Author: mdmakowsky

We need City-States

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What happens when the world changes sufficiently that a subset of the institutions that laid the groundwork for the most successful nation of the last 200 years becomes becomes maladapted to their context? Well, thanks to a couple billion year of evolutionary biology, we know the possible outcomes. The classic evolutionary answer is that the species in question will either adapt, migrate, or die. Repurposed for the modern nation-state, the country in question will either:

  1. Adapt it institutions
  2. Change the context (i.e. whole nations can’t migrate)
  3. Steadily decline into some combination of irrelevance or chaos

Omar Wasow put together a nice thread, where each individual tweet stands wholly on it’s own as an acute observation, on the current state of the Senate as an elected institution:

So let’s think about our options here.

Decline into Irrelevance and Chaos

I mean, it’s a choice, but it’s not one I’m particularly excited about.

Adaptation

We could amend the constitution to change how the Senate is apportioned in some clever way that still maintains the mandated suffrage of every state. We could change/abolish the electoral college. I’ll be blunt: I don’t ever see a path forward for constitutional change that will entirely undermine the political power of the one of the major parties (good luck getting 2/3 of Senators to push through an Amendment that will undercut the careers of at least half of them). The resistance to it, at every level, will be extreme. The last time we tried to make an institutional change with that much impact on the balance of power, we had to fight a war to resolve it. There may be a path forward here, but not on a timescale that I’m interested in. I’m only interested in solutions that could be feasibly enacted in my lifetime.

Change the Circumstances

Unlike your typical seed-eating bird of the Galapagos Islands, we do have the means to change the map upon which the Senate is selected. In other words, more states. I don’t mean just granting statehood to Puerto Rico and DC (though it is mildly unconscionable that we haven’t done so already). And I don’t just mean (the very good and perfectly reasonable idea) of splitting California and Texas into 5 and 3 states. I mean a lot more states.

Let’s think about the underlying problem for a second. The Senate biasing representation towards a small minority of voters is a symptom of a larger phenomenon: the continued movement of Americans to dense urban areas. People keep moving to cities, and often from states without a major urban center, and into states with multiple large cities. The rural areas that they are emptying out from maintain their pool of slots for elected Senators, while the cities gain none. So what’s the answer?

Welcome to the great state of Seattle! [state motto: “If it’s not caffeinated, send it back”]

The Vinegar-Tomato Sauce State of Raleigh! [state color: halfway between Duke blue and UNC blue]

The Beechwood Aged State of St. Louis![ state left fielder: Lou Brock]

The Always Hustling State of Atlanta [state anthem: written and performed by Outkast]

City-states. Remember city-states!? Yes, I know, when we speak historically of city-states we mean entities independent of any other nation state – classic Venice, current Singapore or Monaco, but that doesn’t mean we can’t piggyback on their awesomeness. Texans already joke about the “People’s Republic of Austin” – let’s make it official! We can set a size minimum as either an explicit population threshold (e.g. 500k) or a moving bar, such as the population of the smallest state in the previous census. It’s essentially adding another option for a city to apply for inclusion in the next tier of our federalist system.

This is more feasible than you might think and vastly more feasible than amending the constitution.

Consider:

  1. These cities already have government infrastructures. The governor on day 1 is the current sitting mayor.
  2. The citizens of most medium- and large-sized cities derive the bulk of their regional identity from their city, not their state. Most urbanites will be thrilled at the notion of elevating the political status of their city while losing the affiliation of their previous state.
  3. New state coffers will be heavily subsidized with flag and swag sales the first few years (only mostly kidding)
  4. The remaining rural states will have the far more manageable task of trying to serve rural citizens without having to serve an urban voter base with radically different needs and preferences. Public goods will be better matched with the citizens of rural states as well.
  5. States will often look like Swiss cheese, which will be both hilarious and, slightly less importantly, will allow for constituents to even more easily vote with their feet when elected officials fall short in their duties.

Are there downsides? Sure.

  1. The speed traps before you enter and as you exit city-states into their rural envelopers will be aggressively extractive. There will be rampant attempts at exporting taxes across borders.
  2. Reconstituting water supplies as special districts supporting multiple states will be tricky.
  3. Coordinating interstate public goods will, no doubt, at times become even more farcical than the status quo.
  4. Decent chance this turns into a Neal Stephenson novel within 100 years.

But, in the medium and long run, I believe the benefits will greatly outweigh the costs. Throughout the pandemic there has been a constant tension, particularly in “red states”, between the public goods desired by the citizens in cities versus rural areas. While urbanites have been desperate for mask and vaccine mandates, rural citizens have been far more interested in consuming personal liberty and symbolic group-identity goods, at the expense of greater Covid cases and deaths for those in denser areas.

I’ve said it before and I’ll keep saying it tomorrow: there isn’t a red-blue divide, a religious divide, or a class divide. America is currently defined by an urban-rural divide. If we don’t adapt our institutions to reflect it and balance the equal political enfranchisement of people on both sides of that divide, it will continue to erode the integrity of our political infrastructure.

I imagine I don’t have to persuade many people that the integrity of the franchise is not something to be taken lightly. Regardless of the mathematical salience of an individual vote to any election, the fact remains that the less people believe their vote has at least the potential to be realized in the form of representation that serves them, the more they will look to alternative channels to the political process. And maybe, for the libertarian inside of you, the alternative you imagine might exist in the private marketplace for goods and services. But history informs us that the dominant alternatives to democracy are heritable lineage and bloodshed, and I don’t see any benevolent American scions laying in wait.

