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Inequality Will Resurrect Concorde

May 24, 2014
the Economy: Home and the World
3 Comments

There’s a series of posts by Stephen Smith pondering Concorde’s premature death:

@MarketUrbanism: Isn’t it kinda crazy that there used to be regularly-scheduled supersonic passenger flight, but there no longer is?

@MarketUrbanism: Can’t think of any other instance where we made a huge leap in technology like that and then gave it up.

@MarketUrbanism: It’s a shame the Concorde didn’t live to see the rise of Dubai. I bet Emirates could’ve kept it afloat.

It’s a little tragic, really. Almost two decades ago you could travel between New York and London in under three hours. Today that figure is almost three times as high (no help from our friends at the TSA). Concorde had a number of problems, including noise and carbon pollution. These were or could be largely addressed. The chief problem was economic.

Tickets sold at a premium to standard first class, sometimes upwards of $10,000. In fact, the first class market was so thin that Air France (along with British Airways, the airline that flew Concorde) usually booked the flight commercially in only one direction, and chartered the way back to maximize profit. That was the structural issue. However, between a crash on one of the chartered flights and the post-9/11 crash in air traffic, it was clear that this technological marvel wasn’t profitable.

Take a brief history airplanes. The Concorde’s pilot flight was merely weeks after that of another 20th century marvel, the Boeing 747. The heyday of both were the three decades between 1970 and 2000. This was a period that realized huge gains in mass consumer purchasing power, deregulation of the airline industry, and an Anglo-American (upper) middle class ever ready to explore a previously unaffordable world. And the vehicle for this job was the 747.

Of course, inequality was increasing over this period, but not until the 2000s did it reach Gilded Age levels.

And that damned the Concorde. Part of running a luxurious service is consistent demand. The ideal clientele for Concorde is something akin to British Airway’s “Club World London City” – a business class only jet between JFK and Heathrow. And running twice-daily with only 32 seats, it’s as much a disaster to the environment as the Concorde.

But Concorde could never run that frequently, not with that price tag.

The problem wasn’t that Concorde cost between six and ten thousand dollars. It was that the people who could afford that back then, but not a full-time business jet, were too small in number. But what we’ve seen since the ’80s is a rapid growth in an affluent-elite: managing elite at corporations not rich enough to fly privately. More importantly, the affluent-elite have globalized around the world, with incredible (and consistent) demand to fly comfortably to and from Hong Kong, Shanghai, Dubai, Mumbai, and other international centers of new wealth.

This is why Etihad has something called a “residence” for its A380 flights between Abu Dhabi and London, priced over $20,000 each way. And if you think this is a little beyond the reach of the standard, top-business elite, look at the boom in “super” business-class arrangements that cost threefold what worked even a decade ago – a world where flatbed seats and French cuisine are considered necessary among a select, exceptionally-disconnected few.

More than anything, this is a reaction to inequality, and increasingly globalized inequality. Of course all these toys of the kinda-but-not-super rich fly on the coattails of a coach flying mass – but as the London City shuttle and massive growth in luxury travel in general tells us, it won’t be long before airlines realize a demand for scaled, exclusive travel. And when that day comes, a newer cousin of Concorde will be waiting.

 

The Problem with Pessimism

February 19, 2014
the Economy: Home and the World
3 Comments

A number of people have commented on a new paper from Robert Gordon, professional pessimist. Many people have identified the specific issues with the logic in this essay. But I think it’s important to discuss a central problem with the very idea of Gordonesque gloom.

First, distinguish between positive and negative pessimism. If NASA were to tell us, with great confidence, that an astroid will strike Earth tomorrow there is no case for disdain. This is a scientific judgement and, at least philosophically, would be akin to standing in front of a speeding train and claiming that it won’t hit you. That is not the sort of pessimism that concerns us. But Gordon is making a much more powerful claim, a pessimism about what won’t happen – that our entrepreneurs cannot create another industrial revolution, that we’ve pretty much done the most we can with robots, and artificial intelligence is limited to the grocery store.

This requires a certain knowledge about the trend of technological progress and the economic value thereof. Gordon knows much more about the former than most and may well be the reigning expert on the latter. Unfortunately that doesn’t help us out. Because, believe it or not, most any of us can make this claim without any technical skill and little more than economic knowledge.

If you knew that some form of AI was going to revolutionize the world, and that building it is tractable, there’s a good chance it already exists or will be built relatively soon. Because that’s all you need to know to make a profit from basically nothing (patent the idea and rent the rights out when someone who can build it builds it). But it’s very rare that we make something from nothing so most of us, like Gordon, don’t see anything great about the future.

But that only means that me, you and Gordon don’t know what that invention will be, not that some arbitrary such invention won’t be. So Gordon is claiming that the space of all future invention is limited and the costs of finding the marginal source of technological growth are limited and, equivalently, that he knows the space of all future growth.

That’s a rather strong claim. He rather strongly asserts that the last three stagnant decades are a better indication than the last century. Choosing the postwar boom may be an outlier but, accordingly, so too would choosing a bad period like the past fifty years arbitrarily. By claiming that he understands growth will slow, Gordon implicitly declares that he understands the mechanics of future innovation. 

But that isn’t the case with optimism. As statisticians will tell you, proving a positive is possible. You an always say “something may exist that we can’t even comprehend” – how could you disprove that. It’s not objective, and you’re not going to make money off this belief but it just isn’t as philosophically flawed as a belief in perpetual stagnation.
 
Most discussion about our economic future – on the scale Gordon speaks – has been horribly wrong (read a certain John Maynard Keynes’ Economic Possibilities for our Grandchildren) and claiming that there won’t be a new digital revolution tomorrow (or even in the next decade) is trivial. In fact, a central tenet of efficient markets is that you can’t keep beating the market and those who do are probably just lucky. (If we had growth denominated bonds Gordon could literally beat the market). 
 
