Bryan Caplan's Blog, page 82
May 18, 2017
Me on Anarcho-Capitalism on the Rubin Report, by Bryan Caplan
Whatever you think about anarcho-capitalism, the production values of my Rubin Report interview on the subject are top notch! Enjoy.
In other news, Mike Huemer and I have a fan from the NFL (and GW Law).
(1 COMMENTS)
In other news, Mike Huemer and I have a fan from the NFL (and GW Law).
(1 COMMENTS)
May 17, 2017
The "Real X" Defense, by Bryan Caplan
Consider these two couplets:
Couplet #1: "Socialism has failed." "No, real socialism has never existed."
Couplet #2: "Libertarianism has failed." "No, real libertarianism has never existed."
In both cases, the point of the first clause is to discredit an economic system.
In both cases, the point of the second clause is to shield an idea.
And in both cases, the shielding comes at a high intellectual cost: You escape blame for real-world failures, but also lose credit for real-world successes.
Strategically, then, you'd expect advocates of views with few successes and many failures to adore the "real X" defense. Advocates of views with ample successes and few failures, in contrast, will use it more reluctantly. This expectation holds up: Though both groups have been known to invoke the "real X" defense, socialists are far more likely to deny the relevance of actually-existing socialism than libertarians are to deny the relevance of actually-existing capitalism.
But the fact that an argument is strategically useful (or harmful) for an intellectual movement doesn't speak to its truth. Maybe socialists are wrong to evade blame for their system's failures. Maybe libertarians are wrong to claim credit for "their" system's successes. How would you know?
One approach is to drop binary thinking - "real" or "not real" - and classify actually-existing economic systems on a continuum. Set pure socialism - full government ownership of the means of production - equal to 0, and anarcho-capitalism - full private ownership of the means of production - equal to 1. Countries below .2 are at least approximately real socialism; countries above .8 are at least approximately real libertarianism.
Ideally, you could just outsource this to e.g. Fraser's Economic Freedom rankings. But there are two problems. First, extreme socialist regimes like North Korea and Cuba don't even get ranked, presumably due to lack of trustworthy official data. Second, the rankings are top-coded. Hong Kong gets the high score - 9.03 out of 10, but it's a far cry from minarchism, much less anarcho-capitalism.
In any case, believers in the "real X" defense would probably just dispute the methodology. Suppose Fraser gave North Korea a 0.1, and Hong Kong a 6.0. Libertarians would eagerly conclude, "Socialism has been tried; libertarianism hasn't." But who else would concur?
The better approach, in my view, is historical. To ascertain whether "real X" ever existed, you have to find self-conscious believers in X who were, at some point, a powerless fringe movement. Why a fringe movement? Because it demonstrates that they weren't significantly compromising their ideals to gain power. Next, you have to find the subset of such movements that subsequently ruled a country. Then, you have to find the subset of such movements that were so politically dominant during their reign that they had little need to compromise with any other viewpoint. Finally, you have to find the subset of the subset of such movements that retained extreme political dominance for many years - enough time to actually implement their ideals.
By these historical standards, real socialism has happened dozens of times. Look at Lenin's Bolsheviks. Before World War I, they were a powerless band of socialist fanatics. Fellow socialists often loathed them, but for their dogmatism and cruelty, not lack of commitment to socialism. Then, a perfect storm gave the Bolsheviks absolute power over Russia - power that lasted over 70 years. The origin stories of the other triumphant Marxist-Leninist movements fit the same mold, though the socialists of the Soviet satellite states did have to compromise with the socialists of the Soviet Union proper.
And by these standards, I'm sorry to say, real libertarianism has never happened. Yes, plenty of libertarian groups manage to become self-conscious fringe movements. But none of these movements were ever more than junior partners in a broader political coalition. Reagan and Thatcher gave a few libertarians a place at the table of power, but they were hardly libertarians themselves. You could point to the Founding Fathers of the American Revolution, but they included plenty of mercantilists and slavers. Even post-Communist Georgia doesn't qualify.
The lesson: Socialists own the disasters of actually-existed socialism - and we should never let them forget it. Libertarians, however, do not own the successes of actually-existing capitalism. We were there on the sidelines, desperately trying to nudge the world in a freer direction. But it's pragmatists that pulled the strings that made the modern world possible.
