The one-handed economist

The debate over the gender-pay gap has raged for years, and we know quite a bit about it. This 2017 paper, for example, indicates that the gender gap has been shrinking while the motherhood gap has persisted.

I’m not here to question these findings or the “fairness” of the gap, but reflect a little more on motherhood, risk and productivity.

As a first step, let’s agree that men tend to take more risks than women, on average. These risks might be good for society (inventions! discoveries!), but they can be bad for individual men (death!) or their firms (bankruptcy!), so risk will be relevant to firms, profits and productivity.

Turning to motherhood, we know that it’s predictable (at least in the last few months that might lead to maternity leave), that it’s likely to reduce a mother’s availability for the job, and probably going to lead to even less risky behavior by a mother who wants to take care of herself, her child(ren), and family.

Employers might pay women less for their predictable chance of having children but fail to reduce men’s pay for the unpredictable risks they bring…

Taken together, we can suppose that employers might pay women less for their predictable chance of having children but fail to reduce men’s pay for the unpredictable risks they bring to the firm. The list of such risks is long and stereotypical: lying salesmen, heart-attack stress, over-aggressive purchases,  bad hires based on hunches, sexual harassment, etc. These risks are hard to predict or plan for, so they are more like uncertainties (“known unknowns”) than risks that can be insured against, which means that firms may be “paying too much” for the generic male employee.

My one-handed conclusion is that the risk of a woman having a baby might  be correctly priced in terms of a wage discount while the risk of errant male behavior may not be correctly priced, meaning that men (especially those who are younger, childless and/or aggressive towards their careers) may be paid too much, relative to the risk they represent to the firm.

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Note: This post also links to my earlier post on “pondering” because women — in my experience — tend to wait and ponder before acting while men rush into action without as much reflection. (Got an angry email to send? Write it today but send it tomorrow, after a good sleep and careful reread.)

If you’re reading this, then you are probably subject to the forces of the “attention economy,” meaning that we have enough money to get by but not enough time to get to all the good stuff that passes our way.

(If you’re worried about money in the sense of “can’t pay the rent,” then stop reading and go cancel some subscriptions — recurring payments are the number one way that people “waste money. If you’re worried about time and are here, then thanks for “spending time” on this blog!)

In most cases, people with a lack of time tend to be flustered at the slightest delay. A traffic jam, lost pencil or new email can throw their whole day off. 

If that sounds familiar, then this post (and maybe this blog) is for you.

When I was getting going here, I told readers of my newsletter that I was thinking of putting more emphasis on “slow thinking,” but I was worried about that phrase. I wrote:

Slow seems to indicate lazy or waiting around. Thoughts?

To this, CC replied: 

I like to refer to ‘slow thinking’ as pondering – which seems to be a ‘dying art’ of sorts.  As a ponderer, I find that I have to be deliberate in isolating time to allow my mind to explore an idea/concept/thought, beating back the daily ‘timing alarmed’ tasks and demands of the ‘instant results’ society so many of us exist within. Take your time, David; the results will be more fulsome and clear for you… And then for us as you take the time to share with us.

For this reply, I thank CC,* and here are a few of my thoughts on this topic and how I intend to write here.

First, it’s difficult to think at all when you’re always in a hurry. I used to say the Dutch are “precisely casual,” and I still think that is true, but it’s awful hard to have a conversation that’s not “on the agenda.” Their (national) habit of stuffing each day means that mistakes lead to panic and innovations are unwelcome.

Second, I am constantly stimulated with new ideas when I go on vacation, read a book, or spend a few hours in conversation. It’s hard to pursue these activities when my to-do list beckons, but they deserve respect. At the moment, I am on holiday in Sweden, and I’ve seen lots of new things and talked to a variety of people. All of these experiences confront my “settled” view of the world, sometimes pushing me to rethink habits, sometimes exposing me to ideas I dearly need.

Over the past 15 years or so, I’ve had a number of wondering conversations with my father. Sometimes he drives me nuts (he’s a fan of Fox News) but sometimes he keeps me going for hours with an odd comment or question. These conversations — and many others with a variety of strangers — have helped me explore new ideas and reconsider “settled” truths.