The probably here is key. Maybe you’re a financial trader and play golf with a certain Janet Yellen. Or maybe you heard about Steve Jobs’ cancer before anybody else. But here there’s a clear source of the insider information. 
 
Unfortunately you and me can’t be insiders with God. 

NAIRU, Structure, and the Case for a Minimum Wage

August 4, 2013
the Economy: Home and the World
2 Comments

The non-accelerating inflation rate of unemployment – or NAIRU – is the level of employment above which we risk dislodged inflationary expectations tempting a positive wage-price feedback loop. Almost everything in macroeconomics comes back to NAIRU which is broadly determined by “supply-side” factors like technology, institutions, etcetera.

NAIRU, a practical tool, is closely associated with two more abstract concepts of general equilibrium: the natural rate of unemployment, and full employment. NAIRU is becoming an increasingly irrelevant concept. I think the “natural labor employment demand” has fallen, but this is not really the same thing. This is closely linked with a case for higher minimum wage, as I’ll explain below.

Technology

Consider a world where all consumer goods are automatically produced. Everyone, aside from a small cohort of designers and technocrats is unemployed, and receive goods and services through basic income. NAIRU makes no sense for the labor force as a whole. The rental rate on a robot is only the cost of replacing depreciated capital, without permanently strong patents, labor substitution will increase prices which will tempt further increases in the wage rate (or taxes on technocrats to finance a higher basic income). Hence NAIRU for workers is 100%.

On the other hand, since technocrats aren’t substitutable the opportunity cost is only the wage rate determined by an imperfect market – which naturally includes rents since the barriers to technical skill are non-zero. By definition, NAIRU for technocrats is non-zero since the supply-side of the economy is entirely determined by supply of technocrats. Since markets are imperfect, and rents are high, any increase in wages will come from taxes on capital returns rather than price inflation.

This is an extreme case, but the United States is moving towards an increasingly capital dominated economy. NAIRU was a useful concept when the labor-share of income was 70%, but as it falls to and below 40% – as I imagine it will within two decades – the unemployment of labor becomes a useless concept.

Inequality

The rate of unemployment – perhaps the most ubiquitous economic statistic – is useless in periods of high inequality. When unemployment rate is high, economists today like to claim that GDP is “below potential”. The “output gap” is measured – sensibly – in dollar terms. Unemployment rate, instead, is measured in unit terms.

The output gap includes auto-workers made redundant, as well as factories shut down, and fields unplowed (that of labor, capital, and land respectively). In the previous section I noted the diminishing relevance of NAIRU considering the rising preponderance of capital; but even within labor markets it is a crude measure at best.

Let’s say in an economy, I had a factory rented at $5 billion, an airplane rented at $5 million, and a screwdriver rented at $5. In a recession, suppose I couldn’t afford to lease the screwdriver. What is unemployment? I’d say it’s epsilon, but someone sufficiently crazy can say it is 33% – since one-third of capital units are disemployed.

But let’s say in an economy I have 2 engineers, 8 scientists, and 90 fry cooks. If 20 fry cooks were disemployed by recession, we’d freak out about 20% unemployment, and yet if both engineers were disemployed we’d be content at 2% unemployment. The unit rate of unemployment purports that we are all equal and that, believe it or not, isn’t the case.

An increase of technology allowing for the replacement of precisely one doctor is more disinflationary than that allowing for the replacement of precisely one fry cook. This distinction is not relevant when we are talking about socioeconomics – where unit rate dominates – or when inequality is irrelevant. Neither, when we speak of shifts in NAIRU in 2013, is the case.

Form

We can be disemployed in many forms. A single-mother wishing to work two shifts to save for her son’s college may be given only one. An auto-worker may be laid off. A physician’s assistant may be asked to work only part-time. Not all of these, in practice, are actually measured but each represents an equally valid claim to unemployment as stipulated by economists.

The way many economists talk, NAIRU moves in tension with aggregate supply. That is, when David Brooks suggests NAIRU has increased, he’s saying the output gap isn’t as big as we think it is, and hence fiscal or monetary stimulus cannot be beneficial any longer (never mind the fact the low inflation today suggests he’s wrong anyway). 

That means an increase in NAIRU – as such – isn’t a good thing. But Americans, especially poor Americans, are among the most overworked people in the world. Technology-biased capital change can, on the one hand, increase the unit rate of unemployment. It can also redistribute hours – something I’ve suggested before – which  can have powerful social benefits.

The scenario I set up in the linked post purports a world with large technological automation augmented with a basic income and high quality social programs. In this case, there would not necessarily be an increase in “hour unemployment” as the quantity of labor supplied in hours falls – resulting in a lower equilibrium.

The point here is twofold:

  1. NAIRU can become relevant if measured in hours,
  2. Under proper and justifiably stipulated economic institutions such an unemployment will be illusory, under standard reasoning.

The Case for a Minimum Wage

A common refrain on the economic right suggests that any significant increase in the minimum wage increases NAIRU. Take this from Peter Tulip, a staff economist at the Federal Reserve, asking whether “Minimum Wages Raise the NAIRU”:

Probably yes.

A high minimum wage (relative to average wages) raises nominal wage growth and hence inflation. This effect can be offset by extra unemployment; so the minimum wage increases the Non-Accelerating Inflation Rate of Unemployment or NAIRU.

This effect is clearly discernible and robust to variations in model specification and sample period. It is consistent with international comparisons and the behavior of prices.

I estimate that the reduction in the relative level of the minimum wage over the last two decades accounts for a reduction in the NAIRU of about 11⁄2 percentage points. It can also account for the substantial reduction in the NAIRU in the USA relative to continental Europe. 

My approach to NAIRU – predicated on high inequality and forceful capital-biased tailwinds – renders this type of analysis wanting, for a couple reasons:

  • A higher NAIRU can be “felt” through shorter shifts and fewer months worked – neither of which are socially debilitating. Furthermore, because the fewer hours are worked at a higher wage rate, it is not clear that living standards will fall too steeply. 
  • Minimum wages subsidize labor-substituting innovation. The opportunity cost of replacing one fry cook with automated robots falls as the minimum wage rises – this suggests an expansion of aggregate supply.