(9 COMMENTS)
Couplet #1: "Socialism has failed." "No, real socialism has never existed."
Couplet #2: "Libertarianism has failed." "No, real libertarianism has never existed."
In both cases, the point of the first clause is to discredit an economic system.
In both cases, the point of the second clause is to shield an idea.
And in both cases, the shielding comes at a high intellectual cost: You escape blame for real-world failures, but also lose credit for real-world successes.
Strategically, then, you'd expect advocates of views with few successes and many failures to adore the "real X" defense. Advocates of views with ample successes and few failures, in contrast, will use it more reluctantly. This expectation holds up: Though both groups have been known to invoke the "real X" defense, socialists are far more likely to deny the relevance of actually-existing socialism than libertarians are to deny the relevance of actually-existing capitalism.
But the fact that an argument is strategically useful (or harmful) for an intellectual movement doesn't speak to its truth. Maybe socialists are wrong to evade blame for their system's failures. Maybe libertarians are wrong to claim credit for "their" system's successes. How would you know?
One approach is to drop binary thinking - "real" or "not real" - and classify actually-existing economic systems on a continuum. Set pure socialism - full government ownership of the means of production - equal to 0, and anarcho-capitalism - full private ownership of the means of production - equal to 1. Countries below .2 are at least approximately real socialism; countries above .8 are at least approximately real libertarianism.
Ideally, you could just outsource this to e.g. Fraser's Economic Freedom rankings. But there are two problems. First, extreme socialist regimes like North Korea and Cuba don't even get ranked, presumably due to lack of trustworthy official data. Second, the rankings are top-coded. Hong Kong gets the high score - 9.03 out of 10, but it's a far cry from minarchism, much less anarcho-capitalism.
In any case, believers in the "real X" defense would probably just dispute the methodology. Suppose Fraser gave North Korea a 0.1, and Hong Kong a 6.0. Libertarians would eagerly conclude, "Socialism has been tried; libertarianism hasn't." But who else would concur?
The better approach, in my view, is historical. To ascertain whether "real X" ever existed, you have to find self-conscious believers in X who were, at some point, a powerless fringe movement. Why a fringe movement? Because it demonstrates that they weren't significantly compromising their ideals to gain power. Next, you have to find the subset of such movements that subsequently ruled a country. Then, you have to find the subset of such movements that were so politically dominant during their reign that they had little need to compromise with any other viewpoint. Finally, you have to find the subset of the subset of such movements that retained extreme political dominance for many years - enough time to actually implement their ideals.
By these historical standards, real socialism has happened dozens of times. Look at Lenin's Bolsheviks. Before World War I, they were a powerless band of socialist fanatics. Fellow socialists often loathed them, but for their dogmatism and cruelty, not lack of commitment to socialism. Then, a perfect storm gave the Bolsheviks absolute power over Russia - power that lasted over 70 years. The origin stories of the other triumphant Marxist-Leninist movements fit the same mold, though the socialists of the Soviet satellite states did have to compromise with the socialists of the Soviet Union proper.
And by these standards, I'm sorry to say, real libertarianism has never happened. Yes, plenty of libertarian groups manage to become self-conscious fringe movements. But none of these movements were ever more than junior partners in a broader political coalition. Reagan and Thatcher gave a few libertarians a place at the table of power, but they were hardly libertarians themselves. You could point to the Founding Fathers of the American Revolution, but they included plenty of mercantilists and slavers. Even post-Communist Georgia doesn't qualify.
The lesson: Socialists own the disasters of actually-existed socialism - and we should never let them forget it. Libertarians, however, do not own the successes of actually-existing capitalism. We were there on the sidelines, desperately trying to nudge the world in a freer direction. But it's pragmatists that pulled the strings that made the modern world possible.
(9 COMMENTS)
May 15, 2017
Geography Is Policy, by Bryan Caplan
For the last twenty years or so, Jeffrey Sachs and co-authors have been arguing that institutions and policy matter less than most economists think. The harsh reality is that geography has a huge effect on countries' economic success. From what I've seen, the Geography Matters camp is on to something: Even after correcting for national ancestry, high absolute latitude and coastal access continue to have huge economic payoffs. In fact, geographic effects are much more robust than the effects of national ancestry.
