Tim Harford's Blog, page 106

How can we outwit our lazier selves?

‘Be careful what you resolve to do in 2014 – and how irrevocably you resolve it with commitment strategies’

What do the cold war, expiring gift vouchers, the euro and New Year’s resolutions have in common?

A hunt for the link begins with Thomas Schelling, the only person in history to have run war games for Henry Kissinger, won a Nobel memorial prize in economics and served as a script consultant for Stanley Kubrick’s Dr Strangelove.

The film featured the Soviet doomsday device: “When it is detonated, it will produce enough lethal radioactive fallout so that within 10 months, the surface of the earth will be as dead as the moon!” The point about the doomsday machine is that no sane person would ever trigger it, so it is set up to explode automatically in the event of the war. It is thus the perfect deterrent.

Strategic commitments need not be so cartoonish: a public declaration can serve as well, by making it awkward to retreat. Consider John F. Kennedy’s televised address from the Oval Office in which he declared that West Berlin would be defended, and “an attack upon that city will be regarded as an attack upon us all”. Schelling, whose ideas also informed Kennedy, was widely regarded as the authority in the use of such commitments.

In the 1970s, Schelling turned his attention to what we would now call behavioural economics. He was fascinated by what he described as “the intimate contest for self-command” – our efforts to quit smoking or learn Mandarin in the face of stubborn inertia. And Schelling felt that commitment strategies could help us outwit our lazier selves.

The New Year’s resolution can be supplemented with a commitment strategy: paying in advance for a year’s gym membership or betting with friends that we’ll stop smoking. Announcing on Facebook that we’ll be running a marathon in April isn’t quite JFK, but the declaration serves the same purpose.

Commitment devices can work but Schelling raised two awkward questions. The first is, whose side should we take in the intimate contest for self-command? If part of me wants to quit smoking and part of me doesn’t, most of us hope the quitter will win. People tend to eat too much, exercise too little and not save for retirement. But some people eat too little, exercise too much and hoard when they should be spending. It is possible to worry too much about the future.

A second challenge from Schelling: what if the commitment backfires? Many people pre-pay their gym membership as an attempt at strategic commitment, and then don’t go to the gym. This is the worst of both worlds: we fail to keep our resolutions and, in addition, pay the costs of the failed commitment. Spoiler alert: the doomsday machine in Dr Strangelove does not deliver the hoped-for permanent peace.

Some research by Suzanne Shu and Ayelet Gneezy, professors of marketing, suggests that commitment strategies may work with Christmas gift vouchers: a voucher with an imminent expiry date induces urgency and is more likely to be spent than one that expires later. (Similarly: tourists see sights that the locals never get round to visiting.) And yet in Shu and Gneezy’s study, the majority of vouchers expire unused. This is hardly an unmitigated success.

Commitment strategies are now cool in macroeconomic policy. An independent central bank with an inflation-busting mandate is a commitment strategy. So is a fiscal watchdog such as the Office for Budget Responsibility. Bank of England governor Mark Carney’s “forward guidance” is too. But the most ambitious attempt at macroeconomic commitment was the euro. It was a doomsday machine in more ways than one.

So be careful what you resolve to do in 2014 – and how irrevocably you resolve it.

Also published at ft.com.

Casinos’ worrying knack for consumer manipulation

The spread of machine gambling offers a portent of other economic developments

What if the future of capitalism is not to be found in Shenzhen, Abu Dhabi or the Massachusetts Institute of Technology Media Lab – but in the Nevada desert? Natasha Dow Schüll, an anthropologist, has spent 15 years conducting field research in Las Vegas, culminating in a disturbing book, Addiction by Design. We are used to thinking of Vegas as a city of gaudy spectacle and the green baize of poker, blackjack and roulette tables. It is now a city of slot machines, which have grown like weeds because they are fantastically profitable. And the spread of machine gambling offers a worrisome portent of developments elsewhere in the economy.

Three slot-machine innovations stand out: first, confusion by design; second, addictiveness by design; third, the use of play money. All have been made possible by the digital automation of the machine itself, which in Las Vegas as elsewhere eliminates the skilled service jobs of croupiers and replaces them with highly paid jobs in interface design and low-paid work as a security guard or waitress.

Consider, first, confusion by design: Las Vegas casinos are mazes, carefully crafted to draw players to the slot machines and to keep them there. Casino designers warn against the “yellow brick road” effect of having a clear route through the casino. (One side effect: it takes paramedics a long time to find gamblers in cardiac arrest; as Ms Schüll also documents, it can be tough to get the slot-machine players to assist, or even to make room for, the medical team.)