None of this is necessarily a good thing and is premised on the assumption that the government will work with employers in crafting policy that supports hour reduction and wage sharing policies. This is how U3 in Germany miraculously fell over the last decade. As the wage share of income falls, it will be incumbent on any government to impose more progressive taxes and perhaps even a basic income: but this isn’t necessary for my theory – except in the extreme.

If you share my conviction that a large part of the American population either works too much, or would like to, leaving little time for family, then a minimum wage sends the market that signal, without causing the unemployed any strife. 

The NAIRU is an idea whose time has gone.

The End of Employment? Yeah, Just Like “The End of History”

July 18, 2013
the Economy: Home and the World
6 Comments

Brad DeLong sends us to another hush warning about mass disemployment and future inequality, this time from the excellent Jim Tankersley. As frequent readers know, I don’t think we’re in for some techno-dystopian future and, while I fall on the right (ish) side of Marc Andreeson’s dichotomy – “The spread of computers and the Internet will put jobs in two categories: People who tell computers what to do, and people who are told by computers what to do.” – I think there’s a lot of cognitive dissonance in this conversation.

Let’s be clear. It is theoretically possible – yet improbable – to have either a fall in median standard of living or natural rate of employment. It is, in every way, impossible to have both. Understanding why isn’t all too complicated, and requires only a simple knowledge of supply and demand. Let’s think of the future utopian society operating within a three-class system: unemployed masses, educated technocrats, and the rich capital owners.

Tankersley points to work from Frank Levy and Richard Murnane suggesting that America isn’t in a great position to educate people in the would-be “unemployed masses” to the “technocrats”. That’s a red herring. While in the realistic framework from which they argue – the medium term – more education of the poor is exactly what we need, in the long-run the demand for technocrats is likely to be low.

But let’s take a moment to think what a fall in the standard of living means? Forget my dollar income, for a minute. A stereotypically middle class American derives his high quality of life from free public education, good shelter, incredible consumer choice, copious quantities of food, and access to cheap but effective consumer durables. Americans also enjoy excellent public services like parks, free roads, cheap energy from other institutional arrangements.

Americans own these goods and services  because – by and large – Americans are involved in the production and distribution of these goods and services. (No, not the direct assembly, but most everything else). But let’s say we enter a robot future. (Interlude: have you seen the Tesla factory?) Let’s say minimum wage workers in McDonalds are replaced with wage-free robots and truckers are replaced with automated engines.

The Neo-Luddites tell us that all these middle class workers will overtime be disemployed and hence observe a crash in their standard of living. Notwithstanding the fact that redistribution mechanisms solve this problem (which does not make it theoretically impossible, per se) – this cannot happen. If robots replace workers who are in the service of providing mass market goods – toys, teaching, everything we listed above – that means those goods are being produced, and hence exist. Of course, we get the Keynesian problem of overproduction if for a time period there is excess supply. But if robots keep producing these goods there is no way they will not find their way into the hands of American masses.

Okay, you say, “what if robots don’t keep producing these goods”. When Kevin Drum linked my previous article on Mother Jones, I found all kinds of liberals (a group with which I otherwise identify) telling me that I’m naive for not knowing that the bad capitalists will hog all the robots, that they won’t share their wealth, that political redistribution is impossible, and such. That means the goods aren’t being produced. But let’s say there’s a town – Detroit? – of the “mass unemployed”. If robots supposedly “replace” their jobs and somehow they don’t get the rewards, two agents aren’t just going to sit and go “oh. shit. I’m unemployed. Too bad”.

No. It’s not like the demand for consumer goods vanished. The mass unemployed will create their own economy. That means since I don’t have a car – because of, you know, “robots” – and you don’t have a microwave, I’ll specialize in microwave production and sell you microwaves and trade you for a car. And before you know it, unemployment solves itself, because demand for goods creates a demand for labor creates employment.

Of course, this situation is highly unlikely to arise. There will be some disemployment, but it will not be associated with a falling standard of living. That’s impossible. This situation is unlikely to arise because:

  • It’s sad. It’s like a hark back to an older economy. We should be using robots to consume more, and that should be the dream of every technologist: not the exclusive ownership by a capitalist minority.
  • The first situation, where we have disemployment, but higher standards of living – indeed, “post scarcity” – is more probably. Profitable corporations need a large consumer base. The mass market is the best and, indeed, only such market. While some commenters tell me that “the rich will own the robots for their own uses”, there’s not much profit if all the one percenters create goods only for other one percenters. For one, there would be a huge excess capacity of robots, compounded by the fact that rich people like artisan work. Not crappy, mass-market Tupperware.

The former point is my philosophical belief and I hold it as axiom. The latter has good empirical foundations. The 2000s – a decade of globalization, capital-biased technical change, and rising income inequality – was actually accentuated by a fall in consumption inequality. Over the past four decades, income inequality increased 237% as much as consumption inequality. And even this is just a first derivative of my point, that is lower-quintile consumption increased far more than income. (Many also suggest we overestimate consumption inequality as it fails to capture surplus deriving from the Internet and other free goods).

I think I’ve somewhat convincingly argued (if only to myself) that both a fall in broad living standards – or even a deceleration in the rate of change thereof – is unlikely to be coincident with disemployment. But this leaves open the possibility of either happening exclusive of the other. Let’s consider the first pair, “fall in living standards, but no disemployment”. I think this is the trickiest possibility, because I can’t really see a way in which this can happen, but also can’t see a way in which it’s impossible – outside of political-democratic institutions which, quite honestly, are failing. All I can argue is that technology is definitely going to increase the consumption from the wealthy which almost certainly will translate into higher wages – if at a far, far lower rate – to the poor. A decrease, or even stagnation, then seems improbably: just a substantial disconnect between capital and labor.

