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Monthly Archives: April 2011

I tend to think that accelerated communication technologies (the internet and cell phones) have barely begun to reshape the world to their full extent.  We’ve seen highly disruptive business models emerge, and I anticipate further innovation will continue.  The internet has changed the political landscape both in the West and the developing world.  The drastic reduction in the cost and lag-time of communication is probably the most important force affecting the world right now.

A while back, Robin Hanson posted a link about potential ways for humans to co-ordinate behavior.  He makes a strange argument saying that government’s failure to enact certain types of co-ordination he envisions demonstrates that the purpose of government is not to enact co-ordination.

Some of his failed co-ordination examples are strange; he seems to think people would be better off were there fewer genres of music.  But for his non-strange ideas, I see them not as strikes against government, but rather, business opportunities.  If I identified a type of co-ordination that I thought would create gains, I wouldn’t look to government to enact it; I’d think about building a business to facilitate it.

Co-ordination requires aggregation of knowledge and commitment of behaviors.  Government can do both, but the internet can do them better.  If Hanson thinks Americans would benefit from moving to warmer climates, but lack the co-ordination to do so, I have a business idea for him.  If he wants to see greater incentives for innovation, I have another idea for him.  And if Hanson really thinks the path to reduced scarcity of music is to encourage musicians to not diversify or innovative, I could also design that business.

I’m generally sympathetic to the idea of ramping down the drug war in the west.  I grant that drug use is, for the most part, a victimless crime; that the drug war is very expensive; and that it empowers criminal organizations that do really bad things.  An end result of legalized, regulated, taxed drugs and weakened criminal organizations sounds good.  But I suspect it will be very hard to get there, and that carefree attempts to do so will backfire horribly.

Consider Connor Friedersdorf, framing costs of the drug war:

Would you rather legalize most drugs… or see the equivalent carnage of four 9/11s happen every year from fighting the black market? That isn’t a hypothetical. It’s a real choice…Would you rather legalize drugs…or risk that the sort of violence seen in Mexico will spread into the United States, corrupting our police departments, and ravaging our cities? Perhaps that won’t ever happen. But if you’re confident that it won’t happen I would like to know why.

I’m not confident that Mexican drug violence and corruption won’t spread to the United States.  It’s a real risk, and I favor policies designed to minimize it.  Having said that, I think the actors most likely to cause this spread are existing criminal organizations.  I think the best way to encourage existing criminal organizations to do so is to piss them off.  And I think the best way to piss them off is to cut off their revenue stream, by legalizing drugs.  I worry that Friedersdorf is advocating a policy that will result in the bad consequences he want to avoid.

What drug legalization advocates want to do, is to go back in time and stop the drug war before it started, thereby preventing criminal organizations from growing as strong as they have.  But given that these organizations do exist, it’s irresponsible to assume they’ll happily wither away when drugs are legalized.  The net effects of drug legalization in the West are highly dependent on how powerful criminal organizations respond, and I’ve seen little analysis trying to address this question.

I can vaguely imagine peaceful resolutions, wherein the illicit drug market shifts to a licit drug market; criminal organizations transition into lawful corporations; and corrupt governments transition into less corrupt governments.  (This process doesn’t seem tremendously different from the evolution of many American cities.)

I can also imagine terrible results, wherein powerful criminal organizations plot terrorist attacks designed to shift American public opinion back towards favoring drug criminalization.  How hard would it be for the Sinaloa cartel to orchestrate a drug-induced killing spree at the Mall of America?  How many times would this need to happen to “prove” that drug legalization is bad policy?

Drug legalization advocates have not begun to recognize the severity of this problem.

Echoing my earlier post on religion and sexuality, Conor Friesdersdorf writes:

Orthodox Catholics believe sex outside marriage is sinful, that it goes against the wishes of God. In asserting so, they exert powerful influence on a very few people, and effectively cede all ethical questions concerning pre-marital sex to Dr. Drew, Dan Savage, sundry glossy magazines, the Office of Campus Life Orientation Coordinator, and the films of Judd Apatow.

His whole post is worth reading, as is the longer piece he references, Benjamin Dueholm’s thorough analysis of advice columnist Dan Savage.

As I mentioned in an earlier post, I’ve spent a lot of time playing Sid Meier games, especially Civ 2 and Alpha Centauri.  I probably learned more about social science from playing those games than in all my high-school coursew0rk.  One of the game’s lessons is that offensive warfare is usually really expensive; in order to build chariots and elephant warriors and bomber jets, you need to stop building temples and libraries and manufacturing plants.  This diversion of resources sets you back in the long run; building an impressive military now often leads to military disadvantage in the future.

Apparently, Matt Yglesias either also played his share of  Civilization games, or found some other way to learn their lessons:

If you think about the national security landscape of 2035 what’s going to be really important isn’t the defense spending decisions of the United States. It’ll be the fundamentals. How rich are we? How many skills do our people have? How many people live here? How much science can we do? Insofar as expending resources on today’s security priorities prevents us from investing resources in building national capabilities for the future, we undermine our longer-term security.

I liked to think of myself as both a pragmatist and an idealist.  All else equal, ideas that are easily enacted are preferable to those that would require more work, but there’s still an important conversation to be had about ideas that aren’t as easily implemented.

Jim Manzi makes an interesting point, blurring the lines between viable and non-viable:

If you think about it, any real solution to the federal deficit problem is currently politically impossible, yet we know mathematically that, barring a productivity miracle, the situation cannot persist indefinitely. Therefore, we know that some change that currently seems politically impossible is all-but-certain to happen sooner or later.