Most mazes in our economy are metaphorical: the confusion of multi-part tariffs for mobile phones, cable television or electricity. My phone company regularly contacts me to assure me that I am on the cheapest possible plan given my patterns of usage. No doubt this claim can be justified on some narrow technicality but it seems calculated to deceive. Every time I have put it to the test it has proved false.

I recently cancelled a contract with a different provider after some gizmo broke. The company first told me the whole thing was my problem, then at the last moment offered me hundreds of pounds to stay. When your phone company starts using the playbook of an emotionally abusive spouse, this is not a market in good working order.

Another example is the way the pension providers charge for their services. Between the pensioner and the financial assets they are acquiring, it is almost impossible to figure out who is being charged for what. Even when annual charges are transparent, few people begin to grasp the vast sums such charges may cost them over the life of the product.

Now consider addiction by design. What is not understood about modern slot machines – certainly not by the UK’s Labour party, which recently tried to spark a moral panic on the subject – is that they do not try to drain your money away quickly. They do so slowly, by maximising “time on device”. The machines are cheap to run: what is the hurry? Machine gamers do not even play to win: they play to play. The aim of the machine is to deliver constant reinforcement – for instance, the “false win”, where a player is treated to fanfares and flashing lights after betting $3 and winning 60 cents.

Here, the natural analogy is with Facebook, Twitter and Google. These companies, ultimately, are selling one thing: our attention. Nothing about Facebook makes sense until you view it as a well-honed system for persuading you to check Facebook one more time.

Finally, consider the arrival of play money. A cutting-edge slot machine will not bother with a slot: the player will be attached umbilically via a casino charge-card on an elastic cord. This is partly a logistical matter: feeding machines with money, summoning a cashier to make change and cashing out jackpot wins all take time and interrupt a player’s flow.

But the substitution of cash for “credits” has a psychological effect too. Behavioural economists have shown that cash seems to have a bracing effect on our ethics and our judgment. Dan Ariely has found that we are willing to cheat for poker chips convertible into cash but less willing to be dishonest for naked cash itself. Drazen Prelec and Duncan Simester discovered a much higher willingness to pay for a good of uncertain value if the payment was made by credit card.

I would not wish to be too gloomy about all this. Most people do find a way to navigate through the maze of shopping malls and phone bills and loyalty cards and easy credit – the research of the economist Eugenio Miravete often shows people finding satisfactory deals against what look like insuperable odds. And the free market continues to deliver valuable products.

Nor is the right regulatory intervention always clear. Slot machines could be banned, I suppose – no doubt with unintended consequences – but the Vegas-isation of the everyday economy is not easily curbed with the stroke of a legislator’s pen.

Yet it is hard for a free-market enthusiast like me to look unblinkingly at Las Vegas, at row upon row of machines, designed by an elite and needing little human intervention, drawing in consumers, soothing them, entertaining them and eating their money – and not to feel that the invisible hand has slipped.

Also published at ft.com.

The robots are coming and will terminate your jobs

In future, there may be people who – despite being fit to work – have no economic value

On August 29 1997, Skynet – a computer system controlling the US nuclear arsenal – became self-aware. Panicking operators tried to deactivate it. Skynet, perceiving the threat, launched its arsenal, killed most of humanity, and ushered in a world in which the robots ruled. So went the backstory of the 1984 movie The Terminator . But computers did not become self-aware in 1997 – the closest they managed was when Deep Blue, a B-list supercomputer, beat Garry Kasparov, the world chess champion. Despite decades of hand-wringing about robots taking over, the robots never quite seem to rise.

But perhaps 2014 will be different. Google certainly seems to think so: early in December it purchased Boston Dynamics, a producer of military prototype robots – with names such as “BigDog”, “WildCat” or “Petman” – that wouldn’t look out of place in the Terminator films. These nightmarish machines will now be brought to you by the folks who host all your email, know what your internet searches are and are tracking your phone’s location.

But while the Skynet-esque combination of Google and Boston Dynamics is unsettling, it is not in itself a reason to expect that robot technologies really will change the world. Yet the talk in the economics profession is increasingly taking that possibility seriously.

The primary cause has been with us a long time: the familiar Moore’s law, which in various guises describes growth in computing power as swift and exponential. We have got used to swift growth, but we can never quite get used to the implications of exponential growth – meaning that whatever has just happened will be eclipsed by whatever is just about to happen.

