The value-price gap

I often read or hear journalists, economists and just regular people discussing an industry’s importance in terms of its annual turnover, share of GDP and/or the total capitalization of its major companies. 

These price measures are useful for making “objective” comparisons, but they are misleading if one wants to think of the industry’s value to individuals or society. (Economists say that “consumer surplus” rises as the  gap between value and price increases.)

As a simple example compare the price that you pay to the value you get for gas, electricity and/or water. For me, value is a huge multiple of price for these services. I pay about €1/day for gas and electricity, but I’d be willing to pay 10-30x that price if I was deprived of heat and power. For water, I pay a flat charge per month (!), but I would definitely be willing to pay 10-50x the €2/1,000 liters that metered customers pay. (Assuming we use 50 liters each/day, that’s €0.20/day, so 50x would be €10/day.)

Turning to other industries, you can see a similar huge gap between value and price for food, drink and airline tickets but much smaller gaps for, say, restaurant meals, hardcover books or university tuition. In some cases (bankers, lawyers, social media, insurance and taxes — a huge share of which goes to the military and special interests in the US) value is often below price, but we are often unable to avoid such “charges.”

My one-handed conclusion is that we should think of the value of goods and services rather than their price when thinking about purchases but also (and especially) when making political decisions regarding the relative importance of  industries.

Are students smart consumers?

The relentless rise of university tuition and fees has depleted the savings of parents and left many students indebted. In many analyses (and my opinion), these higher costs have brought not better education but better amenities (housing, gyms and other playthings) and more bureaucracy

This problem is not going away soon in the US because most “solutions” call for increasing subsidies rather than limits on tuition. Here in the Netherlands the problem is smaller because the government gives big subsidies to universities in exchange for price caps. (We charge €2,000 on top of the basic €2,000 per year that most students pay, i.e., about 10 percent of the cost of a similar education in the US.)

But a lack of progress on costs does not mean there cannot be more progress on benefits or — as the English would say — getting more “value for money”.

I’ve already written about the problem with masters programs that advertise lots but deliver little, so I’m going to start there, as I continue to have conversations with my former students that go like this:

Typical Alumni: So I dropped out of that masters program.

Me: Why?

TA: The courses were not what I expected; they want to lecture you on facts that you need to memorize instead of discuss the topics; I can’t get a supervisor for the topic I want; etc.

If you want reality and hard work, then take the red pill. If you want to continue with idle ignorance, then take the blue pill…

Me: Well that’s why I told you to take a few years off, to discover what you want and learn more about the world. Then you will be ready to choose a program that fits your experience and goals. Then you will challenge the oversimplifications put out there by professors who have never worked outside the academic environment. Then you will be a critical consumer who demands time and effort in proportion to the time and effort that you’re putting into this program. Many students only want a piece of paper, and many programs deliver that, but if you want to learn, then you need to tell your professors that you want more — that you want what the marketing people promised: A first-class education. /rant

TA: Oh, that sounds like a lot of work.

Me: Welcome to the real world, Neo.

My one-handed advice is that adulthood is more rewarding to those who put in the work. Those who do not risk a life of passive frustration. Learning means mistakes and frustration, but so does dating: If you want to find the right partner (job, degree), then you need to look around.

Liberalism or misery?

I have read The Economist since 1989, and the past 30 years have been good for its mission of promoting liberalism (i.e., the rights of individuals to decide their destiny without impinging upon that of others as well as the value of promoting diversity and competition in the search for “truth” and innovations that will promote the general welfare) and thus for humanity’s progress, but this progress and those ideals are under attack.*

In this week’s issue, TE’s cover article says “Success turned liberals into a complacent elite. They need to rekindle their desire for radicalism.”

You should read the whole article, but I am going to give my own reasons for the importance of this mission  because (1) I have supported this mission for decades and (2) everyone needs to consider the implications of life in a non-liberal world.

First, I am a (classical, not American-style) liberal because I am aware of my limited knowledge and desire for freedom, and thus willing to assert the limits to others’ knowledge as well as their right to be free of my influence. I have for years collected examples of where “power corrupts and absolutely power corrupts absolutely,” so I am humble ab0ut the potential for top-down “solutions” and fearful of the tendencies of (so-called) leaders like Trump, Putin, Orban and Erdogan as they rally their followers to smash various opponents of the majority. (Here’s a paper on aid failure; here’s one on how groups cooperate or not.)