The second case, “disemployment without any fall, and perhaps even increase, in living standards”. Everyone fears this. But we think about unemployment in the narrow sense of U3. But Americans are one of the most “overworked” countries in the world. We’re the richest country not only because of our incredibly high “output per hour” [productivity], but also just “hour” [work ethic]. This works well for some people. Doctors who slave it out as residents and then earn a criminally-unfair killing later in life. (Oh what I’d give to replace every damn doctor sucking money from the American middle class with a robot!)

But think of the single mother working two jobs just to have heat in the winter. Disemployment without a fall in living standards will do her well. She can spend more time with her family. In a previous iteration of this post, I wrote that we’d have a “cornucopia of thought”, or something. I still think I got the principle right, but I was fairly bashed by a bunch of readers for being an idealistic idiot. (“Not everyone has a high IQ”, etc.) Regardless, there are a plethora of studies showing engaged parents are crucial for someone’s future success, in society as well as in the economy. Today this works in advantage of the affluent (if not the ultra-rich). But in the future I do hope that a middle class worker can live very comfortably on 6 hours of work, getting more time to spend time with his family – whether reading books or at a barbecue – and sleep, relax, and ponder. Oh shit I’m getting “idealistic” again.

That’s not to say that economic mobility or condition for the poor in America today is anything great. Only that a sharp fall, or even an absence of elevation, of living standards is very, very unlikely. That is the fundamental dissonance inveighed by the anti-technologists. They assume a utopia in which robots provide everything, but at the same time a dystopia in which they provide nothing.

The Rise of Robonomics

May 15, 2013
the Economy: Home and the World
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Abenomics, move over.

Kevin Drum isn’t as optimistic about the massive capital-biased technological change that robots promise:

Nor is it enough. Even if we can immerse ourselves in the web all we want for low cost, we still need to eat, clothe ourselves, live somewhere, and so forth. Until our future robot paradise arrives, this is a big deal. If you lose your job to a robot, your net economic position is going to be sharply worse than it used to be.

Drum doesn’t buy my argument that this structural change will almost-definitely be a good thing. At least not in the short-run. I want to clarify my last point, which I’ve clearly obscured, vis-a-vis the emphasized text. If mass labor is no longer needed to produce most goods and services (an assumption I doubt – but that later), there is definitely reason to believe in disemployment effects. But my point wasn’t about unemployment, per se, but standard of living. A rise in total output will allow much sharper redistribution of income.

Long ago, J.S. Mill noted that the humanitarians of the day needn’t criticize the Smithian free market in its “natural” tendencies. Because production was an economic question, and distribution was political. Of course, he ignored the intimate link between the two. If high-earners are taxed at sufficiently high rates, they will definitely be disincentivized at the margin.

But to the extent Drum’s suppositions are true – i.e. that robots replace most wage labor – production has, largely, been solved. (Drum’s whole point is there isn’t much work to be done in “running” the robots, material production will be on auto-pilot). The vast amounts of capital income would lend themselves to more redistribution, and I doubt that standard of living would fall much at all. Remember, the capitalists who own all the robots won’t have any profits without a huge and growing consumer base. Falling cost of production implies increase in supply, and hence more surplus –  consumers included. I cannot emphasize this point enough – without healthy consumption, robots are useless. I’ve read comments that the rich would “use” the robots “for themselves”. This is highly unlikely for a plethora of reasons but, if it comes to pass, will mean everyone else can create their own, relatively labor-intensive economy. Problem (kinda) solved. Capitalists paying huge sums for fixed quantities, like land, make a new Ricardian tax program a perfect choice.

This is tangential to the main point, because I don’t think we’ll face severe disemployment effects at all. For all the talk about “offshoring” to China, the American labor market adjusted remarkably well over the Clinton and early Bush years. The post-industrial apocalypse that is Detroit aside, the current crisis isn’t, at least not directly, one of structural unemployment.

On that note, this whole argument has been framed in an unfortunately Western point of view. Most wage labor across this world is treated in dismal conditions. They don’t want to work, but have no other way to put food on the table (or on the mud floor, as it might be). Just calculate, how many slaves do you have? I have 29. In a robotic world, that will be nil. I know there are many poor women across India who would rather put their ten year-old son in school than on the hot field as a brutally-treated farmhand.

Drum seems to think that in our robotic future, the demand for (most) labor will vanish:

I very much doubt [that millions will enter the ‘thinking classes’]. The vast majority of humans have neither the skills nor the desire for this. Rao may be right about “millions,” but that represents just a tiny fraction of the human race. What about the rest of us?

I was probably a bit idealistic about the future being “a cornucopia of thought, refinement, ideology, and science”. As I noted, if incorrectly applied, such jobs are by definition restricted to the smartest who, by definition are few. But an important part of the argument remains. Many people today who feel financial pressures either drop out of the educational system early, or undertake a purely vocational education, against their will. And this isn’t a bunch of intellectual snootballing either – I’m more than happy if people turn to “lower” pleasures (this was in the spirit of Mill, after all!)

But in the future we’ll see more youngsters confident enough to study english, philosophy, or the lab sciences. Noah Smith’s argument against all non-econ PhDs will become a nonstarter. Kids who want to pursue their time as “starving artists” will have all the means to do so. I think Drum underestimates the huge demand for the more “thinking” pursuits of life we’d see if the whole world – billions not millions – was educated.

As Tyler Cowen linked to, earlier today, a Master’s in Computer Science from one of the best universities is now available for $7,000. Total. This is a story about how not even the most exclusive admission committees can keep the gate closed on learning itself.

And there’s another narrative here. The huge increase in material wellbeing (unequal as it might be) will itself create demand for all kinds of new things we can’t even imagine. Here’s one prediction. As a % of total employment, the sex industry will grow relatively rapidly. Because no robot can replace, how to put it.. a beautiful woman.