Moore’s law, loosely applied, is that computers today are twice as powerful as the computers of two years ago, perhaps just 18 months ago. Today’s mobile phone is a match for what was once a cutting-edge gaming console; that gaming console, in turn, outperforms the kind of old-timey supercomputer that the Terminator franchise once imagined taking over the world.

Software is also becoming more efficient. We tend to miss this because the bloated copies of Microsoft Word we use do not seem faster than 20 years ago. But a mobile phone running Pocket Fritz 4, a chess program, can now beat grandmasters, despite the phone running far more slowly than Deep Blue did. A chess-playing phone is not about to lead a robot uprising, so why should we care? A growing number of economists – including Massachusetts Institute of Technology’s Erik Brynjolfsson and Andrew McAfee in a new book

It’s who you hardly know that counts

‘Your family won’t get you a job or pay your bills … By contrast, distant contacts are sometimes surprisingly useful’

This may be a statement of the obvious at Christmas, but our families can sometimes let us down. Evidence comes from a little-noticed survey published by the US Census Bureau in September. The findings are conveyed in a sad and simple graph. It reports a survey of “households experiencing hardship” in 2011 – and who helped them when times were tough. What counted as tough times? Having a phone disconnected, missing utility bill payments, falling into rent or mortgage arrears, or not seeing a doctor or dentist when needed.

More than half of such households expected help from family members, as did almost half from friends. Rather fewer – about a fifth – hoped for help from a social agency, charity or church.

The overwhelming majority were disappointed. It was rare for family members to provide help with rent arrears – about one time in six – and it was rarer still to receive financial help from other sources or for other purposes.

In short, hard-up Americans were confident of help in need from those close to them – and that confidence was misplaced. (If you’re looking for an explanation of the popularity of payday loans, this finding isn’t a bad start.)

An optimistic reading of this research is that there are plenty of people whose families or friends did help them and thus never featured in the sample. Perhaps. But as the economist Timothy Taylor comments, enough people experience disappointment to leave “lasting shadows”.

This dispiriting stuff reminded me of Mark Granovetter’s work on “the strength of weak ties”, published in 1973. Granovetter, a sociologist, brought together two disparate strands of work: a survey of how people with professional or managerial jobs had found those jobs; and a theoretical analysis of the structure of social networks.

Start with the theoretical observation first: the most irreplaceable social connections, paradoxically, are often rather weak or distant ones. A family group or clique of close friends all tend to know each other and know similar things at similar times. Their social ties are strong but also redundant, in the sense that there are many different paths through which information could pass from one member of that group to another.

By contrast, “weak ties” between one social cluster and another are valuable precisely because the social contact is unusual. Information passed along a weak tie will often be totally new – and if it doesn’t arrive through the weak tie, it is unlikely to arrive at all.

Granovetter then supplemented this theoretical idea with his survey, showing that it was very common for people to find jobs – especially managerial jobs and jobs with which they were satisfied – through personal contacts. The old saw is true: it’s not what you know, it’s who you know. Or as Granovetter put it in his book Finding a Job, what matters most is “one’s position in a social network”.

But this is not because of crude nepotism: the key contacts who helped jobseekers find jobs were typically distant rather than close friends – old college contacts, perhaps, or former colleagues. Granovetter’s analysis made this finding make sense: it’s the more peripheral contacts who tell you things you don’t already know.

More recent research – for instance, a “big data” analysis of millions of mobile phone records conducted by Jukka-Pekka Onnela, Albert-László Barabási and others – has backed up Granovetter’s argument that the weaker ties are the vital ones.

It’s a disappointing message to deliver at Christmas: your family won’t get you a job or pay your bills – count yourself lucky if they serve you a slice of turkey. By contrast, distant contacts are sometimes surprisingly useful: no wonder we send Christmas cards to people we barely remember.

Also published at ft.com.

A Year in a Word: Bitcoin

(noun) A unit of the first and most famous cryptocurrency. After “bit”, a contraction of “binary digit”, the basic unit of digital information.

It all sounds very mysterious. The Bitcoin is a currency based on cryptographic principles; it was created by a pseudonymous programmer, or programmers, called Satoshi Nakamoto. New Bitcoins are “mined” and the entire system is maintained by a decentralised peer-to-peer database recording every transaction in the history of the currency.

Bitcoin promises to be a new type of money. Economists like to say money has three properties: it is a medium of exchange, obviating the need for barter; a store of purchasing power; and a stable unit of account that serves as a standard of what is expensive.

