-respect he feels he needs, and others require him to get along with unpleasant customers and coworkers, and to maintain a submissive attitude toward the boss. (more; HT Bryan)

I suspect much of what makes some cultures more successful than others is how they help folks to avoid seeing unpleasant interactions as direct challenges to their status.

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US Grows Most ’70-’10

What nation increased its total economic consumption most from 1970 to 2010? If you’ve been reading too much about a US “great stagnation” in that period, the answer might surprise you — the US wins by a long shot. The top thirty gains:

United States 583, Japan 183, China 103, United Kingdom 73, Germany 63, France 53, India 47, Brazil 47, Italy 39, Canada 37, Mexico 37, Spain 28, Indonesia 14, Netherlands 11, Greece 9, South Africa 8, Thailand 8, Switzerland 8, Belgium 8, Austria 7, Colombia 7, Sweden 7, Philippines 7, Norway 7, Malaysia 7, Portugal 6, Chile 6, Finland 5, Ireland 5, Denmark 4. (source)

Units are tens of billions of dollars per year. All of Western Europe adds up to 285. Since total world change was ~1460, the US had ~40% of all consumption growth.

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Tyler On Robots

Tyler Cowen recently was part of a recorded panel discussion on Will Robots Steal Your Job? I’ve included some quotes below. I think he basically gets things right, at least from the point of view of humans. Oh he says apparently silly things like:

Smart machines will always be complements and not substitutes [for humans], but it will change who they’re complementing.

But from the context you can see he just means that really rich humans, who own a lot of robot-relevant capital, will enjoy having physical human as servants. Tyler also insists change will be gradual, apparently dismissing the whole brain emulation scenario I focus on, in which some change is necessarily rather sudden. Perhaps he thinks that won’t be possible until very late in his scenario.

My main complaint is that Tyler seems to completely ignore the experiences and welfare of the robots themselves (as do the other three panelists). Somewhat like Europeans in 1700 discussing the wisdom of their colonizing the world, but considering only on its effects on Europeans. I doubt this is because Tyler agrees with Bryan Caplan that robots can’t possibly be conscious. What then? Does Tyler simply not care about non-humans?

Those quotes: Continue reading "Tyler On Robots" »

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Money Matters

Which would you prefer: An $80,000 job with reasonable work hours and seven and a half hours of sleep each night, or a $140,000 job with long work hours and just six hours of sleep? A new [Cornell] study … found that most people would pick the higher-paying job with more hours and less sleep.

Such a finding would be wholly unsurprising … if it weren’t for … surveys … telling us for years now that people are valuing more vacation time or more flexible hours over better pay. People leave jobs not just because they aren’t paid enough, study after study tells us, but because they don’t get the attention they should, they don’t like their boss, or they don’t feel they have enough development opportunities. … Researchers found that beyond a household income of $75,000 a year, money apparently “does nothing for happiness, enjoyment, sadness or stress.” …

[But] after years of research that seems to say more and more money is mattering less and less, … it still matters plenty. The Cornell study asked more than 2,600 participants to consider which option would make them happier, and even asked them if they thought their responses might be in error. Just 7 percent said they thought they were making a mistake, and only 23 percent admitted they might regret making such a choice between money and lifestyle. (more; study)

That study finds, however, that even though money matters, expected happiness is still the single best predictor of choices:

The aspects that systematically contribute most to explaining choice, controlling for own [subjective well-being], are sense of purpose, control over life, family happiness, and social status. …  Across our scenarios, populations, and methods, [subjective well-being] is by far the single best predictor of choice. (more)

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Fertility Fall Myths

In the latest JEL, Tim Guinnane does a nice job debunking misconceptions about the great fertility fall associated with the industrial revolution. For example, “The decline in French fertility began in the late eighteenth century,” and fertility declines were not uniform across Europe:

Mortality decline doesn’t work as an explanation for fertility declines:

Fertility in the United States declined for decades before any noticeable decline in mortality.

Nor does new contraception tech:

Throughout the nineteenth and early twentieth century, withdrawal and abstinence remained the primary approaches used by married couples. Since these technologies had been available, essentially, throughout human history, it is unlikely that the condom and similar new methods played a strong role in the fertility transition. … Methods available even prior to the fertility transition were sufficient to produce voluntary reductions of the magnitude we observe in the nineteenth and early twentieth centuries.