And this pattern carries across. We’ll have more people watching plays at the local theatre, and spending time with their grandparents. Or tending to a garden. Michael Pollen will no longer be chastised as a sexist pig.

Just because myself and Kevin Drum can’t predict the future demand for employment doesn’t mean it won’t exist. I don’t think most of the jobs today would have been predicted ten years ago, let alone fifty. I place incredibly stock in human ingenuity.

This just isn’t about the “long-run”. There are two ways about thinking about the immediate effects. Disemployment might be relatively prominent during “structural adjustment”, as an economist would say. But this doesn’t always have to be so painful. America became a service-based economy rather quickly. Also remember, at the hark of the industrial revolution Luddites were saying the same thing (and burning down buildings in the process). Drum can look retrospectively to analyze why they’re wrong and it’s different this time. But who is the say the future Kevin Drum won’t be saying the same thing!

And, in the meantime, unemployment can always take two forms: of bodies, or of hours. We have good reason to believe a good part of America is “overworked” – the same people that Drum thinks will be most hurt by this change. Moving to fewer working hours will allow working-class parents to spend more time with their kids and mothers to enjoy better maternity leave and benefits.

The smaller working-day will create more social interaction, perhaps at a local cafe. In fact, along with the sex business, I’d be bullish on fancy restaurants – in the future.

I hope I’ve made more clear the obscurities in my previous post. But I also want to get more specific. What does Drum think unemployment rates will look like over the next ten years? Fifteen? Fifty? What about labor force participation?

As for the former, I don’t think natural unemployment will ever hit more than 8%. (I don’t think it will get near, but I can see a few possibilities to the contrary). I think labor force will fall among the elderly – and I think this would be a damn good change. Working-age adults participation has been on secular decline, but I don’t think robot technology will do anything to put this fall on steroids. 

More specifically, over the next twenty years, I don’t expect participation to fall below 70%, adjusting for all hysteresis effects of low AD.

I do think Drum gets one thing absolutely right, robonomics has been given “surprisingly little attention among economists”. This will change. Because, if there’s one thing we liberals hate to admit, this is a supply-side revolution. We have to fundamentally reconsider what income is, and how it’s allocated. I think consumer surplus has already done a lot of that (I mean yeah, the Internet isn’t “free”, but it’s about as close as it gets. That’s pure surplus).

There is the more daunting question of work and dignity. As John Steinbeck beautifully put it during far worse times:

“The last clear definite function of men — muscles aching to work, minds aching to create beyond the single need — this is man. For man, unlike anything in the universe, grows beyond his work, walks up the stairs of his concepts, emerges ahead of his accomplishments. This you say is man — when theories change and crash man reaches, stumbles forward, painfully, mistakenly sometimes. This you may know when the bombs plummet out of the black planes on the marketplace, when prisoners are stuck like pigs, and the crushed bodies drain filthily in the dust. If the step were not being taken, if the stumbling forward ache were not alive, the bombs would not fall, the throats would not be cut. Fear the time when the bombs stop falling while the bombers live — for every bomb is proof that the spirit has not died. And fear the time when the strikes stop while the great owners live — for every little beaten strike is proof that the step is being taken. In this you can know — fear the time when manself will not suffer and die for a concept, for this one quality is the foundation of manself, in this one quality is man, distinctive in the universe.”

Cutting words. But I wouldn’t doubt the creative capacity of Man. We’ll create movies, delve into the craziest depths of quantum mechanics, solve the question of P and NP, and “create beyond the single need”. We, after all, are human.

That doesn’t mean there won’t be inequality, or discontent. It won’t be the end of ideology, passion, or thinking. There will be an underclass: of who, what, and where I don’t know. History, after all, won’t be over.

But those in it will be a lot better off than they once were. And that’s why the future is a good place.

Update: Brad DeLong has aggregated many responses to this question. Most notably, Keynes himself:

I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not – if we look into the future – the permanent problem of the human race…. Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well. The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes… 

…Meanwhile there will be no harm in making mild preparations for our destiny, in encouraging, and experimenting in, the arts of life as well as the activities of purpose. But, chiefly, do not let us overestimate the importance of the economic problem, or sacrifice to its supposed necessities other matters of greater and more permanent significance.

My post – in other words – is almost a century too late.

Tomorrow’s Liberalism

December 12, 2012
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It’s a good decade to be liberal. Our concerns and suspicions have been vindicated by cascading storms, collapsing states and, above all, a crumbling world economy. The past decade has been enough for some grand thinkers of conservatism, like Francis Fukuyama, to re-imagine their world while letting others like Paul Wolfowitz to fall into the hush of irrelevance.
 
Today is a good day to believe ultimately in the importance of social justice. It is a good day to understand that the way we live is subsidized by a grand loan from Mother Earth. It is a good day to make love, not war. But we must remember that to whom much is given, much is expected. Though the liberal voice has been revalidated by an overwhelming international support for Barack Obama, this decade is our last opportunity.
 
It is too easy to foolishly waste this currency of modern liberalism. The lasting image of the American liberal of the last decade will be the protesters at Occupy Wall Street denouncing the market. It will be Michael Moore’s rejection of capitalism as a valid ideology (OK I’ll admit, his movies are great). It will be Anne Leonard’s Story of Stuff. And in this noise, history will wrongly mark liberals as but a band of hypocrites too privileged to appreciate the free market.
 
Restricting trade is one of the surest ways we can further the machine of poverty. An important tenet of liberalism is a belief that all Mankind – from the Ganges to the Potomac – has a right to work, the right to a certain prosperity and dignity. By giving into Union demands that protect trade or by patriotically refusing to buy goods “made in China”, we are but denying work to a poor weaver in the Yangtze Valley who will inevitably be asked to go back home, to the throes of rural poverty.
 
Trade comes with its follies, not the least of which its preference of the owner above the worker, but that may be cured with policies of sound redistribution. Trade is also a great equalizer, without which a poor boy in China will die a poor man in China. 
 