Second, I feel as if we’re in an era that most resembles that of of 1920-1933, when popular misery supported the rise of fascists of the left and right, as well as populists who promised easy answers to tough problems but ended up inmpoverishing or killing their followers while immiserating millions of defenseless and vulnerable minorities. The strengthening currents of authoritarianism dressed up as nationalism or, somewhat more transparently as majoritarianism, not bode well for our species. This article, for example, explains how “China and Russia are very different powers with different strategies, but they share the objective of targeting free and open societies to make the world a safer place for authoritarianism.”

I am writing this from Madrid where two artistic exhibitions have been coloring my thought. First, there is an exhibition of Russian Dadaist arts, which date from the 1920s and mostly highlight the ridiculous situations that Russians found themselves in during the early years of their revolution, which turned from proletarian optimism into fascist slaughter, starvation and terror. The second images are of Picassso’s Guernica, which he painted in 1937 in reaction to the  firebombing slaughter of innocent civilians by Nazis aligned with Franco. That painting, which is credited with “highlighting the need to forever remember and prevent the slaughter of innocent civilians,” seems remarkably relevant right now, at a time when Assad is barrel-bombing innocents and Aung Suu Kyi sits on her hands as Myanmar’s army slaughters innocent Rohinga citizens. I could write more about Venezuela, Turkey, Nigeria, and other places, but you get my point.

Liberalism as a philosophy is simple. It dictates humility, diffusion of power, and cooperation, but these ideals are unpopular with people who feel threatened and politicians who promise easy fast gains.  Sadly, those groups are ascendant as they were in the 1930s, and they do not yet see the obvious connection between their simple-minded, zero-sum view of the world and the obvious fact that attacks lead to counterattacks, and thus cycles of righteous conflict. (Check out Israel and Palestine for a long lesson in that futility.)

My one-handed conclusion is that our turn from faith and practice of liberalism will promote intra- and inter-group conflict at a time (climate disruption) when we should be joining in efforts to protect ourselves from our collective mistakes. Sad.

Addendum (20 Sep): This article is worth a read: “China and Russia assessed that Western liberalism and freedom undermine authoritarian rule. Indeed, many Western policy makers saw this as a desirable side effect: It may be good news for the Chinese and Russian people, but it is bad news for their regimes. And so, China and Russia began to push back.”

* I forgot to add a comment on how US politics has played a major role in this deterioration. In 1989, the Wall fell and the Warsaw Pact countries left Soviet influence. In 1991, the USSR itself fell apart, freeing the Baltic countries to pursue their freedoms while leaving most of the other dozen republics to struggle with reform, corruption and authoritarianism. These moves were helpfully supported by George HW Bush as well as Clinton, but the lack of an “external enemy” led Republicans (under Newt Gingrich) to turn to dirty politics as a means of gaining domestic power. Those shenanigans (including the impeachment of Clinton before the House) previewed the gridlock that plagued Obama’s years. Perhaps the worst “luck” was the (fraudulent) election of George W Bush in 2000, which gave power to an incompetent who invaded Iraq (for no good reason), failed the people of New Orleans after Katrina, reversed progress towards a global agreement on climate change, and fueled the economic bubble that led to the Great Recession, which hurt the average person but protected bankers from their own failures. Obama did a heroic job with the shit-sandwhich he was given, but the Republicans spent all their time undermining him rather than helping the country and its vulnerable people. Sadly, their strategy enabled the election of Trump, who has got to be the worst person ever to sit in the White House (and I’m including Jackson, Nixon and Bush 2). Given the current clusterfuck in the US, I am sure that we’ve yet to see the worst of Trump’s presidency. I certainly hope that the damage is not too deep and that those responsible are punished, but that justice will only recover 1% of the damage Trump and the Republicans are doing to the US and the world.

Burning man’s #metoo problem

Burning man opens its gates today to ~70,000 burners and virgins, eager to express themselves, participate and enjoy the dynamics of one of the world’s most inclusive, radical and innovative communities.

Many people are changed by Burning Man, the vast majority for the better but some for the worse. As a glass-half empty kinda guy, I want to talk a about Burning Man’s constitutional failure to protect the innocent.