As a peer-to-peer processing network, Bitcoin has the potential to become a superb medium of exchange. Our current systems for digital payment require intermediaries such as MasterCard or PayPal, and fees can be higher than consumers realise. The Bitcoin network allows Andy to send money to Belinda and have the transaction verified “in the cloud”, so to speak, at no cost.

As a stable unit of account, however, Bitcoin is a failure. The currency’s volatility would make a dotcom director blush. That need not matter: a price can be listed in dollars, then transacted using the Bitcoin system. The dollar’s superb record as a standard of value can be married with the Bitcoin network’s ability to process payments cheaply. Alas, Bitcoin is currently used for speculation not transactions. Everyone wants to own Bitcoins but few spend them.

Bitcoin appeals to speculators for its frothy price and to libertarians for what it seems to stand against: it is not controlled by large corporations; it is not issued by a central bank; it is not really fiat money at all, even though the commodity that backs Bitcoin is a mathematical abstraction. Perhaps one day Bitcoin will gain momentum not because of the ideals it embodies, but because it turns out to be useful.

First published on FT.com

The young will inherit wealth or poverty

Inheritance is a demeaning way for a 50-year-old finally to establish a pension, writes Tim Harford

‘Securing a juicy inheritance may prove the best bet for the generation that came of age under Margaret Thatcher, with their prospects for decent retirement incomes looking increasingly bleak.’ – Financial Times, December 17

Is that news? I thought we knew that our pensions were worth nothing.



Some pensions are worth plenty – including those for many people now on the brink of retirement. This story was based on a report from the Institute for Fiscal Studies, examining the broader question of how today’s 40-year-olds are doing compared with 40-year-olds 10, 20 and 30 years ago.

In other words, are we richer than our parents?

To be precise, are we richer than our parents were when they were our age, judging by income, savings, debt, pensions and housing.

And the baby boomers took all the money?

The boomer generation did roll like a gigantic steamroller through the past 60 years and did pretty well. Take real equivalised household income.

Take what?

A measure of income corrected to take account both of inflation and different family sizes. What the IFS finds is that the generation born in the 1940s – currently about 70 – was richer at the age of 60 than the 1950s generation is today, now aged about 60. And the 1950s generation was richer at the age of 50 than the 1960s generation is today, just as the 1960s generation was richer at the age of 40 than the 1970s generation is today.

So we’re all getting poorer. But the economy hasn’t been shrinking for 40 years, has it?

No. It shrank a lot five years ago and has hardly recovered. That is largely why each generation now is doing badly relative to the previous cohort 10 years ago. But there’s more to the story than the recession. What we see is that the 1970s generation had more money when they were young than their parents did. But they spent it.

They really only have themselves to blame, then.

Well – perhaps, perhaps not. Nobody knew quite how generous – or expensive – today’s pensions were going to be. Even if the younger generation were far-sighted it’s not clear they would want to pay for quite such gold-plated retirements. But anyway, they were short-sighted, as we all are, and will pay the price. Their parents may have been equally myopic but typically had automatic pensions and didn’t have the same freedom to mess up.

So today’s thirty and fortysomethings have been screwed on pensions.

Well, yes, they have. But they’ve also hurt themselves. At the age of 30, the 1970s generation was spending almost twice as much as the 1940s generation and, unlike all previous cohorts, they were net borrowers rather than net savers.

What about house prices?

That’s another part of the story, in which everything seems to be conspiring to favour the boomer generation. House prices are near record levels, which of course helps homeowners – who tend to be older. Younger people have struggled not only to buy a home, but also to upgrade the homes they have. According to estimates cited by the IFS, the average age of first-time buyers has risen by five years since the 1960s – but the average age of second-time buyers has risen by an astonishing 15 years. Even people who can get on the housing ladder have only grabbed the bottom rung and are digging their fingernails into the wood.

No wonder the IFS sees salvation in inheritance . . .

But inheritance is unevenly distributed, as well as a slightly demeaning way for a 50-year-old finally to establish a pension pot. This is a social mobility issue: young people can’t get ahead without receiving money from mum and dad.



So what is to be done?

A spot of strong economic growth would do no harm: although this issue has long been brewing, it has been worsened by the recession. Building more houses would help young people to find jobs and buy homes – as well as deflating house prices and thus shrinking those inheritances. A property tax might nudge a few empty-nesters into downsizing their homes. And it is absurd that as austerity is hitting schools, university, services and working-age benefits, the state pension is sacrosanct for current pensioners. The problem is becoming too acute not to be addressed – too late for today’s thirtysomethings, but not too late, perhaps, for their offspring. If they can ever scrape together the cash to afford children.