Scrolling Alone

mdmakowsky1 Comment

Robert Putnam’s Bowling Alone was one of those high brow academic-ish books that, for a few months at least, made the leap to coffee and bedside tables across America, bringing a simple thesis that Americans had dropped out of the traditional social organizations that served, directly and indirectly, as the bedrock of civic life. It was a great read and made a compelling argument.

It was the book that introduced me, then still a grad student, to the concept of social capital to me. It had lots of stylized facts and broad theories, and was seemingly comfortable being at war with itself when the facts didn’t play nice. For a simple run down (and it’s been more than 10 years since I read the book, so take the accuracy here with a grain of salt)

  • Americans bowled more than they used to, but were less frequently members of leagues.
  • Americans didn’t join new associations when they moved to new towns, but they also moved towns less than they used to.
  • We worked a lot more, so there was less social-leisure time to dedicate to local associations.
  • Political and activist groups had sacrificed in-person meetings and local cohesion for greater national scale

You get the idea. Pushing his logic, Americans had become solitary households, islands held together less by social identities than work affiliations. The book, published in 2000, arrived while the internet was still in a pre-social media, pre-smart phone construct, but essentially warned that the growing dearth of social capital would undermine civic engagement and eventually democracy.

It might seem odd, but I think picking up (and picking on) a 20-year old book gives some insight into what we are frequently overlooking today.

  1. Bowling alleys are not filled with loners. They are filled with groups of friends bowling together. What changed wasn’t interest in social activities, it was how we schedule our lives. Work may be both more flexible for many of us, but also less predictable in the hours we work, and with (perhaps) more total hours. Combined with the predominance of two-earner households, its just that much harder for a casual bowler to lock down 2.5 hours every week for a league obligation. Remember, total bowlers increased– they didn’t actually start bowling alone, they just did it on their own schedule.

This a good thing to remember when we’re wringing our hands over the latest thing that the current generation is destroying (television, movies, cereal) or, ahem, abstaining from. What looks like the end of something central to human existence is more often than not just a refitting to new economic incentives and constraints. Humans are clever and we are well-advised not to mistake basic adaptation and re-optimization for massive generational divides.

2. We don’t need to make new friends as much when we move to new towns because we can actually stay friends with people in our old town.

When you moved to a new state, or even a new town in your state, that used to mean going years or decades without seeing or hearing from old acquaintances. That is not the case anymore. Between twitter, instagram, facebook, and zoom, I am in regular contact with people scattered both geographically and temporally (autobiographically?) from my life. Some fall in and out of touch, much the way they would if we lived down the street from each other, but the point is that there isn’t the same pressure to find local social institutions to rebuild a social network from scratch like there use to be.

I’m not sure this a good thing, by the way. I think it has removed important sources of noise and variation in our social networks. I think it was made them far too centered on the groups we formed during schooling, leading to homogeneity within networks and distrust across educational strata. But it doesn’t mean we are alone, but it does mean that shape of our social lives have changed in important ways.

3. Political activism as a source of social identity remains strong. But does it bring community or just conformity?

The clubs or group-identities that dominate our life are relatively unchanged: religion, politics, profession, ethnicity, sports, etc. But the manner in which those social groups cultivate identities has changed. As Putnam noted, politics has become considerably less local, a trend exacerbated by the rise of social media as a tool not just for promoting an identity, but for regulating that identity and assigning status within it.

There is no shortage of people that have noted the rising pressures to conform within groups. This is where I think Putnam’s original thesis has some unexpected bite: I don’t think our social capital has eroded, but it has become a lot less local. It is subject to standards less tailored to your currently lived experience. Further, as any good Orwellian knows, the rewards to successfully identifying in-group traitors and purging them scales with network size. With social media technology exponentially scaling the number of people monitoring us, it has brought with it tremendous pressure to conform. If the nuclear families in the small town 1950s lived in terror of what will the neighbors think, consider the pressure that extremely online millennial professionals are under. One mistake and a lifetime’s social capital can go poof as the hordes move in to shame, excommunicate, and (occupationally) terminate.

If you’re wondering why there seems to be so much in-group signaling on twitter, so much group think and obviously disingenuous mutual affirmation of seemingly ludicrous affronts against common sense and empirical reality, and so much viciousness, just remember what’s at stake. I tend to fall back on a simple model of human utility functions:

Utility = Stuff x Friends

What’s important is that it’s multiplicative, which means loneliness is deadly. In the modern world, our associations are in many ways less robust than previously – one false move and you’re being pushed out on an ice float. Maybe that’s why we should all join a sports league or a religious organization, why we should start volunteering twice a month at the YMCA, join the Rotary Club, help register people to vote. Because its great that you still have your old tribe, but it’s always nice to have a backup plan. A last resort. A set of associations you can keep in a glass box to “Break in Case of Purging”.

Neighbors.

When to weigh in on human suffering

mdmakowsky2 Comments

The US began the process of pulling out of Afghanistan. The Taliban has begun rapidly retaking in cities. In doing so, it quickly has become apparent that conditions on the ground are not safe for anyone who aided the US military, journalistic, or perhaps even humanitarian efforts. People are rightfully terrified and the rapid evacuation of hundreds of thousands of Afghani’s is at this moment a global priority.