To put this in context, consider Burning Man’s 10 Principles, most of which boil down to “let everyone do what they want, no matter how weird you might think it is.”

B.E.D. has the right idea.

But these ideals of “radical inclusion” do not touch on the most important element of freedom. i.e., freedom from being harassed by those “radically” photographing, approaching, and touching others without their consent. Assault (menacing approach) and battery (actual physical contact) are, of course, banned at Burning Man in exactly the same way that they are banned in the “default world,” but they are not explicitly called out as inappropriate in the 10 Principles, which is why there have been more reports of sexual harassment, unwanted groping and rape at Burning Man.

Most Burners are aware of these issues, and the Bureau of Erotic Discourse (B.E.D.) has been active for years in promoting consent before engagement, but those efforts have not been adopted into the 10 Principles that are plastered all over Burning Man, featured prominently in the handbook sent to all ticket buyers, and so on.

My one-handed conclusion is that the Burning Man Organization (the Borg) must revise its constitution to add an 11th Principle: “Consent is more important than your radical expression, so ask first and anything other than Yes means No.”

Who has the time to get stuff done?

(I’m taking a break from a multi-day painting project to write this. The irony!)

Most people juggle a mess of overlapping, conflicting time demands arising from a variety of obligations and desires. Running at 110 percent means that there’s always something waiting to be done. (Social media makes this problem worse because it’s common for “a quick scroll” to absorb so much time that you’re not only late for your next to do, but stressed because you “haven’t had a breather” between tasks…)

The problem with piecemeal, jammed schedules is that people have a hard time devoting a block of time (3-4 hours) to a topic, let alone finding 3-4 hours on short notice for an urgent topic. 

Thus, we see an equilibrium where everyone is rushed, each task only gets a little attention, and it’s much harder for a group project to advance in a timely manner. Indeed, it’s much more common to have a three-person project drag on over several weeks instead of getting done in a few hours. The delays are mostly around coordination, because each person, as they turn to the project, needs an update from others, which means delay and confusion before they can even start, let alone send their part to others. In these conditions, transaction costs are high and the whole process annoying. (Trans-disciplinary communication among academics can be particularly bad due to jargon and work norms, let alone philosophical disagreements.)

There are two ways forward from these issues. For individuals, it’s to cut back on casual tasks, leave gaps empty for a breather, and set aside empty blocks of time each week. (I can’t remember where, but I read a few months ago about a very successful person who had blocked out two free days per week.)

For groups, the issue is worse because the person with the worst agenda is going to set the pace for everyone else, losing even more time and annoying even more people. 

I thought of this topic two months ago while at a conference with 700 economists in such a hurry to get to their presentations or find one of 25 parallel sessions that they hardly had any time to think, let alone extend serendipitous meetings into the conversations they might deserve.

So my suggestion for groups is that they go for a “hackathon” concept in which everyone works only on one topic for 1-3 days. The key elements — presence, communication and deadline — will aid success by setting expectations, collecting all decision makers and aiding problem solving.

I suspect that every company, academic department and family could get a lot more done by scheduling 2-4 “hacks” per year, with details (fix a nagging problem, design a new idea, etc.) decided as the date approaches. These hacks will be more productive because everyone will be there, the deadline will force attention onto ugly issues, and progress will motivate everyone to keep pushing for the next step.

My one-handed advice is to set aside more “empty blocks” for yourself and schedule a block for your family or work. 

Do you see anything familiar here? How do you get stuff done?

Yes to more women in power

Women have come a long way in the past 100 years: “receiving” the right to vote, “being allowed” to work outside the house, “having the choice” of pregnancy. Some of these rights have been “taken” but the majority has been “given” by men who are not always happy to be losing power.

Men still tend to dominate aggressive professions such as sports, business and politics. Although competition in those professions can be helpful, it can also bring destruction, cheating, and social misery. * 

I’m not going to argue on the exact blend of social and biological characteristics inherent in gender, as that mix is irrelevant in comparison to the outcomes of gendered behavior.

What’s interesting (and my point) here is that women’s rising political and economic power should (will?) lead to different dynamics around cooperation and competition. This is not just me saying “mommies are better” but a predictable outcome of gender socialization and evolutionary biology.