Social scientists who accept the power of geography tend to get pretty pessimistic about development. If poor countries adopted the institutions and policies of rich countries, they still wouldn't do very well. Few go full fatalist. But they do lose hope that economic reforms can quickly transform the world.
And that's where the geo-centric economists are completely wrong. Contrary to their own self-image, their view is radically optimistic. Consider the extreme scenario where geography is the sole determinant of national prosperity. Is there anything mankind could do to swiftly raise per-capita GDP? Absolutely: Move people from poor countries to rich countries. Is that the kind of thing that policy can change? Again, absolutely: Legalize movement from poor countries to rich countries. How much would that accomplish? Given the draconian regulations now on the books, such deregulation would swiftly transform the world.
In the real world, of course, geography isn't the sole global problem, so deregulating migration isn't a full-blown panacea for global ills. But if Sachs is remotely right, this deregulation is the closest thing to a panacea we've got. Bad geography only retards human progress insofar as humans remain in locations with bad geography. And once it's legal, humans will vacate the bad areas on a massive scale.
To be fair, Jeff Sachs has written in favor of freer migration:
(5 COMMENTS)
Social scientists who accept the power of geography tend to get pretty pessimistic about development. If poor countries adopted the institutions and policies of rich countries, they still wouldn't do very well. Few go full fatalist. But they do lose hope that economic reforms can quickly transform the world.
And that's where the geo-centric economists are completely wrong. Contrary to their own self-image, their view is radically optimistic. Consider the extreme scenario where geography is the sole determinant of national prosperity. Is there anything mankind could do to swiftly raise per-capita GDP? Absolutely: Move people from poor countries to rich countries. Is that the kind of thing that policy can change? Again, absolutely: Legalize movement from poor countries to rich countries. How much would that accomplish? Given the draconian regulations now on the books, such deregulation would swiftly transform the world.
In the real world, of course, geography isn't the sole global problem, so deregulating migration isn't a full-blown panacea for global ills. But if Sachs is remotely right, this deregulation is the closest thing to a panacea we've got. Bad geography only retards human progress insofar as humans remain in locations with bad geography. And once it's legal, humans will vacate the bad areas on a massive scale.
To be fair, Jeff Sachs has written in favor of freer migration:
When high-income, high-productivity countries close their national borders to migration, they are denying the rights of individual migrants to seek improvement in their own conditions, and are also blocking a vital channel for improved global productivity. A global migration regime should favor migration both on account of the global efficiency gains and on account of the human right of individuals to seek their preferred residences (see Carens 2013, for a cogent ethical analysis from a human-rights perspective).But to the best of my knowledge, Sachs never quite makes the fundamental point: Migration policy is the co-factor that makes geography important. "Geography matters a lot" does not imply "Policy doesn't matter so much." Instead, it implies that "Migration policy matters a lot." Geography is not destiny, but opportunity.
The global regime should pay special attention to emigration from the world's most impoverished regions, with special attention to those suffering from intrinsic barriers to development due to geographical, ecological, climatological, or other intrinsic factors. Migrants from such regions face the greatest need to emigrate but also the greatest obstacles. They tend to be poor, less educated, and with few familial or business contacts in high-income countries to facilitate their migration. These are the boat people drowning in the Mediterranean.
(5 COMMENTS)
May 12, 2017
What Is Emotional Truth?, by Bryan Caplan
As a rule, I don't care for "hard sci-fi." In fact, artistically speaking, I normally dislike true stories of any kind. And I barely care about continuity errors. When I read novels or watch movies, I crave what I call "emotional truth." This recently prompted Robin Hanson to tweet:
I don't have a full answer today, but I'd start by quoting this passage from Being John Malkovich :
(11 COMMENTS)
@bryan_caplan Someday you should blog on what you mean by "emotional truth".