I am extremely comfortable and confident in the belief that the US should, without question, expedite the emergency accommodation and resettlement of several hundred thousand Afghani families, much in the way we resettled roughly 130,000 Vietnamese after the war in Vietnam (only faster). Yes, I believe it would be a boon to our economy and our society in the long run, but that is largely besides the point. We should welcome these men and women into our society because it is unequivocally the right thing to do, it is a moral responsibility we took on when we put boots on the ground there and left them there for a decade.

But that’s pretty much the limit of any insight I could possibly hope to have and, as such, it’s not what I want to talk about. I want to talk about the egregious smattering of take, hot takes, re-takes, W-taking takes, and L-giving takes that is currently proliferating on social media and the standard outlets at the moment. No, I am not going to link to any. No, I am not going to refer to anyone by name. Yes, this is one big, long-form subtweet.

Unless you are a bona fide expert in military incursions, occupations, or exit strategies, I do not care about what you have to say. Unless you have spent a non-trivial portion of your career covering or studying how to cope with a humanitarian crisis, I don’t value your opinion. Unless you can lend genuine insight into what the best course of action is at this moment, nobody needs to hear from you.

While they may be trivial in effect, you are well within your rights to express sympathy for the victims of this terrible moment and to extoll your leaders to ease and prevent as much suffering as possible. But trying to raise your status in this moment with anything remotely resembling an “I told you so” or claim to “victory” for your political identity du jour is horrifying. Please don’t equate this with pro-gun reprisals of “Now is not the time for politics” every time there is a gun-related tragedy, either. Rather, consider this a reminder that this moment, like nearly everything else, is not about you, your politics, or what you tweeted in 2011. We are all better served when we keep that in mind.

Maybe I’m overreacting. It’s easy to write such things when the crisis of the moment puts you squarely on the sidelines. And it’s not like an 800 word scolding calling out exactly no one is going to help anyone. But there are expert, scholarly, and journalistic voices that are being drowned out by the droning, self-congratulatory thirst for public approbation and status. And if this snotty little post rings in ears and reminds just one person that “this isn’t about you,”, and they choose to leave even one bad tweet in drafts, then it’ll be worth it.

But please, support any and all of your representatives that want to take action to bring as many refugees from Afghanistan to the US as is possible. I don’t know much about Afghanistan or wars, but I am confident it is the right thing to do.

Age ___ Do you smoke Y/N Will you get vaccinated Y/N

mdmakowsky3 Comments

Jonathan Meer wrinkled my brain:

“Hospitalizations for COVID are almost entirely confined to those who are not vaccinated, often at the cost of tens or hundreds of thousands of dollars…why should the vaccinated bear those financial costs? Insurers, led by government programs, should declare that medically-able, eligible people who choose not to be vaccinated are responsible for the full financial cost of COVID-related hospitalizations, effective in six weeks….Standing up for your beliefs means being willing to bear the consequences. Otherwise, it’s just cheap talk.”

In summary, anti-vaccination positions are effectively being subsidized by taxpayers, members of insurance pools, and the vaccinated. It’s an expressive form of moral hazard. It’s selfishness, signaling, and group identity as club good. It’s cheap talk. It’s at least 5 different chapters of your microeconomics textbook. It’s a great article and I want to talk about it.

  1. “Cheap talk” doesn’t mean “costless.”

“Cheap talk” means you don’t have sufficient costs or benefits committing you to follow through on the future behavior you are promising. But I think a lot of people have painted themselves in a very public corner. If you spend 6 months telling everyone who will listen that Covid is just the flu, that the vaccines are dangerous or don’t work, then you’ve got a lot of social capital within your peer network (or audience) that will be destroyed if you publicly change your mind or are observed getting vaccinated. For most private citizens, the answer may be found in a hat and fake moustache. Nonetheless, the talk isn’t that cheap. Only a 1/3 of unvaccinated people claimed they’d be more likely to get vaccinated for $100. What Meer proposes is to “uncheapen” their talk at a far greater level, where $25k to $100k price tags are not out of the question. I think such a policy would work specifically because it creates an expected incentive greater than either peer stigma or any feasible reward policy for vaccination, and at levels large enough where loss aversion may likely kick in. Funny thing about people – we don’t plan for low probability events very well, often treating ~1% negative events as an impossibility. I know it may sound crazy, but a 10% chance of being impoverished may actually be a more powerful incentive than a 0.5% chance of dying.

2. It’s really hard to write complete contracts i.e. your health insurance company desperately wishes it could have included vaccination in your premium calculus.

“Knightian Uncertainty” i.e. when you don’t know what you don’t know remains one of the all-time “obviously important, but hard to operationalize” concepts in an economic analysis. If you write an economic model where people are purely backward looking you will get a lot of pushback for making your agents too myopic, too stupid. At the same time, if anyone out there has started a museum of apartment leasing contracts, I have no doubt they have grown at a near perfectly linear rate over time, as tenants forever explore the space for unanticipated holes and landlords continue to supplement their contracts in response. Every new paragraph in a lease tells the story of a previously unanticipated cost. Your health insurance is the same. For decades you’ve had to tell them if you smoke. Here’s a prediction: In the future you’ll have to tell them if you’ll receive FDA-approved vaccines.

3. Given the state of modern democracy, even for problems where government mandates are the first-best solution, we may have little choice but to rely on market- and community-based solutions going forward.

One of the big advantages of government mandated solutions over market alternatives is completeness i.e. you can make everyone do it (with concomitant provision, monitoring, and punishment). What the pandemic has made clear is that simply isn’t the case anymore, for the simple reason that our politics are so polarized and, more importantly, so efficient in polarizing any policy. Any issue where a universal mandate is the optimal policy will immediately be polarized into for/against constituencies, which will slow down and eventually weaken any possible mandate.