A not insignificant portion of liberals denounce the free market. In this lies liberalism’s most damning hypocrisy. It is mocking to the true victims of globalization – draught-ridden farmers in Kenya and polar bears in the Arctic – for the “anti-Establishment” left to call foul on the market while at the same time wearing Converse shoes or offering their hypocrisies on the Internet, a shining jewel of capitalism. 
 
This is a problem almost exclusive to the educated elite – America and abroad. I have met many who deride the materialism of the West, who are easy to criticize the transgressions of BP, who seek a greater zen Spirituality. Liberals should not give voice to hypocrites such as these, most of whom are themselves slaves of the market they censure, most of whom consume far more in resources than the gun-toting, car salesman in Alabama. 
 
Even as liberals we must be cautious not to associate our values with the vanities of the sentiments above, afforded by the capitalist market. We must remember that markets are not more than the will of its people – that the BP spill was caused by each of us, every day. Every time we purchase a transatlantic ticket, every time we pump our sedan with gasoline, every time we order a book from Amazon, we take ownership of the melting ice caps and raging hurricanes.
 
It is too easy to criticize a corporation or a market that is not more than an ethereal abstraction of what we are, and what we believe. Once we rid the liberal message of this growing voice of insanity, we can get back to the truer task at hand – the importance of intergenerational social justice, the crystallizing theme of what liberalism ought to be.
 
This is not antithetical to the market, indeed capitalism is the only way to achieve a truly positive outcome. Even the most classical economists agree that it is the role of the government to correct the externalities of the free market. By transcending the politics we need to accept that the environmental cost of each gallon of gas burned is far more than three or four dollars. The United States is uniquely poised to lead the world with the most robust venture capital networks in the world. If the United States levies a more significant tax on carbon, it will become inevitable that our capital markets finance new and unique ventures in alternative energies, launching America into its next Century.
 
I was deeply concerned when the White House announced that carbon taxation will not be a part of budget negotiations. Not only does is it an excellent form of revenue for a fiscally strained government, but it is a beacon of all the great things true liberalism champions.
 
By quelling cries of financial excess and capitalist dominance, instead employing the very old and natural price mechanism, liberalism can redeem itself as the champion of the little man. The ideological vacuum and myopic vision of liberal agents like Anne Leonard can be replaced with the more intellectual belief that to be human is to be in a market.
 
Steve Jobs once went to India in search of spiritual enlightenment. He was rightly disillusioned, finally realizing that “Thomas Edison did a lot more to improve the world than Karl Marx and Neem Karoli Baba put together.” We, the world, benefitted from Steve’s choice of contribution to science and technology over ideology and vain spirituality. 
 
Just as the conservative movement in the United States needs to reconsider its staunch opposition to taxes and social programs in crucial areas such as child development, the fake liberalism that is taking shape will starve America and the world of the prosperity that comes from reason, science, and rationality. It would be tragic to see the American people choose an ideology of feckless greed and environmental irresponsibility over one of measured justice and social security because a few spoiled brats think stuff is bad. 

 

The Whole Foods Whoax

December 11, 2012
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So I live in India – where the “Green Revolution” really started. Many people – here and elsewhere – have a very critical opinion of the work of M.S. Swaminathan and Norman Borlaug (the fathers of the revolution). This criticism is usually presented along with a general criticism of genetically modified foods and other “unnatural” endeavors.

Broadly, the criticism levied falls into several categories:

  1. Socioeconomic: The Monsanto/Cargill empires are breaking down the “small farm” community that once thrived. Labor exploitation is on the rise and the corporations are reaping the profits from the poor farmers.
  2. Health: The pesticides in Green Revolution food are not healthy to eat and is a broad cause of lifestyle distress (I’ve heard claims/speculations as far reaching as that non-organic foods cause cancer from “reputable” news sources).
  3. Environmental: Modern agricultural practices are water-intensive and unsustainable at best – a means of “converting petroleum into food”.

There is some truth to each of the arguments made above. But to what extent does this justify a revolution to the past? To what extent has “modern agriculture” the devil that many make it out to be (and there are many such people here, especially in India).

Socioeconomics From a socioeconomic perspective, I agree that modern farming might be resulting in greater income inequality between large farmers and the actual laborers. However, this is largely a structural flaw of any scaled enterprise. When the Industrial Revolution to foot in Europe and the United States the inequality between the robber-barons and the laborers skyrocketed. However, the general wealth of the population increased. Inequality, per se, is not bad, it can even be a great motivating force (I say this carefully, having fallen on the “right” side of inequality). I’m not trying to throw a free-market, Milton Friedman argument here – but I am saying that the effect on inequality per se is not justification enough.

Government regulation to ensure fair treatment of laborers through prevention of monopsonies is one partial solution. India is largely unmechanized (due to backward government policy encouraging manual work) – the number of agricultural workers in the future will hopefully decrease the need for there to be such a large disconnect between the “owners” and the “workers” in which mechanization allows the “owners” to work their own soil.

The day Facebook had its IPO, the income inequality in California (and the country, and the world) ever so slightly increased. Are we the worse of? Scalability and efficiency even if not ultimate goals benefit all of us.

I had a small epiphany the other day when I went to eat at a chai-kadai for lunch (something that is of questionable sense for someone who has lived in the US for fifteen years, as I have). I had a full, hearty, meal for Rs. 20 (eggs, tons of rice, beetroot – nutritious and healthy) as well as a cup of, well, chai. Rs. 20 is equivalent to less than 50 cents. Such affordable meals have allowed the Indian masses to put food on their tables. So yes, inequality has increased, but so has the ability for the common man to feed his family (a very patriarchal society indeed).

Naysayers of the revolution point to the fact that the Food Corporation of India wastes over half its grain each year – a result of India’s Green Revolution. This is probably a good example of reverse causality. We must a priori assume that India cannot store its food because there has been no investment in the technology needed to do so. A terrible cold-chain, no silos, etc. Therefore the Green Revolution has allowed a large portion of India to eat despite its terrible ability to preserve food.