-- robin hanson (@robinhanson) May 12, 2017
I don't have a full answer today, but I'd start by quoting this passage from Being John Malkovich :
Well, Maxine, I'm not sure exactly. Perhaps it's the idea of becoming someone else for a little while. Being inside another skin. Moving differently, thinking differently, feeling differently.Why can't hard sci-fi or true stories fulfill this ideal? In principle, they could. But when creators spend a lot of mental energy on the accuracy of their physics or the historical sequence of events, they tend to lose sight of their characters' inner lives. A well-told story is designed to maximize the audiences' identification with the characters - to bridge the Problem of Other Minds via art. And you know a creator has succeeded when you temporarily lose yourself in the story.
(11 COMMENTS)
May 10, 2017
What's Wrong With the Macro AP, by Bryan Caplan
Today my 8th-grade homeschoolers take the Advanced Placement test in Macroeconomics. Back in 1989, when I took this exam, it covered little more than 1960s Keynesianism. The current test is marginally better. Now we've got long-run Aggregate Supply curves and long-run Phillips curves to remind students that pumping up demand has clear long-run dangers and little long-run benefit. But this AP is still far worse than it should be.
The biggest lacuna: There's essentially nothing on the fundamental question of macroeconomics: Why are some countries rich and others poor? Short-run macro stabilization policy questions outnumber long-run growth questions by at least 20:1. Part of the reason is probably the legacy of Keynesianism: "In the long run, we're all dead." But the main reason is that the test writers fear to be empirical - even when the empirics are clear. Saying, "Economic freedom is a major cause of development" just sounds too ideological, even when the statistics are pretty clear and the natural experiments are crystal clear.
The essay portion of the test is especially defective. The history AP essays demand high-level understanding of the world. A typical U.S. history question would be, "To what extent did slavery cause the Civil War?" The econ AP essays, in contrast, test mid-level understanding of models. A typical macroeconomic question:
Too hard to grade? Historians bravely rise to the challenge, why can't we economists do the same?
(7 COMMENTS)
The biggest lacuna: There's essentially nothing on the fundamental question of macroeconomics: Why are some countries rich and others poor? Short-run macro stabilization policy questions outnumber long-run growth questions by at least 20:1. Part of the reason is probably the legacy of Keynesianism: "In the long run, we're all dead." But the main reason is that the test writers fear to be empirical - even when the empirics are clear. Saying, "Economic freedom is a major cause of development" just sounds too ideological, even when the statistics are pretty clear and the natural experiments are crystal clear.
The essay portion of the test is especially defective. The history AP essays demand high-level understanding of the world. A typical U.S. history question would be, "To what extent did slavery cause the Civil War?" The econ AP essays, in contrast, test mid-level understanding of models. A typical macroeconomic question:
Suppose Rankinland has a current account deficit. Rankinland's currency is called the bera.This is fine material for the multiple-choice section of the test, but the essay ought to tap students' ability to apply the concepts to a complex real-world economic problem. For example, you could give students six documents and statistical series about the Venezuelan economy for 2012-2017, then have them explain what's going on.
(i) What will initially happen to the current account deficit in Rankinland solely due to the change in the real GDP from part (b)(iv) ? Explain.
(ii) What will happen to the international value of the bera solely due to the change in the real GDP from part (b)(iv) ? Explain.
Too hard to grade? Historians bravely rise to the challenge, why can't we economists do the same?
(7 COMMENTS)
May 8, 2017
Warren Bet, by Bryan Caplan
My long-time friend Ben Haller posted this prediction on Facebook:
1. As a matter of base rates, there are many Democratic candidates. And unlike the last three elections, there's no obvious front-runner. (Yes, Hillary was the obvious front-runner in 2008, even though she lost). In any case, incumbents usually get re-elected.
2. Personally, Warren looks to me like Hillary Clinton without the Clinton machine.
3. Electionbettingodds currently only gives Warren a 7.9% chance to win. (Though to be fair it also gives Trump unusually low odds of staying in office).
I therefore offered Ben 2:1 odds against Warren being elected, and he's accepted. The bet gets called off if Warren doesn't run. Ben speaks:
(5 COMMENTS)
Elizabeth Warren on Bill Maher - man, she is really good. I herebyI find this extremely unlikely, for the following reasons:
predict that she will be President in 2020... That's assuming she runs - but I
think she will.