I’m honestly not sure we could pull off the small pox vaccination program today, and it is arguably the greatest government program in world history. That was the first-best means to eradicating small pox. So what’s the second-best means to coping with Covid? If health insurance wrote separate premium contracts for vaccinated and unvaccinated customers, maybe that could get us to herd immunity. Medicare and Medicaid could have similar contingencies for reimbursement, but I suspect it’s hospitals that would end up on the hook. If hospitals refused care to unvaccinated Covid patients, I don’t think it would go down very well politically.

What this leaves are the smaller groups within our nesting doll of associations (state, local… church, synagogue, university, Rotary club, hockey league, pub trivia, the eight people you always see on the bus). It may be within these smaller, more voluntary groups, with their easier entry and exit, that we may observe that necessary accepted coercion to produce club immunity. And while vaccination mandates as a series of parallel club goods is clearly inferior to its provision as a monolithic national public good, its still superior to purely independent production.

4. Could HMO’s have their moment?

Health Management Organizations (HMOs) have been pretty stagnant for a while. Skepticism over management incentives to provide optimal healthcare has always lingered, combined with the fact that health insurance does seem to work pretty well for the people that have it (it’s the 28 million Americans that don’t have health insurance where the bulk of problems lie). Given limits on in-network care and the difficulties assuring prospective members that physician and patient interests are aligned, HMOs have always had a hard time presenting a compelling sales pitch relative to traditional insurance.

The club nature of HMO’s, however, may give them a new structural advantage in the post-Covid world. They can exclude people from membership, from taking up limited resources and sharing space with potentially vulnerable members. Would I at this very moment prefer being sent to a hospital that only allowed vaccinated people to work or receive care in it? Yes, I would. If Covid variants become seasonal, if we’re entering an age of pandemics, or if we’re simply watching the emergence of costly medical luddites as a significant portion of the population, then a lot of us might give HMO’s a second look. (NB: This ability of HMOs to “exclude” is, of course, also their potential downfall. The power to exclude is, historically, almost always abused. The idea that healthcare would become a domain not just characterized, but driven, by the power to exclude should cause trepidation. If you thought there were going to be solutions without tradeoffs to the problem of vaccine refusal, get used to disappointment.)

5. Would universal healthcare (or “Medicare for All”) mandate vaccinations? Can they?

I’m genuinely curious about where policy proponents sit on this. If vaccinations are required to receive care, then it requires denying sick people care. Healthcare policy is a great topic to argue about on twitter, but it’s all cheap talk until orderlies are shoving dying patients out the door.

I’m not the kind of person that reads a lot of philosophy, but that’s really what this boils down to– moral philosophy. It’s easy to call yourself a “libertarian” until your personal freedom not to get a shot in your arm is literally killing millions. It’s easy to call yourself a “socialist” until the newly created levers of power to coerce hundreds of millions into receiving a drug today will set the precedent for the “next Trump” to use those same levers for their own nefarious ambitions. There’s always a risk, a trade-off, no matter how many capital letters you use to yell at me.

It’s all cheap talk, but that doesn’t mean it’s costless.

What happens when you can’t pay your employees in cool anymore

mdmakowsky1 Comment

I’ve previously written about the dangers of trying to make a career out of something 19-year-olds think is cool. There are risks on the other side of the paycheck as well, though.

There’s been a flurry of media attention paid to the difficulties restaurants are facing trying to re-staff their kitchens and servers. This piece is my favorite so far, for the simple reason that it pays less attention to policy and politics, and more to the actual jobs in question and what restaurants can actually do to convince employees to return. Rather than condescend to the service industry as a petri-dish for wage policy experiments in “unskilled” labor markets, it dares to recommend employers investigate both the goods they are selling and the value proposition to employees they are trying to hire.

The restaurant and service industries have long been a haven for employees who might otherwise find resistance in the labor market. St. Anthony Bourdain first found his way into our hearts with his love letters to the kitchen as pirate ship, and in doing so contributed as much as anyone to making the restaurant industry cool. Really cool. 2nd-tier rock star cool. Not Beatles cool, but more than few chefs found their way to third-to-last-band at Lollapalooza cool.

And from this pirate ship rebel identity and willingness to hire employees of fringe legality, the restaurant industry found itself with a capacity enviable for any employer: it could pay people with something other than money. It could pay you with a willingness to overlook, ahem…questionable work histories or I-9 employment eligibility. It could pay you in enabling a contrived identity. It could pay you in “No, you’re not selling out trying build a career in a kitchen and yes, you can totally reaffirm that to yourself with two full sleeves of ink.” It could (unfortunately) also pay you through tolerance of workplace aggression, misogyny, and sundry behaviors otherwise on their way out of the office Overton window of acceptable behavior.

There is risk, however, in growing reliant on paying people in non-pecuniary rewards, especially “coolness”. What happens when, whether via a pandemic or just, well, aging, employees realize they can’t pay their rent with cool? What happens if working in your industry stops being cool? What if the world changes, and it broadly stops tolerating the workplace hostility attractive to some of your previous employees? Absent such variously fleeting, juvenile, or outright terrible non-pecuniary indulgences, they’re going to demand higher pay. In money.