Nor do child labor laws:

Most [child-labor] measures either did not apply to agricultural work, or did so in a more relaxed way. … German restrictions did not successfully limit the role of children in production at home, which remained important throughout the nineteenth century. And in every case, the restrictions’ impact would depend both on enforcement measures and parents’ desire to evade them. Finally, if child-labor restrictions were introduced when they were mostly irrelevant, …

Nor do new social insurance programs:

Economic ties between parents and children varied dramatically across the societies in question before the fertility transition. … At the other extreme, rural laborers’ children in England would, from at least the early-modern period, leave home for good in their early to mid teens. … social-insurance systems introduced at the end of the nineteenth and early twentieth century were usually replacing earlier schemes. Thus there is no clear “before.” … The broad patterns also do not make it likely that social insurance alone is central to the story. The two forerunners, France and the United States, were laggards in developing social insurance.

Still in the running, he thinks, are increases in urbanization, female employment, and gains to schooling:

Several studies document the existence of fertility control among small groups as early as the seventeenth century. These “forerunners” were usually urban elites or members of minority groups such as Jews. More generally, research based on either sub-national aggregates or micro data often find earlier fertility declines than in national data. The Princeton studies report earlier fertility declines in cities, for example. … Most studies find that urban fertility was lower than rural fertility in the nineteenth century, … Once the fertility transition began, fertility usually fell first in urban areas, with rural areas then catching up. …

Cross-sectional regressions for U.S. states in 1840 show that fertility is negatively correlated with measures of nonfarm labor-market opportunities. Once such proxies are introduced, land prices have no influence on fertility. … Crafts … finds a consistent, negative correlation between women’s [1911] local labor-force opportunities and marital fertility. …

Goldin and … Katz … find that the return to an additional year of [1915 Iowa] high school or college then was, for males, on the order of 11–12 percent. Mitch estimates the present value of acquiring literacy in Victorian Britain for a representative child. The present value of the cost of acquiring literacy would be about £4. At a wage premium of 5 shillings per week for literacy, the present value of the higher wages for a 35-year work life would be over £200.

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More Inequality, Merited

Consider two plausible assumptions:

  1. Within a few centuries, “immortality” goes on sale. That is, if you pay enough, and your body is of a convenient type (e.g., android), then you can buy backups and replacement parts, and keep functioning indefinitely. (At least until correlated failures hit all your backups at once). Most folks, however, may be unable to afford the price.
  2. At this time, there will still be a capitalist world economy with not-overwhelming taxes on the rich. So individuals can still accumulate wealth over a lifetime, as they have done for millennia.

Today, as in the past, wealth levels tend to diverge over individual lifetimes, and then converge over many generations. People born with similar initial wealth often have quite different wealth at life’s end. They also tend to give different amounts to their children. Yet over many generations, distant descendants tend to have similar wealth. (At least if they live in the same nation; see Greg Clark.) Children often lack their parents’ drive or abilities, and prefer to spend their inherited wealth. “Rags to rags in three generations,” the saying goes.

But given the above assumptions, in the future able driven folks can continue to accumulate wealth indefinitely, allowing the usual within-lifetime wealth divergence to last far longer. Maybe eventually these old dogs couldn’t learn new tricks, but we should still expect to see far more wealth divergence in this future. Quick: does this sound like a good or a bad thing?

Now consider: in this future, wealth should depend less on parental luck, and more on personal merit, such as drive and ability. (Other kinds of luck matter too of course, but not obviously more than before.) Isn’t it good if personal wealth depends more on personal merit?

If you still find this scenario horrifying, that suggests your dislike of wealth inequality isn’t based so much on it being undeserved, but is more against the very idea of inequality. Perhaps you are horrified by such huge inequality because it shows raw luck imposing unnecessary harmful risk, which you want to cure via redistribution. But if so, it should be enough to offer folks wealth insurance. If you are horrified by a future where enough able driven folks knowingly reject wealth insurance, allowing some to become fantastically rich, then again your objection seems to be to inequality itself.

Btw, Tyler says:

When will the world have its first trillionaire? In real terms I say never, marginal tax rates will rise to capture the rents, one way or another.