1. As a matter of base rates, there are many Democratic candidates. And unlike the last three elections, there's no obvious front-runner. (Yes, Hillary was the obvious front-runner in 2008, even though she lost). In any case, incumbents usually get re-elected.
2. Personally, Warren looks to me like Hillary Clinton without the Clinton machine.
3. Electionbettingodds currently only gives Warren a 7.9% chance to win. (Though to be fair it also gives Trump unusually low odds of staying in office).
I therefore offered Ben 2:1 odds against Warren being elected, and he's accepted. The bet gets called off if Warren doesn't run. Ben speaks:
AThe stakes at my $100 against Ben's $50.
betting opportunity brought you out of the woodwork, eh? :-> Well,
I am a fan of your position on betting. My only hesitation is that in
the past she has chosen not to run because (she claims) she feels she is
more effective where she is. I have no
particular reason to think she has changed her mind on that - as I
wrote above, "that's assuming she runs". I would be happy to take your
bet, conditional on her running at all. If she doesn't run, we keep our
money. If she does run, there is a lot of time between now and then,
and anything could happen, but I'm willing to put my money where my
mouth is at 2:1. I think she has the potential to be an enormously
strong candidate, nobody else anywhere near as charismatic seems to be
in the field, and if anybody ever showed the clear potential to be a
one-term President it would seem to be Trump (although I do worry that
he will manage to make himself a "wartime President" by then and get all
the rah-rah "patriots" to rally around him :-
(And
of course "in 2020" is taken in the non-literal sense, that she will
win the election in 2020 and take office in 2021 :->. Obviously she
will not be President in 2020. :->)
(5 COMMENTS)
May 4, 2017
Pollitt on Putnam, by Bryan Caplan
Lately, I've been intently reading the social science of trust. Katha Pollitt's critique of Robert Putnam's Bowling Alone may not be the most insightful, but it's definitely the most entertaining:
A fair esoteric reading? It fits the conclusion:
(4 COMMENTS)
Putnam argues that declining membership in such venerable civic institutions as bowling leagues, the P.T.A., the League of Women Voters, the Boy Scouts, the Elks and the Shriners is an index of a weakened "civil society," the zone of social engagement between the family and the state. Why should you care about the leagues? Because, says Putnam, they bowl for thee: A weak civil society means less "trust" in each other, and that means a less vigorous democracy, as evidenced in declining electoral turnouts.She continues:
It's the sort of thesis academics and pundits adore, a big woolly argument that's been pre-reduced to a soundbite of genius. Bowling alone--it's wistful, comical, nostalgic, sad, a tiny haiku of post-industrial loneliness. Right-wingers like Francis Fukuyama and George Will like it because it can be twisted to support their absurd contention that philanthropy has been strangled by big government. Clintonians and communitarians like it because it moralizes a middle-class, apolitical civic-mindedness that recognizes no hard class or
race inequalities shaping individual choice: We are all equally able to volunteer for the Red Cross, as we are all equally able to vote. Putnam's prime culprit in the decline of civic America--television--is similarly beyond the reach of structural change. It's as though America were all one big leafy suburb, in which the gladhanders and do-gooders had been bewitched by the evil blue light of Seinfeld and Friends.
At least Putnam doesn't blame working mothers.
Putnam seems to place both the burden of civic engagement and responsibility for its collapse on the non-elite classes. Tenured professors may be too busy to sing in a choir (Putnam's former avocation): The rest of us are just couch potatoes. Although Putnam is careful to disclaim nostalgia for the fifties, his picture of healthy civic life is remarkably, well, square. I've been a woman all my life, but I've never heard of the Federation of Women's Clubs. And what politically minded female, in 1996, would join the bland and matronly League of Women Voters, when she could volunteer with Planned Parenthood or NOW or Concerned Women of America, and shape the debate instead of merely keeping it polite?The academic in me notices that Pollitt doesn't really argue against Putnam so much as tease him. But if you had to reinterpret her through an economic lens, the argument would be along the lines of: Civic associations are so boring and old-fashioned that we shouldn't join them even if they do have positive externalities. Or maybe: You shouldn't call them "positive externalities" until you've shown that the status quo is better than my alternative, which it isn't.