Last week, for example, I was chatting with someone on China’s recent ban on importing plastics (and other “low value”) waste for recycling. At first, I thought that this was China’s way of standing up for itself as a nation unworthy of others’ garbage, but then I realized that China’s ban created an opportunity for it to increase recycling of its own plastic garbage, as there was now a lot of spare capacity looking for inputs. This shift was an exact parallel to China’s recent shift in emphasis from exporting goods to meeting domestic demand. Where was the supply for that demand coming from? The exact same industrial base that had grown so large (and efficient) in the decades of exporting to other countries! I’m not sure if there’s any master plan at work here, but it sure makes more sense to me than other explanations. 

Third, I here’s two cheers for writing by hand, reading on paper, and talking without an agenda.** This recent article on typesetting says it well:

Technological innovation, in the conventional sense, won’t help us slow the publishing process back down. Slowing down requires better thought technology. It requires a willingness to draft for the sake of drafting. It requires throwing away most of what we think because most of our thoughts don’t deserve to be read by others. Most of our thoughts are distractions—emotional sleights of the mind that trick us into thinking we care about something that we really don’t—or that we understand something that we really don’t.

I could write a lot more on this topic, as I am endlessly fascinated by the many dimensions of my thought, the thoughts of others, and the mysteries of the world around us, but I’ll leave it there. 

My one-handed conclusion is that everyone needs time and space to expose themselves to doubt, wonder and exchange. Do you have enough time to ponder your thoughts, your actions and your world?

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* CC happens to have the same initials as my friend Connie Cahlil, who died a few years ago of cancer. Connie was not only a dear friend, but a smart woman who confronted her illness with wisdom that she shared with the world as she slowly faded. If you want to read her stuff, then start here. (In fact, you’ll have to end there, as her blog is no longer online. The internet will remember you only for as long as you pay your content provider.)

** Don’t get me wrong, I think agendas can be very helpful, but not if they dominate your life, 24/365! Everyone’s mind needs free time to unwind and build new connections.

I’m a fan of the work of Vincent and Elinor Ostrom, who were known for developing and exploring models of polycentric governance and their Institutional Analysis and Development (IAD) framework. 

They were also co-founders of the Public Choice school of thought, i.e., that the personal beliefs and biases of public administrators will affect the decisions they make.*

For me, their most important work was on the governance of common pool resources, whose complexity requires an interdisciplinary mix of perspectives as well as respect for the subtle power of local institutions. (I’ve written several papers on this topic.)

I’m thus surprised and saddened to see their Workshop (founded in 1973) stray from their original and useful ideas.

A few weeks ago, I went looking on the Workshop’s site (to find the 1971 paper I discuss in the footnote below) and found that things had changed since the Ostroms died in 2014. A quick look at the website shows that new leadership has re-directed the workshop towards conventional themes such as governance, cyber-security (!), and natural resources. The “public choice” of pursuing these me-too themes (see the footnote for the irony) is not only a failure for its probable failure against stronger competition; it’s also a failure for abandoning a unique and powerful line of interdisciplinary work on managing the commons and polycentric governance. Although I would like to blame conspiracy for this change of direction, I think — knowing the New Institutional Economists who are now in change of the Workshop — that it’s the result of limited comprehension of the Ostrom’s work rather than malice.

As exhibit #1 of my claim that the Workshop may not deserve the Ostrom’s name, I will note that the Ostrom’s work is archived under “legacy” rather than “essential” readings.

For exhibit #2, I note that Terry Anderson gave the first “lecture on environmental policy” in 2017. I know Anderson because I spent the summer of 2010 at his free-market environmentalism think tank (PERC), and because he “banned” me as ungrateful in 2014 for questioning PERC’s analysis of Cadiz, a dubious (and probably fraudulent) private groundwater company in California. (All comments are gone.) Folks like Anderson want to “fix the commons” by privatization rather than using the collective solutions that the Ostroms spent decades exploring and explaining. I’m all for diverse opinions, but I can’t think of a worse-qualified speaker on the Ostrom’s work and legacy.

My one-handed opinion is that the Ostrom Workshop may not deserve that name for much longer. It seems that we will have to rely on a spontaneous growth of polycentric circles of researchers to carry forward the Ostrom’s work.