The restaurant industry was, quite likely, in exactly the kind of equilibria that major exogenous shocks can shake us out of, sometimes forever. And make no mistake – this isn’t just something that restaurant owners are going to have a tough time adjusting to. I expect a lot us frequent restaurant customers are in for a rude awakening as well. Increased restaurant labor costs pass directly into higher prices. By 2010 the average household in the United States had grown accustomed to dining out more than at home, a luxury enabled by prices kept lower in no small part by a labor force paid in non-pecuniary benefits. I am very much part of that average. Growing up in a family that dined out less than once a month (and that was usually at Pizza Hut), constantly eating out at an endless variety of restaurants has become my single favorite luxury enabled by my employment.

Yes, I’ll probably get a little wistful for the days when I could afford to eat-out almost every night. But it’s also exciting to imagine what a new and different restaurant industry might look like. As an economist, I’ll admit a bit of ironic amusement if it is not the $15 minimum wage that makes way for the oft-prognosticated wave of automated kiosks and labor displacement, but rather the end of a labor pool mythos that leads to a labor exodus. The sudden and collective realization that while, yes, we all concede that a 14-inch scimitar and a flask of Fernet Branca on your hip are cool, they’re not nearly as cool as health insurance and a 401k from a job where the sous chef doesn’t hump your leg every shift.

Which is a long way of saying:

Beware dependence on monopsony power born of coolness, for it is fleeting and full of bankruptcies. Just ask every magazine or media company staring down a writer’s union who’s members have hit their early 30s and realize they can’t pay Brooklyn rent with Williamsburg street cred.

Another marginal cost bites the dust?

mdmakowsky1 Comment

The story of renewable energy changing the world for the better has always been about solving two parallel concerns: figuring out 1) how to produce clean, renewable power cheaply and 2)how to store the power generated for long periods of time. Over the last decade the cost of solar and wind power generation has plummeted. It’s not just that its cheaper per megawatt than fossil fuels, its also that the rate of cost decline shows not signs of slowing. But to fully displace fossil fuels also requires solving the “intermittency problem”. You can store piles of coal and barrels of oil, but how do store solar power for use when the sun doesn’t shine?

If we allow ourselves a moment’s credulous excitement and believe the press releases from Form Energy, a major step towards solving the intermittency problem has been made. I am in no position to judge the credibility of their technology or their capacity to effectively scale its development and distribution, but I find the opportunity to engage in a little futurism too exciting to resist. (Warning: I’m an economist, not an engineer. But even if I have the specifics wrong here, it’s still a fun exercise.)

The new technology in question is an iron-based battery that stores power for upwards of 100 hours. This reads to me as meaning two things:

  1. Power is going to become very cheap
  2. The batteries are going to be heavy

The second part is important. These aren’t the batteries that Tesla wants to put in their cars. They are, however, the batteries that can make for a local power station…or perhaps enable a perpetually self-powered large train?

If you’ve been daydreaming about high-speed rail remaking day-to-day American life, today is potentially a very big day for you. If you want to see millions of travelers speeding along rails in the 21st century, however, you need to lure them out of their cars and business-class flights with a speed and cost proposition that is not just better, but irresistible. Even more, you need to lure them in numbers sufficiently vast that cities (states? nations?) face a value proposition so great that its worth making fixed cost investments measured in hundreds of billions of dollars. A 10% reduction in cost isn’t going to do that. Appeals to community, civic duty, environmental stewardship — I’m pretty sure that will have much effect. What I think might do it, however, is cutting travel costs in half.

Why stop at half though? What happens if a $500 billion investment means urban residents can travel for a twentieth of the cost we associate with cars and planes today? What if that investment only truly pays off if other cities on a route make commensurate investments? It’s easy to point out the challenges of multi-state coordination in a country with highly polarized politics. What’s maybe easier to forget are the challenges that success might bring.

In a world where public transit pushes the marginal cost of travel to a tiny fraction of that faced by travelers in regions without similar fixed cost investments, the urban-rural divide becomes all the starker. Furthermore, its not every urban center that participates – it’s only the ones in the network. Automobiles, while not necessarily inexpensive, evolved into a relatively democratic mode of travel. Combined with the interstate highway system, hamlets and towns could pop up all over the country, and sometimes hang around long after local industry had dissipated or fled. In a world extraordinarily low-cost transit, the gravity of the dense urban areas could become irresistible. Pick a side in a congress heavily gerrymandered along urban-rural lines, and imagine you’re a representative from either side, and it doesn’t take much reflection to realize that no one will be on the sidelines for these votes. If you’re from a rural district, your political life and the future of your party depends on stopping free high speed rail from ever seeing the light of day. Perhaps ironically, though, if the costs per mile of NYC subway are a relevant metric, union negotiated prices may be an even bigger obstacle.

We’ve spent the last year adapting to technologies that left us thinking half of us could work from home, that we could live anywhere, dispersing us to every corner of the globe in a thin layer of extremely online exurbanites. Today we got a glimpse of a different technology, one that might pull us closer together again while taking a major step towards addressing global climate change and increasing the wealth of billions of people at every decile of the income distribution. We’ve lived our lives on landscapes defined by the maps first drawn by sailors, caravans, and indigenous peoples. Maps full of rivers, mountains, and intricate webs of roads. If the next round of massive fixed costs investments allows those along its chosen network to enjoy the benefits of near costless travel, don’t be surprised when the defining maps of the future look like the London Tube.

Innovation in Consumption Goods will Never Stagnate

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Was there a Great Stagnation in technological development? Definitely maybe! Are we still in one? Definitely maybe not! Am I the correct person to adjudicate such things? Absolutely not.