A fair esoteric reading? It fits the conclusion:
Putnam's theory may not explain much about the way we live now, but its warm reception speaks volumes. The bigfoot journalists and academic superstars, opinion manufacturers and wise men of both parties are worried, and it isn't about bowling or Boy Scouts. It's about that loss of "trust," a continuum that begins with one's neighbor and ends with the two parties, government, authority. It makes sense for the political and opinion elites to feel this trust--for them, the system works. It's made them rich and famous. But how much faith can a rational and disinterested person have in the set-up that's produced our current crop of leaders?P.S. Next week my homeschoolers are taking three APs, so expect light posting.
Love your neighbor if you can, but forget civic trust. What we need is more civic skepticism. Especially about people who want you to do their bowling for them.
(4 COMMENTS)
May 3, 2017
The Widerquist-Caplan UBI Debate, by Bryan Caplan
I recently did another debate on the Universal Basic Income, this time on Public Square with Georgetown philosopher - and founder of the journal Basic Income Studies - Karl Widerquist.
To be honest, I was surprised by the path the debate took. I expected Widerquist, a specialist, to run circles around me on the academic research, but he almost never discusses empirics. Instead, he offered a radical critique of the very legitimacy of private property. I'm not sure whether to call his view socialist or just Georgist, but Widerquist did put me in the strange position of debating a person even more at odds with mainstream thought than myself.
We did agree on open borders, though! Enjoy.
(3 COMMENTS)
To be honest, I was surprised by the path the debate took. I expected Widerquist, a specialist, to run circles around me on the academic research, but he almost never discusses empirics. Instead, he offered a radical critique of the very legitimacy of private property. I'm not sure whether to call his view socialist or just Georgist, but Widerquist did put me in the strange position of debating a person even more at odds with mainstream thought than myself.
We did agree on open borders, though! Enjoy.
(3 COMMENTS)
May 2, 2017
Remember Marxism?, by Bryan Caplan
Lately I've been hearing abundant apocalyptic rhetoric about the collapse of traditional Western norms of critical thinking, free inquiry, and tolerance. The story, roughly, is that after a century of unprecedented intellectual freedom, a new generation of barbarians - mostly "social justice warriors," with some alt-righters thrown in - has suddenly emerged in our midst. And they're quite likely to get their way, because most of us have forgotten what critical thinking, free inquiry, and tolerance are all about.
As usual, I resist this doom-saying. For starters, there's a massive historical blind spot. Marxism was the most influential ideology of the 20th century. Its founder had zero appreciation of intellectual freedom. His most influential followers - the Marxist-Leninists - took him literally. When they held power, they murdered and imprisoned even their mildest critics on a massive scale. When they lacked power, they used their intellectual freedom in the "bourgeois democracies" to pave the way for totalitarianism. Moderate Marxists were far less consistent and determined, but few embraced intellectual freedom on principle. Marxism's dominance looks even greater once you realize that fascism was a Marxist heresy founded by Mussolini, former leader of the radical wing of the Italian Socialist Party. Western civilization is not at the tail end of a century of stable intellectual freedom.
So a mighty enemy of intellectual freedom was in our midst for the bulk of the 20th century. Does this mean we shouldn't worry about the latest challenge? No, but we should keep matters in perspective. The last storm featured a juggernaut of an external threat combined with vocal internal sympathy for the juggernaut. Intellectual freedom weathered the storm nonetheless. A few thousand internet and campus activists are insignificant in comparison. A steely revolutionary like Lenin would have scorned them as soft, impulsive dreamers. This may be little consolation if protestors won't let you speak, but things could be way worse. And not long ago, they were.
(6 COMMENTS)
As usual, I resist this doom-saying. For starters, there's a massive historical blind spot. Marxism was the most influential ideology of the 20th century. Its founder had zero appreciation of intellectual freedom. His most influential followers - the Marxist-Leninists - took him literally. When they held power, they murdered and imprisoned even their mildest critics on a massive scale. When they lacked power, they used their intellectual freedom in the "bourgeois democracies" to pave the way for totalitarianism. Moderate Marxists were far less consistent and determined, but few embraced intellectual freedom on principle. Marxism's dominance looks even greater once you realize that fascism was a Marxist heresy founded by Mussolini, former leader of the radical wing of the Italian Socialist Party. Western civilization is not at the tail end of a century of stable intellectual freedom.