Addendum (25 June pm): I ran into someone from the “new management” at WCERE today. They said that some of the programming is indeed new, while other programming does continue to focus on the governance of natural resources. 

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* Anyone interested in this school of thought, which provides insights into many government and bureaucratic failures, can read their 1971 paper here [pdf]. In it, they define the bureaucrat as decision maker:

Our “man: the decision maker” will confront certain opportunities and possibilities in the world of events and will pursue his relative advantage within the strategic opportunities afforded by different types of decision rules or decision-making arrangements.

Many people do not understand the implications of their observation when they “leave it to the experts” and get bad results. Such cautions do not mean we should have no government or switch to laissez faire. They mean that bureaucrats much be accountable and engage the public in their deliberations (points made powerfully around the same time by Jane Jacobs).  Later in the paper, the Ostroms caution against concentration of power in the hands of the few, i.e., 

Expected external costs [negative spillovers onto unsuspecting victims] will be at their highest point where any one person can take action on behalf of the entire collectivity. Such costs would decline as the proportion of mem- bers participating in collective decision making increases. Expected external costs would reach zero where all were required to agree prior to collective action under a rule of unanimity.

They explicitly link this “rule” to the Buchannan and Tullock’s work on constitutional design, a connection that pleased me greatly, as I have read their foundational work on this topic 🙂

Later on in the paper (I filled my copy with notes and highlights), the Ostroms explain how bureaucratic cost-benefit analysis might take spending and revenue into account, but perhaps ignore impacts on users, which is why we often hear about “budgetary savings” that cost citizens hours of extra waiting. 

In the end, their paper provides a fascinating preview of their theory of polycentric governance, i.e., a system of overlapping governance jurisdictions that might confuse those who “See Like a State” but perform admirably due to each circle being fit for task. Read this pdf to learn more of how they developed that theory in the 1970s.

For years I dismissed this question (which tends to focus on whether you’re pessimistic or optimistic, respectively) with “I’m a realist, it is what it is,” but it turns out I’m a glass-half-empty kind of person. 

I realized that when I was worrying in ways like this:

• “My shares in this company are worth $x. That sucks compared to their value of $2x not so long ago” without remembering that I bought them for 0.5x.
• “Awww damn, it’s raining so I’m going to hunch over” while forgetting that hunching doesn’t keep me dry, I’ll be home (to dry clothes) in 10 minutes, and rain is part of Amsterdam’s glory.
• “If I give my girlfriend this piece, then she’ll have more than me, and I’m hungry” without remembering that there are more pieces to eat, that a piece that’s half a bite larger isn’t going to fill me up, and — no duh — it’s my girlfriend who I’m sharing with. (wtf?)

How does this happen?

Academics have thought about these ideas, which go deeper than optimistic and pessimistic. We know that “framing” a question or idea affects the way people perceive it. We’re happier getting an “gift” with  our purchase than having it included in the price, for example. A related concept  — anchoring — depends on a reference point. People are often happier getting a 50% discount on a $10 book than paying the “full price” of $5 for the same book. 

How can these perspectives co-exist?

I think there are pros and cons to each perspective, so one never displaces the other. A half-empty perspective might drive you to save food and thus avoid starving. A half-full perspective might lead you to take a chance and thus find a new food source.

Which one is better?

Neither. For the half-empty perspective, you might worry without need on many occasions (con) but predict — and thus avoid — “surprises” (pro). Half-empty probably means short-term stress but long-term success. 

From the half-full perspective, you’re going to be surprised by occasional disasters (con) but life a care-free life (pro). My father’s optimism has helped him enjoy 85 years, but he’s a bit behind on his retirement planning. 

What’s to be done?

In general, I’d consider the half-full perspective if you’re a half-empty kind of person (and vice-versa). Such contrarian thinking (which requires type 2 effort) will increase short-term happiness for the half-empty personality and long-term successful for the half-full type.

Personally, I try to remember how many things are going well in my life, trust statistics (“this plane in unlikely to crash”), or put the topic aside. Sometimes it will come back for attention and sometimes not, but there’s no sense in worrying until and unless I must.

What do you think about this question of perspective? Are you a half-full or half-empty kind of person? Do you have a good technique to balance your over- or under-optimism?