In 1968, Ehrlich argued that millions would starve and die because “India couldn’t possibly feed two hundred more million people by 1980”. No, not without science it could not. As a result of Borlaug’s dwarf wheat, India became self-sufficient in cereal production by 1974. You find that many of the pro-organic crowd here and elsewhere fall near the top of the socioeconomic spectrum – they’re not the ones who would pay the price when the country doesn’t have enough food. They’re not the ones for whom a lunch means three more hours worked, for whom putting food on the table means migrating away from the kids for maybe over eight months.

Health Organic sounds a lot healthier. And is a lot healthier if you don’t properly take care of the fruits and vegetables you are eating (washing it, etc.) However, thelargest scientific study on this issue – which used data from over 50 years of nutritional studies – noted that there is a negligible positive effect when one consumes organic food. This is not to say that organic is less healthy or that one should not consume organic food – there might be other reasons to do so. For example, animal welfare is generally a more important concern for organic farms than it is for conventional farms. However, this is again a tangent to the real question at hand.

Environment This is the big question, isn’t it? Now, let’s start with the facts. If we revert to Organic Farming, as Norman Borlaug has calculated, the world would be able to sustain ~4 billion people. Before we even consider organic farming, we should accept a priori that we are willing to pay the social cost of a Malthusian catastrophe. Indeed there is something deeply unsettling to me that the millions paying for this do not include those paying seven dollars for a gallon of milk.

I am the first to accept that the status quo, too, is unsustainable. There are states and farms in India that will probably loose the ability to remain fertile in about ten years, a result of modern agricultural practices. However, there do exist ways to sustainably farm using industrial methods. Can we not have major, scientific, research schemes that find ways to increase the productivity while at the same time decreasing the environmental cost? When there is large-scale investment in science (likely in times of war) we find that great advances do happen. We should inject warlike funding to such programs to allow for a more sustainable world.

A common question ignored is that modern farming allows you to receive a greater yield rate per acre, which allows you to till a lower surface area and thereby allowing you to conserve a greater portion of your total land. We would certainly have to increase our “area farmed” (and cut into untouched, pristine areas of nature) were we to abdicate efficient farming practices.

We must first make the steps that have the greatest impact per dollar spent. This means, for a country like India, to invest in high-quality silos, to teach farmers about the proper way to use herbicides, develop a high-quality cold-chain. This would do far more for the environment per dollar spent than investment in organic farming.

There are also simple steps we can take. Eat locally, from your farmers market… Don’t buy Kiwis (sorry New Zealand!) In fact there is some irony in the fact that Whole Foods imports from overseas (at great carbon cost) much of its organic produce in the winter when “conventional” food is available next door.

This post is already too long – and I don’t want to end on a negative note. I understand the merits of organic farming just I’ve heard too much lately about how modern agricultural has ruined the world and I don’t believe that is by itself true. Are we “borrowing from tomorrow”? Maybe. But with organic agriculture you would be borrowing from the many people that would not have existed today or be living on below-subsistence levels of food. To become better we do not need to look back, but look forward. What works about organic farming? How can that be incorporated into a modern and industrial model.

As a final note, when we for reasons of intuition and gut reject science – an evidence-based system – I think we are doing a disservice to our future. To question and challenge science in a rational and critical manner is one thing, but to damn it as a pawn of “big ag” is quite another.

The Stack Lifestyle

December 4, 2012
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Andrew Plotkin tells us that “if you already know what recursion is, just remember the answer. Otherwise, find someone who is standing closer to Douglas Hofstadter than you are; then ask him or her what recursion is.”

Recursion is a delight for any computer science student first learning it. There’s something magical about sorting a list by asking your program to sort the right half, left half, and then merge. There’s something magical about taking that ugly code festered with loops and switches and replacing it with two lines.

My high school computer science book (it sucked) kept telling me that “recursion” is inefficient but could never tell me why. Indeed, in terms of time complexity, sometimes a recursive solution is the best that exists (quick sort, for example). But as anyone with a slightly more nuanced understanding of memory allocation knows, the computer’s dashboard (if you will) looks a little bit like this:

Credit to David Malan

Every time a method (function, subroutine, procedure, whatever you fancy) is called it’s placed on top of this so-called “stack”. The canonical explanation of a stack goes something along the line of having a stack (no, literally) of tasks to complete. You look at whatever’s on the top and begin with that, but when your boss drops by and adds another task you drop what you’re doing and work on that. As nerds say, LIFO (or last-in-first-out).

The problem with recursion is that each time a method recurses, another subroutine is added to the stack. Calling a method takes both memory and time, both of which are inconveniences that might not be relevant to one of those boring, old loops. Indeed failing recursion must be the inspiration of  the famous website, StackOverflow, which is an eponym of maxing out your pre-allocated stack space.

So now let’s make the leap to real-life. For the most part, in computers, the time required to place a procedure on the call-stack is infinitesimal. So recursion is pretty cool, here, because you get a rich variety of data structures and algorithms that are elegant and effective.

Now about ten years ago, before Jimmy Wales invented Wikipedia (or hell, before Tim Berners-Lee conceived a hyperlink), imagine reading one of those terrible World Book Encyclopedias. I remember my Dad buying a whole, grand set, for god knows how many dollars when I was seven. I think I might have read two entries. It’s a better decoration to seem all polished and nuanced than anything else (much like an expensive globe).

When reading an article in one of these books, when you came across a term you didn’t know, chances are you just kept reading. The cost of finding out what that term means was just too high. You’d have to locate the volume or dictionary in which that entry would be stored, alphabetically navigate to that page, read it, and damnit there’s another term you don’t know… Before you know it, you have the whole bloody encyclopedia strewn on the floor and you haven’t learned a thing. Time for a beer.