Annie Lowrey has a piece about customer surplus, citing studies that attempt to measure it for computers:

Karen Kopecky of the Federal Reserve Bank of Atlanta and Jeremy Greenwood of the University of Pennsylvania…tackled the value of the personal computer…they estimated that PCs are worth 2 percent or 3 percent of personal consumption expenditures…a more sophisticated analysis by the Wall Street Journal suggests something like $1,700 [per year].

She also cites Tyler Cowen saying this:

The more we are changing the use of our time, the less we can trust real income statistics.

An interesting point for Cowen to make, given that he recently wrote a book that heavily depends on real income statistics.

And also a thank you to Cowen, who set up two posts with his assorted links. Perhaps he was thanking me for my recent business advice.

Like my earlier post, he suggests the problem will soon be solved by technology.

If everything comes together, we could see carbon emissions plummet without the federal government asserting more control over the economy.

He also calls for allowing utilities to vary pricing by time of day.  More here.

Tyler Cowen is an academic economist, author of books, and prolific blogger.  His blog, Marginal Revolution, sees about 42,000 pageviews per day and has a loyal following.  I have no advanced insight into Cowen’s personal finances, but I suspect that a very small fraction of his income stems directly from the ads on his blog; rather, the blog is essentially a loss leader, which Cowen uses to advance his career in other ways.  This is a perfectly reasonable business model, and I have no doubt Cowen is doing just fine financially.  But I’m not sure it’s the best business model for Cowen.

My intuition is that Cowen’s blog creats more economic surplus than his teaching, lectures and books combined.  Cowen captures almost none of this revenue.  Suppose Cowen were to post the following one day:

I have immensely enjoyed writing this blog these past years and would like to continue to do so.  However, it’s very time-consuming and I’ve decided to devote more time to other activities.  Writing on this blog will cease in two months time.

I am willing to reconsider my decision.  I recognize that this blog probably creates much consumer surplus for loyal readers, and that many readers would probably be willing to pay for its continuation.  However, if I am to continue writing it, I want it to be freely available to everyone.  Thus, I’ll make the following offer: if, within the next two months, readers pledge a combined $200,000, I will continue to write this blog for one year.  If, after two months, that goal has not been met, all pledges will be returned, and this blog will end.

The $200k figure is arbitrary, but I think it’s pretty reasonable it would be hit–10,000 loyal readers times $20 pledge would do it, as would a wide assortment of combinations.  And $200k is a pretty sizable chunk of cheese for an economist, judging by this Scott Sumner post.  The free-rider problem might take effect, but since there’s a real threat of losing something of value, and a lock-in mechanism to prevent people from not getting value from their pledge, it seems like it could work.

I once asked a friend how much he’d be willing to pay to have the (very good) television series Firefly revived and continued for one season.  He said $30, reasoning that this is roughly the price for a TV series on DVD.  It was an interesting response, because the price I thought I’d be willing to pay was at least an order of magnitude higher–I was thinking somewhere between $300-$1000.

I suspect this rather large difference in willingness to pay stemmed neither from me being wealthier nor from my liking the show more.  Rather, we were just thinking about the question differently.  I was trying to assess my reservation price–the point at which I would be indifferent between buying and not buying the product.  My friend was giving the price point that he would expect a store to charge.  The difference between our two prices is consumer surplus.  Like my friend, I expect that were Firefly extended and sold as DVD boxed sets in stores, its price probably would be $30.  That’s what I’d expect to pay.  However, I’d actually be willing to pay a whole lot more.  As would, I suspect, my friend.

Thinking in terms of reservation price has two benefits.  First, it provides a more accurate estimate of wealth.  My Netflix membership might cost $240 per year, but the value I derive from it is significantly higher, since it allows me to discover and view gems like Firefly.  The same applies to my refrigerator (rented), facebook, and other goods–their price does not capture their value.  Second, recognizing that products often have far more value to their customers than the going price would indicate may open up new potential business models.  If Firefly season two can become profitable when X people buy it for $30, it can also become profitable when X/10 people buy it for $300.  At a time when the accelerated communication technologies are disrupting everything, these insights may prove valuable.

In an earlier post, I noted how academia’s disinterest in important questions related to dating facilitated the rise of amateur theory to take its place.  One problem with this is that amateur theory tends to be bad, scientifically.  A second problem is that it tends to be unethical, since amateur authors are not constrained by the same ethical standards usually applied to academia.  Feminist Clarisse Thorn (who has an interesting and amicable interview with Neil Strauss) writes:

Some pickup advice only works because it capitalizes on the insecurities of women who have low self-esteem, and can manipulate those women — not because those women actually want to have sex…some pickup artists describe using “freeze-outs” on women who say they don’t want to have sex…the woman says no, the pickup artist says “Okay,” … and then he turns away from her and starts checking his email or doing something else very boring that does not include her…he goes cold and ignores her until she agrees to have sex with him.

I find this pretty deplorable, ethically.  But so long as pickup artists remain an authority on dating theory, men are going to listen to them.

Historically, religion has been the strongest moral authority, but unfortunately, modern religion is not well positioned to confront pickup artists.  First, I suspect that many young men who look to pickup artists for advice are fairly alienated from religious institutions.  But second, and more importantly, the advice modern religion offers is antiquated, incomplete, and bad.  The two primary distinctions drawn by religion with regard to the ethics of sexuality are marriage and intent to procreate.  For most religions, any sexuality that fails to comply with one or both of these distinctions is at worst morally evil, and at best morally neutral.  This leaves an enormous gray area, wherein an engaged couple’s sexuality is often treated the same as when a guy meets a girl in a bar, lies to get her into bed, and then never contacts her again.  Clearly there’s a distinction to be made between the two cases, a line to be drawn, but modern religion has failed to do so.

Academia and religion both punt on an important topic.  Amateurs pick up the ball.