So a mighty enemy of intellectual freedom was in our midst for the bulk of the 20th century. Does this mean we shouldn't worry about the latest challenge? No, but we should keep matters in perspective. The last storm featured a juggernaut of an external threat combined with vocal internal sympathy for the juggernaut. Intellectual freedom weathered the storm nonetheless. A few thousand internet and campus activists are insignificant in comparison. A steely revolutionary like Lenin would have scorned them as soft, impulsive dreamers. This may be little consolation if protestors won't let you speak, but things could be way worse. And not long ago, they were.
(6 COMMENTS)
May 1, 2017
The Consumer Gratitude Heuristic, by Bryan Caplan
In the real world, prices often seem far above marginal cost. Yesterday, for example, I bought a pair of tweezers for $14.99. But it's hard to see how the marginal cost - metal, electricity, transportation, miscellaneous - could even reach $1.00. That's a markup well in excess of 1000%. If you're steeped in the perfectly competitive model, where price always equals marginal cost, it's easy to feel "ripped off" whenever you make a purchase.
The obvious rebuttal is to point to all the fixed costs of production. While the marginal pair of tweezers costs pennies to produce, the first pair plausibly costs millions. Factoring in fixed costs, tweezer producers are probably roughly breaking even. So how is that a "rip-off"?
But on reflection, this greatly understates what a fantastic deal we consumers get. To see why, I often invoke my Consumer Gratitude Heuristic. Here's how it works. When I bought my tweezers, I asked myself, "How much would it have cost me to make these tweezers all by myself?" On reflection, the answer is... more than my lifetime wealth! I'd have to spend years learning the basics of mining and metallurgy to acquire minimal competence. And after a lifetime of training, I still probably wouldn't have the skill to make a single tweezer as good as the one I bought at Wegmans. $14.99 versus more time than I have on Earth: that's what I call a bargain.
Nor is this an exceptional case. When I apply my Consumer Gratitude Heuristic, the modal answer is: a lifetime of single-minded toil would fail to yield a product comparable to what I buy at the store. One day on the lake might yield some fish as good as Wegmans. With years of effort, I might be able to grow some vegetables or bake some bread as good as Wegmans. But most of the items I buy are simply beyond the limits of my potential skill.
Taking your wonderful life for granted is the path of least resistance. It comes naturally. But it's a terrible mistake. I have so much to be grateful for - and so does everyone else lucky enough to live in an industrialized, commercial society. My Consumer Gratitude Heuristic helps us see - and live - this great truth.
(9 COMMENTS)
The obvious rebuttal is to point to all the fixed costs of production. While the marginal pair of tweezers costs pennies to produce, the first pair plausibly costs millions. Factoring in fixed costs, tweezer producers are probably roughly breaking even. So how is that a "rip-off"?
But on reflection, this greatly understates what a fantastic deal we consumers get. To see why, I often invoke my Consumer Gratitude Heuristic. Here's how it works. When I bought my tweezers, I asked myself, "How much would it have cost me to make these tweezers all by myself?" On reflection, the answer is... more than my lifetime wealth! I'd have to spend years learning the basics of mining and metallurgy to acquire minimal competence. And after a lifetime of training, I still probably wouldn't have the skill to make a single tweezer as good as the one I bought at Wegmans. $14.99 versus more time than I have on Earth: that's what I call a bargain.
Nor is this an exceptional case. When I apply my Consumer Gratitude Heuristic, the modal answer is: a lifetime of single-minded toil would fail to yield a product comparable to what I buy at the store. One day on the lake might yield some fish as good as Wegmans. With years of effort, I might be able to grow some vegetables or bake some bread as good as Wegmans. But most of the items I buy are simply beyond the limits of my potential skill.
Taking your wonderful life for granted is the path of least resistance. It comes naturally. But it's a terrible mistake. I have so much to be grateful for - and so does everyone else lucky enough to live in an industrialized, commercial society. My Consumer Gratitude Heuristic helps us see - and live - this great truth.
(9 COMMENTS)
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