When we talk about stagnation, we focus on the sort of innovation that is most pertinent to economic growth, which means technology as it relates to production. More than just important, with any small amount of reflection on the human condition and how far we have come as a species, in a certain light the technology underlying production is very nearly the only thing that matters.

Only, in a far more comfortable and modern way, it’s not. With all due respect to the protests of those who used to hike 10 miles to three jobs, uphill all 4 ways, every day through the snow, our lives are about consumption. And before you cast me into The Pit of a Thousand Shopping Malls, I mean consumption in a very broad sense. Consumption of time with family and friends; consumption of the 5 senses; of active introspection and passive entertainment; of every new Zelda game they can possibly create.

And all I’d really like to do today is cheer you with a delightful reminder that there will never be a great stagnation of consumption goods. There really won’t be! Not because human genius is unlimited (though maybe it is, if you include exponential AI learning). Rather, it is because our wants are infinite, and from those wants we can fabricate a cheery synthesis of Say’s Law and the unrelenting optimism of Endogenous Technical Change – that Demand Creates its Own Innovation.

That might be overly cute, but I’m not taking the “infinity” in play here lightly. That infinity of wants is not a product of our imagination or the broad dimensions in which we can consume. That infinity is born of our capacity for niche refinement, for variation. If you don’t believe me, go a farmers market. Go a Wegmans. Go to your local Asian grocery store. Google “heirloom tomatoes.”

Our consumptive lives will never stop improving because each new good brings with it the infinite possibilities of small changes, of bigger/narrower/weirder/quieter/redder/hotter/faster/easier/drowsier/friendlier/adjective/adjective… And with each new variation comes a roll of the dice that just might send us down forking paths of inspiration and radical departure from past convention, toward that new way of living our lives that no one had thought possible before.

There was a time when we didn’t have enough calories, so we innovated ways to make more calories. Once we had enough calories, we invented better calories. Then we invented foods. Then meals. Then experiences. Then stories. Then identities. Each stage of innovation brings with it not the disappearing of low-hanging fruit, but an expanding horizon of all the possible ways our life-sustaining caloric consumption goods might evolve, and the infinite stories they might help us tell through the lives we live. And we will never run out of stories to tell.

It’s a Trap!

mdmakowsky6 Comments

When I was 22 I applied to the MFA programs in creative writing at the Iowa Writers Workshop and Columbia. They summarily rejected me with a minimum of fuss. They were right to do so, but it is also without question one of the greatest pieces of good fortune to ever befall me.

Let’s talk about “trap” degrees – expensive, often multi-year endeavors that rarely lead to salaries commensurate with the investment and arguably carry negative signal value in the labor market. We could all dunk on the aspiring filmmakers and puppeteers who look as though they were sent from central casting to play exactly the sort of dude who forks over >$100K for the shortest path to becoming the next Spielberg without doing all the messy fundraising, friend-haranguing, lighting improvising, actor recruiting, writing, and film festival peddling that looks an awful lot like high-risk hard work. We could dunk on them, but…but I can’t think of a way to finish that sentence that isn’t arrogant and condescending.

Anyway, we really should put aside the “they did this to themselves” schadenfreude, at least for a second, because regardless of blame, a lot of high opportunity cost human life years are being scammed with the siren song of “look at this great investment in yourself that will feel just like consumption while you are doing it!” There’s nothing new here, mind you. “Eat yourself thin” diets cycle through the zeitgeist with regularity, conveniently next to the book/video/3-week courses that will help you get rich in real estate with no money down. But we should be concerned when an entire sub-industry appears to be selling a human capital investment with negative real value. They may not be the modal or flagship product of higher education, but neither was the Pinto.

There’s similarly no shortage of people eager to point out that a lot of undergraduate education looks like a 4 year cruise, a pretirement if you’ll excuse a shameless attempt at coining unnecessarily cute terminology. We shouldn’t be shocked that purveyors are bundling consumption within an investment where, by design, the check-writers face high monitoring costs — part of the point of college is leaving the nest, right? Think about it from the other side of the equation– higher education is a scammer’s dream. The money folks are out of sight and desperately credulous to believe their child is on the path to status and financial independence. The customer is naïve and unworldly, eager to follow any external entity (other than their parents) that will do their decision-making for them. But the best part is the con’s mark won’t know for sure they’ve been scammed until well after the check is cleared (but not before they’ll receive their first solicitation for alumni donations).

But, you might be saying, graduate and professional schools are meant to be different. This is focused preparation for a narrow field of endeavor. These programs are decidedly not pretirement cruises. This is training. Why would anyone pay for training in something that has no payoff? I’ll offer a couple possibilities:

  1. This isn’t training, it’s consumption, and the buyers are fully aware of it.

I’m sure this accounts for a fair amount of fine arts training, particularly for retirees and hobbyists attending local community colleges, as well on the children of wealthy parents who have no intention of ever pursuing a vocation. More on them in a second.

2. This is training for aspiring men and women of leisure.

Remember gentlemen and ladies of leisure? They used to have their own Census occupation code! This might seem redundant with the previous point, but if your intention is to hob-nob with the rich and more-rich, there is something very much to be said for being able to discuss certain artistic fields at more esoteric levels. There’s also a modern middle-class version of this as well, what in an earlier, more coldly misogynistic, male-dominated time would have been referred to as an “MRS” degree. I imagine there are plenty of men and women who view school as a way of biding their time until a partner emerges who will be the primary earner. Match.com profiles and fix-ups are likely to be more economically fruitful for students mid-pursuit of a graduate degree than those working unimpressive jobs.