This seems remarkably pessimistic about future world wealth or world-wide tax rates. Today’s richest man has $74B, which is probably ~$50B after correcting for “marginal tax rates.” So proportional growth of the world and the richest by a factor of twenty, roughly what we achieved in the twentieth century, would create a trillionaire.

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Bashing Billionaires

Steve Jobs stepped down from his post as CEO of Apple yesterday. The internet instantly erupted in adulation. … Mr Jobs’s wealth … was built in no small part upon an intellectual-property regime that I and many others believe to retard progress. … Bill Gates used to get plenty of heat from the class warriors, but some time after … [he] devoted a huge portion of his fortune to his charitable foundation, he ascended to a sort of philanthropic secular sainthood. … But Mr Jobs has eschewed charity. …

[Yes,] charity very often does rather less to improve quality of life than selling people ever better products at ever lower prices. But this line of reasoning hasn’t convinced very many of us that, say, Charles and David Koch’s vast wealth is proof of their successful service to humankind. Mr Jobs’s relative immunity from the scorn of those otherwise keen to stick it to billionaires is due, I think, to the admiring pleasure wordsmiths takes in the elegance of the Apple devices they use for work, play, and status-signaling. …

Steve Jobs is a white wizard in wire rims who offers …. mesmerising portals to a better, beautiful, more enchanted world. … So who gives a fig if he doesn’t shower his billions upon worthy causes. … But what about the guys who get rich digging oil out of the ground so we can charge our iPhones? Stick it to ‘em, the greedy bastards. All of which is to say, our intuitions about economic desert and fair distribution are…complicated. (more)

Consider: what elites did foragers worry most about? Foragers worried most about elite capacity for violence, and an inclination to use it. They also worried lots about unequal access to food and shelter, and to tools useful for all these things. So foragers enforced strong norms against giving orders or doing violence, and norms favoring sharing of food, shelter, medicine, and tools. In these senses foragers were egalitarian.

However, foragers worried far less about unequal capacities for art, music, conversation, charm, social popularity, or sex appeal. After all, in a forager world unequal capacities of these sort just couldn’t go anywhere near as horribly wrong as unequal violence or food. Because of this humans seem evolved to tolerate, and even celebrate, unequal abilities in art, popularity, or sex appeal.

Fast forward to today, and consider which billionaires are liked versus disliked. I’d bet that artistic billionaires like Steve Jobs, J.K. Rowling, and Oprah Winfrey are among the most liked, even after one controls for how well know they are. Same for rich actors and talk show hosts. In contrast, billionaires who are merely associated with an ordinary business are probably the least popular.

Note that while it was pretty functional for foragers to tolerate artistic inequality more, an added tolerance today for artistic billionaires over mere business billionaires has few functional benefits. Your added envy and hostility to mere business billionaires is just an arbitrary dysfunctional vestige of times long since past. Yes it might feel better to bash them, but is that really a good enough reason to do so?

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The Poor Are Not Fat

In both the popular press and academic research, there is the argument that the growth of fast food and energy-dense food has been an important cause of the overweight epidemic in the U.S. and that this has disproportionately affected poor people. [Some] argue that limited economic resources may shift dietary choices toward a diet that provides maximum calories at the least cost. An implication of this line of research is that the poor cannot afford healthy diets. (more; ungated)

In fact, however, the poor are on average not fatter than the rich:

Contrary to conventional wisdom, … the poor have never had a statistically significant higher prevalence of overweight status at any time in the last 35 years. Despite this empirical evidence, the view that the poor are less healthy in terms of excess accumulation of fat persists.

A new paper manages to find a relation between poverty and fat – both the very fattest and the very thinnest people tend to be poor:

Distribution-sensitive measures of overweight … [show] that the severity of overweight has been higher for the poor than the nonpoor throughout the last 35 years. … The strongest relationship between income and BMI is observed at the tails of the distribution. … For those at the tails of the BMI distribution, increases in income are correlated with healthier BMI values.

OK, but this hardly supports a general story that the poor can’t afford healthy diets. It fits much better with there being a small fraction of “broken” folks who tend both to have low abilities to earn money, and to have an unhealthy weight, both too high and too low.

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