Search Results for: perpetuities

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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Let Us Give To Future

18 months ago I wondered:

Franklin … [left] £1000 each to Philadelphia and Boston in his will to be invested for 200 years. … by 1990 the funds had grown to 2.3, 5M$. … Why has Franklin’s example inspired no copy-cats?

Thanks to Gwern, I now know of several copy-cats, mostly failures (quotes below). This confirms that many are willing to donate to distant future folks, but are prevented by law, largely from fears that donor funds will eventually dominate the economy. Alas, as these are the likely consequences of allowing donations to the distant future:

1) The fraction of world income saved would increase, relative to consuming not-donated resources immediately. This effect starts small but increases with time, until savings become a large fraction of world income, after which diminishing returns kicks in.

2) While funds are in saving mode, world consumption would be smaller at first, relative to immediately consuming donor resources, but then after a while it would be higher, though it might eventually fall to zero difference. When such funds switch from saving to paying out, or when thieves steal from them, the consumption of thieves and specified beneficiaries would rise.

3) As investment became a large fraction of world income, interest rates would fall, and the market would take a longer term view of the future consequences of current actions.

4) Some would change their behavior in order to qualify for benefits, according to the conditions specified by the original donors and the agents they authorize to later interpret them.

These changes seem good overall, especially if, as I estimate, the future will have many folks in need. Not only would donors actually get to do what they want with their resources, but policy-makers usually lament that savings rates are too low, and interest rates too high, leading us to neglect distant future consequences of our actions. The added consumption given to future folk is mostly stuff that would not exist if not for their donations, so it is hard to begrudge them giving to whom they wish. Our evolved instincts to resist domination makes less sense here, as “dominating” donors are long dead, influencing the world only via largely-altruistic explicit visible instructions.

Note that once physical, if not economic, immortality is feasible (i.e., paying enough lets you survive indefinitely), then original donors can stay around to manage their growing funds. Those promised quotes:

Continue reading "Let Us Give To Future" »

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Ancestor Worship is Efficient

Maybe not “worship” exactly, but at least great respect and deference.  By “efficient” I mean that it increases economists’ standard “cost-benefit” concept of welfare.  That is: as usually estimated, the benefits of deferring greatly to distant ancestors far outweigh its costs.  And while this does suggest that we should defer more to ancestors, it also shows just how much distorted prices can break economists’ favorite tools.

The economic welfare of a proposed change is the benefits minus the costs of that change, translated into cash terms, though of course changes don’t have to actually be cash transactions.  When available, market prices are commonly accepted as estimates of the benefits and costs of things gained and lost.  Economic welfare is a powerful heuristic for finding win-win deals: in many kinds of situations, the strategy of consistently making the changes that increase economic welfare tends to be usefully close to an actual win-win deal that gives most everyone more of what they want.

The efficient ancestor worship problem arises from two key facts:

  1. Economic welfare cares not about giving people experiences but about satisfying their preferences, i.e., giving them what they want.  And even long dead people still have (or “had” if you prefer) preferences that we could now better satisfy.  If we do something a dead person would have wanted, that counts as a benefit.
  2. At standard market interest rates, the magic of compound interest quickly gives astronomical priority to the preferences of folks who lived long ago.  For example, in historical records near risk-free interest rates (e.g., land rents over prices) consistently exceeded 9%/yr from 3000BC to 1350AD, for a total factor of over 10162.

Together, these facts suggest we would increase economic welfare if we spent less than 10162 dollars today to do anything for which a 3000BC ancestor would have been willing to pay a dollar (equivalent in their currency).

Clearly we would quickly bankrupt ourselves if we tried to implement such “efficient” changes, and doing so would not be remotely close to a win-win deal with our ancestors.  What goes wrong here?

Our contract law system refuses to enforce many win-win deals between distant generations.  Many folks would be willing to create trusts that accumulated funds long after their death and then paid distant descendants (perhaps indirectly) to do things like remember their ancestor’s name, pray to his gods, etc.  Unless stolen, such funds would eventually come to dominate the world economy and dramatically lower interest rates.  With lower interest rates, economic efficiency would count the preferences of distant ancestors as far less valuable, and as a bonus businesses and governments would have far stronger incentives to attend to the interests of distant future folks, such as via global warming policies.

But we in fact refuse to enforce a great many such long term deals.  For example:

The rule against perpetuities at common law … prevents a person from putting qualifications and criteria in his will that will continue to control or affect the distribution of assets long after he has died, a concept often referred to as control by the “dead hand.”

Our unthinkingly repugnance at being controlled by the dead, and our eagerness to grab their resources, prevents us from enforcing long-term win-win deals.  This refusal to enforce deals increases interest rates, which distorts all our trade-offs across time, bringing economic welfare estimates into stark conflict with intuitive moral judgments about time trades (as in global warming), which then encourages people to turn to non-economic frameworks for policy analysis.

When policy distorts prices, it distorts calculation of economic welfare, which encourages people to ignore economic welfare when choosing policy, which reduces their reluctance to intervene to further distort prices, which leads to a sad spiral of increasing confusion.  Please, let’s enforce long-term win-win deals!

Added: A fascinating alternate history might start from a year 1300 English legal precedent enabling flexible growing long term trusts.  By 1800 early trusts grew a billion-fold, and trusts dominate the economy.  What else changed?!

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