We also shouldn’t dismiss those opting for a graceful slide down the economic ladder. Generous families, perhaps a universal basic income, a rich artistic education, and comfortably living in a bohemian southern university town are for many the formula for a quiet, comfortable life unencumbered by the toils of a career. I’ve always enjoyed the company of such folks, at least until they try to tell me how the economy really works. Never follow these people to a second location.

3. This is a scam, and one with potentially far reaching costs.

Like so many scams, you could write a pithy story about well-dressed con-artists who open a “college” in an abandoned strip mall, throw on a coat of paint, and scam the spoiled children of upper-middle class social climbers by offering fake degrees that promise a shortcut to white collar riches and bohemian prestige. It’d be a two-act romp followed by a third where everyone ends up ok and kids learn the value of hard work.

In reality, though, no small number of the victims will be kids from higher education information deserts, who emerge from their undergraduate years with a relatively weak career they were guided towards after they struggled their first semester. Facing grim job prospects, they’re hoping two more years will thin the competition in the rarefied air of the applicants with “graduate education”. It is for these students that I fear the most.

It gives me pause when I see overly narrow masters’ programs that target a specific job rather than training in a set of tools. In service to my own cowardice, I won’t name specific programs, but suggest caution when considering a degree where the only job you’ll be qualified for is in the name of the degree.

I similarly worry about third- and fourth-tier MBA programs (especially if your employer isn’t paying for it). So much of the value of an MBA is the social network it will wire you into. If your parents haven’t heard of the school, it’s probably not much of a network.

Aspiring masters degree students, my advice is this: look up the individual courses you’ll be taking and then explain to the mirror what you’ll learn in each one and the market in which those skills are in demand. If you can’t do that, I advise reconsideration.

That’s all great, but what should we do?

I have no policy solutions, but I do have a piece of pedagogical advice. We need to update the standard operating procedure of guidance counselors in schools everywhere. We’ve been working so hard to convince kids they should go to college, we forgot to teach them how to be discerning customers of higher education. I’m all about caveat emptor as life advice, but if we want to hit people with it as an ex post I-told-you-so, we have to teach it to them ex ante, especially when we’re talking about 17-year-old and (ahem, perhaps mildly infantilized) 21-year-old kids. Just because you’ll walk away with a degree doesn’t mean that degree will be worth the time and tuition.

My guess is that we should up the status of community college, technical certificates, and not going to college at all. At the same time, we should probably lower the status of arts degrees for for artistic fields that are better suited to learning by doing and autodidacts.

Or maybe we just need guidance counselors to bring college seniors on field trips to carnivals across the country. Nothing will teach you the cold truth of scams faster than losing your last 20 bucks pursuing a fluffy bit of googly-eyed asbestos shooting on a bent basketball hoop in front of someone you planned on asking to prom but could never see value in you again after missing 10 shots in a row.

Trust me, that’ll stick with them.

DIY and The Limits of Comparative Advantage

mdmakowsky4 Comments

I’ve been thinking a lot lately about the perils of over fetishizing comparative advantage and outsourcing in our personal lives, which is a long way of saying I bought a Sodastream.

Like many economists, I am wary of self-congratulations for doing something yourself. Don’t get me wrong, hobbies are good, but we shouldn’t suffer the delusion that making a table yourself is a particularly good use of your time. And, so help me god, if I hear you diminish the merits of any restaurant offering because “you could make for yourself for half the price” I will slap the menu out of your hands, hand you a crisp ten dollar bill, and send you home to make your own damn meal.

My loyalty to economics thus declared, I must say there is a case to be made for making exactly the thing you want. Ricardian comparative advantage- I make my low opportunity cost item, you make yours, we trade, everyone wins, it’s important at the micro and macro of our lives, but the bulk of rewards to purchasing private goods in the market instead of producing them yourselves is from the comparative advantage derived from specialization, capital, and scale. It would take me hours to make a batch of homemade Oreo-style cookies, but it’s pretty silly when you consider there are billions of dollars in technology, capital, and expertise dedicated to making just those specific cookies. Unless I were to get some sort of meditative three-steps-of-self-actualization-on-the-path-to-nirvana value out of the process of making those cookies, I’m far better off just grabbing a couple stacks at the grocery store and paying a professional to help me process the shame.

But what if I don’t want exactly the product being offered? Everything comes with a cost, and that includes scale of production. Nabisco sells $550M of just Oreos every year, but they don’t do that by trying to sell them to everyone. It might seem that way, but they really don’t. Yes, I know they have 25 flavors now, so yes, they having expanded into narrower niches since their single-flavor days, but their target remains the 4.29 million Americans consumed 8 or more packages in 2020. If you want to sell a half-billion dollars worth of cookies, you need to sell them cheap, and that means you need to sell a lot of them. You don’t sell a lot of cookies going door to door asking people what they want and then giving it to all of them. You sell a lot of cookies by hunting for the middle of the distribution. Observed used to call the implied bullseye here the lowest common denominator, but now that we are fully-evolved humans who don’t need to sneer at what most people want, we can simply say that sellers are looking for a part of the distribution of preferences with enough mass to support your business.