So, knowing that it’s just not worth your time to find a small term, your algorithm might have looked something to the effect of:

define function -> readArticle(words):

     while (not finished):

          if (notUnderstood(word) and isImportant(word)):

               readArticle(findEntryOn(words[i]))

               continue

         else:

               continue

haveDrink()

And if you’re the average person the barrier to entry of “importance” will likely be quite high, lest you want to read the whole encyclopedia.

Wikipedia has fundamentally changed how we look at this algorithm. We’ve basically all but abdicated the qualifier of importance. The “cost of calling” a link, if you will, or recursing is barely anything anymore (except for my house in Chennai which might still be using dial-up). The old encyclopedia’s offered us one thing in return for their cumbersome and pretentious being, we were compelled to read only that which we need and that is important.

Today, I barely find myself reading whole Wikipedia pages anymore, and it’s a shame. I’m too busy reading an intermediary link because it’s so computationally cheap to do so.

Look I’m not a cognitive psychologist or a behavioral economist or whatever, but I wonder if this fundamentally changes the way our brains are wired – just as fundamentally as stacks are different from queues. The iPhone and Mountain Lion notification center draw your attention from whatever you were doing at a moment’s buzz.

Here’s the problem. We’re probably hitting something of the computational equivalent of stack overflow. Our brains don’t have that much memory (I read on the incredibly reliable source of YahooAnswers). Do you ever start researching for a paper, get lost in Wikipedia and then eventually just quit? Yeah, that’s probably stack overflow, or something…

Would we be more efficient if the cost of calling a function was greater, and if so, to what extent?

Technology at the End of History

December 2, 2012
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In 1989, Francis Fukuyama penned his now famous essay, The End of History? This is a topic I’ve written about several times over the past few years, usually in the context of current unemployment and the divorce between human dignity and economic models.

As someone very interested in technology, computer science and politics, the emergence of technology in political analysis fascinates me. XRDS, a CS magazine I frequently read, had an essay a few months ago describing how algorithmic social choice theories might solve vote manipulation. Technology really can be in the service of democracy.

This was the thesis of an essay I wrote to win a scholarship from the Telluride House at Cornell. During my interview (with an English major, computer science PhD, and urban planner) I was taken to task on my pretty assertive belief that technology is the ultimate equalizer. The Internet, after all, is the purest democracy.

Is there anything wrong with my opinion, I was asked? Well, I certainly couldn’t get away with the hubris that “my opinion is perfect”, and luckily I did have a few concerns in mind, namely the ability to exploit technology to one’s benefit lies in the hand of the few, i.e. The ability for a technocrat to reap disproportionate benefits.

However, in the past few months, I was wondering if there is a graver consequence of modern technology, intimately connected with Fukuyama’s concept of the end of history. Imagine yourself in a world where the political government is perfect – in perfect accordance with the classically liberal ideas of free-markets, exerting little more influence than an independent court system that enforces contracts between private parties.

The political government, that is. Running in tandem to this government is a black-box technocracy that models the world as a complex system, and with incredible computational power, brilliant algorithms, and intuitive heuristics, achieves a top-down organization of the economy. This black-box is entirely unbiased, and has the simple outcome of optimizing the economy based on a set of weights determined by the people (income, equity, mobility, satisfaction with work, etc.) This computer could have some flexibility to operate among different cultures (that is in a more family-oriented society could optimize for employment in family units perhaps at the cost of greater income, or the like).

Before I go on, let me clarify, I have no idea whether such an algorithm could even exist. This is just a thought experiment to make my greater point. Would it be sad, ahistoric, aclimactic to live in this world? The theoretical satisfaction of our society would be maximized, god knows poverty might be irradiated, but would this life be a happy alternative to the current world, very much in the mires of history and ideological struggle?

With caution and qualification, I say no – this society would be no better. The ownership of our destiny would be ultimately wrested from our convictions and beliefs to an algorithm. Even if life is perfect, and scarcity is scarce, what pleasure is there from living in a world that tells you precisely what to do next and how to do it. Other than the orgasmic reactions this would have from Marxist intellectuals, what real happiness is there? My sentiments to this society are perfectly captured by Fukuyama’s nostalgia at what he considered to be the end of history – dispassionate victory that brought down the Berlin Wall:

The end of history will be a very sad time. The struggle for recognition, the willingness to risk one’s life for a purely abstract goal, the worldwide ideological struggle that called forth daring, courage, imagination, and idealism, will be replaced by economic calculation, the endless solving of technical problems, environmental concerns, and the satisfaction of sophisticated consumer demands. In the post-historical period there will be neither art nor philosophy, just the perpetual caretaking of the museum of human history. I can feel in myself, and see in others around me, a powerful nostalgia for the time when history existed. Such nostalgia, in fact, will continue to fuel competition and conflict even in the post-historical world for some time to come. Even though I recognize its inevitability, I have the most ambivalent feelings for the civilization that has been created in Europe since 1945, with its north Atlantic and Asian offshoots. Perhaps this very prospect of centuries of boredom at the end of history will serve to get history started once again.

Yet, when reading Fukuyama’s gripping essay years ago, I had one big qualification, a fleeting hope for the end of history. Ideological struggle is romantic for those of us who sit in comfort and liberty. For the scholars who write in the dimmed halls of Harvard. For the precocious high schoolers who fawn on every dripping word from their history teacher.

But for the many who are in the throes of historical struggle, there is nothing poetic about history. For the Russians who were slave to the Gulag, the romanticism of Wilson’s To the Finland Station, is but a Western concoction of reality, beautifully written for the scholar.

Just as the post-Soviet world might feel anticlimactic to the likes of Fukuyama, in its end is very much an unabashed victory of liberalism (in his own words) that has lifted millions out of silence and poverty. Who am I to say that algorithmic perfection would be sad, after all, when I have fallen on the right side of inequality.

For the small actors in history, the girls murdered by Taliban and the dissidents silenced by Communists, the real victory would be a textbook of history blank after today.