Also published at ft.com.

Not one but two new Radio 4 series

A new series of “Pop Up Ideas” started last Wednesday on Radio 4 at 8.30pm, featuring our usual trademark combination of academic rigour and live-action storytelling: http://www.bbc.co.uk/podcasts/series/thpop

And a new Radio 4 series of More or Less starts this afternoon at 4.30pm: http://www.bbc.co.uk/podcasts/series/moreorless

 

 

There is no sacrilege in flogging EU passports

Citizenship auctions are just the ticket for those who lose in the lottery of life, writes Tim Harford

‘UK ministers are under growing pressure to intervene against plans by the island of Malta to sell EU passports for €650,000, allowing buyers immediate rights of residency in all member states.’ – Financial Times, December 9

That’s outrageous!



I know. There has to be a cheaper deal out there. You can get Portuguese residency with €500,000 in your pocket – and you don’t even have to give the money away. You just have to buy a pad in Portugal.

No, it’s outrageous that Malta is selling passports.

Oh. Well, granted, there is an issue here. Given EU rules on freedom of movement, Malta is in effect selling EU citizenship but pocketing the cash. But this sort of problem is in the nature of the EU. Member states will either have to tolerate it or develop some sort of centralised regulator – just as the European Central Bank regulates the shared currency. That has been a tremendous success.



So in your view the main problem is that the sale of EU passports should be centrally administered?

That would be more logical. Since EU passports are close substitutes for each other, we can’t allow member states to pocket the gains of selling passports but impose the costs on each other.

And what are the costs?

Well, if you’re selling passports at €650,000 a pop, the costs have got to be very close to zero. Not many people will be able to afford that – a few hundred applications are reported to be in process – and those that can are unlikely to be a drain on the state. If the price was 50p and a pound of grapes, there would be a very large number of takers and one might reasonably start to ask whether Malta should really be selling the right to move to Paris.

But isn’t there a security risk?

I am not convinced al-Qaeda has been held at bay by an inability to pick up a Maltese passport for €650,000. As for some Russian mobster buying the right to live in Berlin – that is more distasteful than dangerous.



Distastefulness is important, though. Aren’t we cheapening citizenship?

I hardly think that €650,000 cheapens the EU passport. For the typical British citizen, the message Malta is sending is that the passport in your pocket is worth more than your house and your pension pot put together. Which may not be far wrong: take a typical UK citizen, dump her in Calcutta or Dar es Salaam and see how she gets on. EU citizenship is more valuable than most EU citizens realise.

‘Cheapens’ was the wrong word, perhaps. I should have said ‘commoditises’. Don’t you think there are some things that money shouldn’t be able to buy?

I do indeed – but that leaves open the question of whether citizenship is one of them. Malta’s undisguised flogging of EU passports is viewed with outrage, while “investor” programmes elsewhere – including the UK and the US – attract less opprobrium. That suggests we’re willing to exchange citizenship for cash provided the transaction is disguised as something else. This is hypocrisy.

You’d be happy to sell EU citizenship, then?

I would. I’m with Gary Becker, an economist and Nobel memorial prize winner, who has argued for as long as I can remember for the US to auction off the much-in-demand right to be a citizen. The idea has various frills – including rent-to-buy deals and a sort of student-loan system to allow poor immigrants to buy citizenship on the never-never – but is basically sound. Citizenship is being given away in arbitrary and bureaucratic ways, leaving most would-be immigrants disappointed and many existing citizens resentful. An auction system would streamline the process, be more likely to give citizenship to those best able to take advantage, and would raise cash and thus reduce anti-immigrant sentiment.

This is close to sacrilege, if you ask me.

That’s a strong word to use in defence of our global border control system. We wring our hands about inequality, but the biggest determinant of your income is your country of birth. Our closed borders entrench that unfairness. The system can be defended on pragmatic grounds, but if you’re going to suggest it’s sacred, I’m happy to be profane.

What next, then? Will Goldman Sachs or Google buy some Caribbean island and start selling corporate citizenship? How much for an Amazon Prime residency? Will we get silver, gold and platinum passports?

Portugal is way ahead of them; their “golden residence” programme was launched last year.

Also published at ft.com.

The gross distortions of GDP

‘Are we doomed to live in a commercial society distorted by a concept which leaves out so much that really matters?’

Call it the Christmas paradox. Our seasonal festival is the occasion both for a colossal consumerist blowout and for reflecting on the importance of things money can’t buy: family bonds, friendship, anticipation and nostalgia.