In soda-land, that means you are definitively not selling to me. Coca-Cola is a literal miracle product, but its also obesity-in-a-can for 43-year-old dudes who count walking somewhere as exercise. I enjoyed the “TEN” calorie product series, but those lasted less than 3 months on the market and probably ended the careers of no fewer than a two dozen career soda executives. At the other end of the sugar spectrum, I don’t like a lot of the Lacroix flavors and they tend to be over-carbonated for my precious bubble-specific sensitivities. Where is the perfect soda for those of us who want 1 to 3 grams of fructose from real fruit juice suspended in a matrix of lightly-bubbled seltzer water?

Where it’s not is the marketplace. That’s fine, the world doesn’t owe me exactly my preferred bundle of product dimensions in everything I consume. I wouldn’t want them to either. Like most people, if the market did ever produce a good just for me, I couldn’t afford it. We need the scale that comes from meeting lots of wants all at once, even when those wants don’t perfectly match my own.

And that’s why we buy Sodastreams. And woodworking tools. And sewing machines. And pizza ovens. Sometimes we go DIY not because we’re denying the merits of comparative advantage, but rather because we’re accepting that there of some products where second-best market solution just won’t cut it.

Which, by the way, is one of the great ironies of modern life in a developed economy. We’re so rich, we can absorb the opportunity cost of our hobbies and weird DIY hyper-niche consumption preferences. We can make our own stupid mole-cherry-lime soda at home because that’s what we want. Because in the modern world, the greatest bourgeois luxury isn’t the stuff you buy, it’s the stuff you make yourself.

Information Deserts

mdmakowsky6 Comments

I am a tenured professor at an R1 research department who gets to work every day with scholars at universities all over the world. In 2002, when I applied to get my PhD at a local school, I did not know how grad school, academia, or research worked. More importantly, I didn’t know that I didn’t know, so I didn’t try to find out. I tell you this only to illustrate, via personal example, the depth of ignorance that is possible among exactly the people who, in theory, should be be the most informed, or at least trying the hardest to become informed. 1

https://twitter.com/jtlevy/status/1405152284800126978?s=20

When you spend enough time with the same group of people, there is a tendency to treat shared in-group knowledge as universally common knowledge. I don’t think this tendency is unique, or even especially strong, among academics, but it is something I am acutely aware of when discussions turn to higher education. The paper linked to in the tweet below reports the results of a field experiment where subjects in the treatment group received a packet of information regarding the availability of financial support to attend the University of Michigan for qualified applicants. It was impeccably designed and well-funded, and included the composition of informational materials rivaling any educational marketing I have ever seen. Go read the paper yourself, but the punchline is that the exogenous shock of information mattered, significantly increasing applications and subsequent matriculation to the University by students from economically disadvantaged backgrounds.

The results did not surprise me in the slightest (that is not a dig at the paper, which is tremendous). What surprised me when I saw the paper presented was the shock expressed by so many fellow members in the audience, who simply could not reconcile the implication that students (and their families) were unaware that college education was accessible to them. How did they not know? How could they not know? The information was everywhere.

Ivory tower academics live in bubble, yeah yeah. Shrug. I don’t think this is an ivory tower phenomenon, to be honest. This is, instead, a story about information deserts. Food deserts, yeah they’re not real. But information deserts, in my carefully cultivated opinion very much are. Academics expressing shock that people don’t know how much financial aid is available, that Harvard of all places is entirely “need-blind” in their application process (and to be clear, every university with a multi-billion endowment should be ashamed to not be need-blind in their application process). It’s easy to forget that the majority of people don’t get an undergraduate degree. They don’t interact with the aid process, it’s not something that people discuss with their neighbors. I don’t buy a lot “economic class as causal mechanism” theorizing, but there is something to be said for the fact that, culturally, we don’t discuss money with our friends. We don’t talk about our salaries and loans, how we are paying for education or how your kid might be able to pay for theirs. It’s simply not the kind of information that fills the air, doubly so in communities where most of the parents never attended college. Compounded the with greater urgency of day-to-day living for poor families, there just aren’t a lot of channels through which students can get a first moment’s traction to start asking the question about how they can go to college, let alone arrive at answers.

When smart and good technocrats like me are looking for policies that can stand up to the rigors of cost-benefit analysis from skeptics, information campaigns manage to be some of the very worst and very best ideas out there. When they’re bad, they talk down to disadvantaged communities with condescending messages filled with information they already have (crack is bad!), common sense everyone has (guns are dangerous!), or the kind of avuncular suburban conservative wisdom that leaves no one an ounce more informed.

But, when they’re good, they’re great. Information campaigns scale, with manageable marginal costs and often zero downside risk. They provide a very specific kind of information– information you didn’t even know you were missing, often answers to questions you didn’t know you should be asking. Did you know there was a Hepatitis vaccine? Did you know that you can save for our kid’s college education tax free? Did you know you qualify for the EITC and if you file your taxes you’ll get a check for $4,600? Did you know the flagship university of the state, one of the very best in the world, guarantees sufficient financial support to allow 100% of admitted students to attend without being financially crippled for life?

Rather than focus on what you think people know and don’t know, just start from the basics. What is the information that you relied on when making the biggest decisions in your life? Do other people have that information?

Are you sure?

1 I’ll abstain from telling the long version here, but I had absolutely no clue how graduate school and academia worked when I applied to a PhD program. I was a public high school teacher, I thought I’d work hard, write a dissertation, and make 50k a year teaching in a local community college. It’s funny in hindsight because what was then an ocean of unknowns is now the entirety of our academic working lives. Being told that families don’t know how college works is can feel like being told people don’t know the water we live in is wet.