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“People respond to incentives.” That is a mantra, a shibboleth, a totem of economic thought that is various touted, invoked, and at the very least accepted by partisans of all sides and factions – it’s one of the core tenet’s of Mankiw’s textbook, for example. But getting beyond the fact that in some sense it’s a tautology, the statement strikes me, after some thought, as weirdly determinist.
One could, for example, create a model where “people respond to incentives” but what any given individual is incented by, or incented towards, is completely random – money could make some people vomit, while other people do ten jumping jacks every time they see a labradoodle. But that’s not what economists mean when they say “people respond to incentives.” What they mean is that there is some identifiable set of circumstances and stimuli that people will, in aggregate, respond to predictably.
Far be it from me to dispute this, at least directly – certainly you could imagine a world where the micro can seem random but the aggregate can seem largely predictable, but you could also imagine a world where forces outside that identifiable set of circumstances and stimuli have a sufficiently large and unpredictable effect on aggregate human behavior, and, further, interact with those circumstances and stimuli in volatile ways, thus at least partially rattling, if not undermining, the foundations of a system of thought based on those incentives.
What I really want to talk about is determinism. Because it is weird, at least a little, to me that some of the people who most vigorously and vociferously intone “people respond to incentives” as a devotional are the people who also most vociferously support “individual freedom” and voluntary action. It’s not so much that there is a contradiction per se as much as an odd combination of stress – why is it so important that as much of the human sphere as possible is structured to be voluntary if the effects of any given system are largely predictable?
What led me to this thought was Doug Henwood’s fascinating interview with Penny Lewis about the myth of the hard hat/hippie divide in which she refers to the post-Vietnam volunteer army as being the “economic draft.” Now this is, in some sense, self-evidently true – it is difficult to imagine a situation in which a volunteer army offering sufficient pay and benefits would fail to find recruits. But it also seems that it would be important to people to feel as though joining the army was voluntary on an individual level, regardless of the aggregate fact that the army will invariably recruit around the number of people it wants to assuming it knows how to set pay and benefits accordingly. My question: is the “voluntariness” of the army important because it increases efficiency (ie, recruits are self-selected rather than compressed at random) or is it because it is somehow just? What if you could create a non-voluntary system that guaranteed a similar level of efficiency (not that hard, when you consider that a decent chunk of enlistees have, er, ulterior motives) – would that be equally just to a volunteer army? If not, why is the voluntariness of the moment of enlistment so crucial? Wouldn’t it be more just, in some sense, to compress and pay less and thus tax less? Taxes aren’t voluntary.
This rambling inversion of Nozick’s Wilt the Stilt thought experiment doesn’t really go anywhere, but it is also worth noting that I stumbled upon this little essay on why leftists are necessarily determinists by Benjamin Studebaker. Notably, it goes wrong logically at precisely the moment it goes wrong factually:
The right very strongly disagrees with the left on this. Remember “you didn’t build that“? The right was furious about Obama’s claim that businessmen were not personally responsible for the success of their enterprises. Obama tried to back-peddle on the comment, but he had no business doing so, because “you didn’t build that” is precisely what leftists believe. Leftists don’t think that the rich are to credit for their success or that the poor are to blame for their failures. Leftists think sociological and natural forces determine who succeeds and who fails. People who succeed benefit from genetic advantages, better parenting, better education, more opportunity, more help from the state, and so on. People who fail lack these advantages and often possess their inverse–genetic disadvantages, bad parenting, bad education, less opportunity, less help from the state. To the extent that you are genetically gifted and enjoy a good environment, you succeed. To the extent that you are genetically shafted and suffer from a poor environment, you don’t.
Sigh. I am loathe to engage with anyone who presents any interpretation of Obama’s “you didn’t build that” comments other than the correct one for fear of engaging with someone deliberately uninformed or un-invested in good faith, but it’s worth explaining one last time, I suppose, that Obama’s comments were focused on something indisputable and very, very important – the intergenerational compact of public investment. Here’s how it works.
I am alive in some present. In the present, society has the capacity to produce some sum of material resources and intellectual discovery. Certain kinds of production – such as the production of pointlessly-large exurban houses in the Sun Belt or flat-screen televisions – are largely present-oriented and disconnected from future prosperity, while other investments – like building and maintaining transportation and utility infrastructure or scientific research – are largely-future oriented and necessarily divulge the vast share of their benefits to future generations regardless of how fast they convey present investment into future benefit. The Interstate Highway System, for example, certainly provided some benefit to those who were born during the Eisenhower administration, but assuming they are well-maintained could theoretically produce benefits to future generations ad infinitum.
Now, those benefits, while increasing net prosperity in myriad ways measurable and otherwise, do flow in lumpy ways. For example, if you founded a large trucking enterprise in the 1960s when the Interstate Highway System was just being built, you are likely really, really rich today. And if you, say, founded an internet shopping website when the internet was just getting started you, too, are likely really really rich today because of both public investment in making the internet possible and the highways that actually bring goods from fulfillment centers to homes at almost the speed of click.
This gets back to the argument Obama was making. Obama wasn’t making some puzzling point about entrepreneurs being winners of an arbitrary genetic and environmental lottery to justify their expropriation; he was making the very obvious point that many, if not all, of the people who are rich today are rich because past generations made sacrifices to invest in the infrastructure that made their success possible and therefore they should hold up their end of the intergenerational compact and help fund the public infrastructure of today that will create tomorrow’s broad-based prosperity and billionaire entrepreneurs alike. Nothing about this requires a belief ether way about determinism or free will, just the practical observation that quality public investment breeds prosperity which makes entrepreneurs possible (remember Woody Allen’s point about being a savannah tribesman) and the argument that those who benefited from past investment the most should probably pay a larger share of the costs of current investment for reasons of both fairness and ability. Therefore Studebaker’s conclusion that:
If we deny that the universe is determinist, there is no ground for objecting to the right’s argument that some people will themselves to success through virtue and others to failure through vice. If there is any other element, if there is any independent will, then some people really are fundamentally better people than others, are more deserving than others, and should be rewarded on that basis alone.
Is both incorrect and misses the point that that causes of why, say, Bill Gates or Steve Jobs got really rich is separate from the point that public investment in universities and computer technology and the internet and patent protection made someone getting really rich pushing forward the boundaries on computing all-but-inevitable and therefore whoever that someone is should help fund high-speed rail or whatever.
Yesterday a friend of mine tweeted an invitation via a new service called Feastly. The invitation was to come to her home and eat a delicious, home-cooked gourmet meal in exchange for money. The service, Feastly, is set up to do exactly that – while it is still in private beta (and therefore cannot be fully-explored until one is invited in) it clearly aggregates offerings of that sort, sortable by dietary restrictions, price, attire, pet-friendliness, and other criteria. It’s a great idea, and one I wish I thought of.
On a social scale, I think as we see more services like this that directly connect buyers and sellers – think eBay, Etsy, ebook self-publishing – it will throw further into question whether statistics like GDP/GNI are useful metrics, not just of broader concepts like "standard of living," but of what they purport to measure. Every meal eaten on Feastly and not at a formal restaurant is one that involves an exchange of goods and services for money, and most of them will likely not be counted by current methods of measuring GDP. This issue predates the internet, of course, but the internet’s amazing power to match small-scale producers to buyers will accelerate this trend, as will the advent of 3-D printing.