So as the mince pies bake and the sherry flows, whither GDP? GDP – or gross domestic product – measures the size of the economy by adding up all income earned, or all money spent, or the monetary value of everything produced: the three should be equivalent. But they are not, notoriously, equivalent to some deeper measure of what all this stuff is really worth to us.

As the economist Diane Coyle points out in her forthcoming book GDP: A Brief But Affectionate History, the idea that GDP would measure wellbeing was sidelined in the 1930s. Simon Kuznets produced the first serious estimates of US GDP in 1934, and wanted to adjust his calculations to reflect “the elements which, from the standpoint of a more enlightened social philosophy than that of an acquisitive society represent disservice rather than service”. It was a political battle that Kuznets lost: America was focused on ramping up production to escape the Depression and prepare for war.

Why not, then, replace GDP with a measure of what really matters: happiness? This suggestion just won’t go away, despite the fact that happiness is already widely measured. And while the measures of it look useful and are inexpensive to collect, they’re surely too crude for macroeconomic purposes. Imagine calculating national income the same way we do happiness, by asking everyone, “How much money do you make, on a scale of one to seven?” and then averaging the result. I’m not sure we’d learn a great deal.

Yet GDP is problematic, and increasingly so. We seem to have no convincing measure, for example, of what contribution financial services make to the economy. In the wake of the recession, Andrew Haldane of the Bank of England pointed out that according to the UK’s national accounts, this contribution grew at the fastest rate on record in the fourth quarter of 2008 – the quarter that began a fortnight after Lehman Brothers collapsed.

Or consider what appears to be an opposite error. According to the economist Erik Brynjolfsson of MIT, the information sector of the economy (software, telecoms, publishing, data processing, movies, TV) has scarcely grown over the past 25 years as measured by GDP. This seems bizarre but it’s easy to see the logic: GDP measures the price paid for goods and services, but many valuable digital services are free or cheap. Brynjolfsson and co-author JooHee Oh reckon that every year consumers in the US are enjoying an extra $100bn of services online they don’t have to pay for.

There are plenty of other knotty problems too – from how to measure the losses caused by distracting Facebook posts to how to calculate the gains from antibiotics and super-efficient lighting.

Coyle argues that GDP collection needs to be reformed but not replaced. I agree. But where does that leave Christmas? Are we doomed to live in an increasingly commercial society that’s distorted by a concept which leaves out so much of what really matters?

Perhaps crass commercialism is our fate. But let’s not blame GDP (or its close cousin GNP, gross national product) for that. In 1968, Bobby Kennedy famously declared that GNP “counts napalm and … nuclear warheads and armoured cars for the police to fight the riots in our cities. Yet [it] does not allow for the health of our children … the beauty of our poetry or the strength of our marriages”.

Indeed, it does not. But divorces don’t begin at the Office for National Statistics; nor did the Bureau of Labor Statistics start the Vietnam war. GDP has its flaws – but if you give, or receive, a costly, unwanted gift this Christmas, please don’t blame the statisticians.

Also published at ft.com.

Dear Economist – Should I avoid round-robin Christmas letters?

Dear Economist,

Christmas cards are starting to drop through the letterbox and many contain infuriating round-robin newsletters from people I barely know. This is no substitute for real friendship. Why do people send junk mail instead of a proper letter?

Tom, Lancaster

===

Dear Tom,

You say that people send newsletters “instead of” a proper letter, but I wonder if this is true. Newsletters are subject to extreme economies of scale: the first copy is time-consuming to produce but the rest take just seconds. The likely result is that many people receive newsletters who might otherwise get nothing at all, or only a card reading “best wishes, Brian”, leaving you to wonder who on earth Brian might be.

That is no consolation if it is really preferable to receive nothing at all than to receive a newsletter. But that seems unlikely: economists talk of “free disposal”, a theoretically convenient assumption that would not apply to a half tonne of manure on the doorstep, but surely describes the marginal cost of throwing away Brian’s newsletter along with his card. If you are so certain that these newsletters contain nothing of interest, waste no time in reading them.

You have evidently not discovered the work of economists Jess Gaspar and Ed Glaeser, who show that the new communication technologies – mobile phones, e-mail, word-processors – are not substitutes for traditional human interaction but complements to it. These newsletters, like e-mails and weblogs, help keep friendships alive and actually increase the number of old-style face-to-face meetings.

If you are finding that despite all these newsletters you still have no real friends, I don’t think you should blame the newsletters.

First published – FT Magazine, 8 December 2006