Women, for example, do not take as many risks as men because they do not care as much about the additional mating opportunities that come with wealth and fame. Less risk also means more cooperation since risk is an individual pursuit (think “first to the top of a mountain” or “grabbing the job”) and cooperation a collective pursuit.

Coming from a different angle, it’s also possible to view risk and cooperation though the lens of motivation, rewards and punishments. When it comes to group activities, it’s sometimes hard to know who has done what for (or against) the interests of the group. In these circumstances, a strong intrinsic (internal) motivation to cooperate is valuable, since there’s no need to invoke extrinsic (external) rewards or punishment for free-riding. In a co-authored paper on this topic, we found that women paid more attention to collective actions than men, meaning that they are more likely to cooperate when that goal is publicized. (Men are also cooperative, but not as sensitive to cues of where and how to do so.)

I’ve taught a course on cooperation in the production of collective goods for a few years now (I’m starting again in a few weeks), and I looked up the student grades, to see if more men or women were rewarded for cooperation (or penalized for free riding) by others in their group. Ignoring many statistical caveats, the raw data looks like this:

  Rewarded Penalized
Male (37 total) 35% (n=13) 65% (n=24)
Female (52 total) 48% (n=25) 52% (n=27)

These numbers support the idea that women in these groups were more cooperative than men, but let me add two caveats. The first is that rewards and punishments were zero-sum, so it would be impossible to have 100% within a group but not impossible to have 100% here (e.g., groups are 50% free riding men and 50% cooperative women). Second, students knew that they would be graded for their cooperation (extrinsic motivation!), but there’s still quite a gap between men and women.

My one-handed conclusion is that a larger share of women with political and/or economic power is going to result in more cooperation and more punishment for defection. That will be good for the commons of our societies, the environment, and humanity in general.

Ps: My mother died over 30 years ago, but her birthday recently passed. In my experience growing up, I received more care from women than men, who tended to focus on money (and themselves). #checkyourbias

* Addendum (15 Aug): “The average age of admission to a trauma center is about 22. It used to be 90 percent male. Now, it’s only like 84 percent male. Women are becoming as stupid as men.”

Published: Water civilization

After a few years (and 22 revisions), our paper* has been published!

In “Water civilization: The evolution of the Dutch drinking water sector” Bene Colenbrander and I trace the history of policy, technology, and cultural changes that took the Netherlands from a country with no drinking water infrastructure to one with a world-class system.

The abstract explains:

Dutch drinking water companies now deliver safe affordable water to the entire population, but this result was not planned. It emerged, rather, from an evolutionary process in which various pressures on the commons resulted in changes to drinking water systems that addressed old concerns but uncovered new problems. Our analytical narrative traces this problem-solution-new problem pattern through four eras in which a common-pool dilemma is addressed by a private-good solution (1850-1880), a club-good solution (1880-1910) and a public-good solution (1910-1950) before returning to a private-good solution in the last 1950-1990 era. Actions, like the dates just given, were not always exact or effective, as the process was shaped by changing social norms regarding the distribution of costs and benefits from improved water services. This Dutch history is unique, but its insights can help improve drinking water services elsewhere.

This academic paper of 36 pages might seem irrelevant for a non-Dutch reader or daunting for a lay reader, but we suggest you give it a go. For non-Dutch, there are lessons on the difficulty of change and how interest groups fight over money and public health. For non-academics, this paper explores  the complexity of changes that took over 100 years to implement. 

One of the paper’s key features is our model describing how drinking water service could be described as one of four types of “economic good,” depending on conditions. This model is not new, but our application to this history is novel and (we think) helpful in explaining how various barriers arose or were overcome. It took quite some time to make it simple and many words to describe how it works, but we think that readers can learn a lot from the model, which can be used elsewhere. We hope you agree!

My one-handed conclusion is that it’s always difficult to implement systems that benefit all at a cost to a minority, but also that there are many cases (as with drinking water) where implementation creates net benefits. The difference between communities that can change and those that cannot is the difference between life and death, between development and failure.

* You can download a PDF from my personal site or get it via the publisher’s webpage [paywall/login].

China doesn’t want your rubbish

I was a bit surprised to hear (from one of my students) that China banned the import of “low value materials” for recycling in the country in July 2017. This move has raised panic in many countries that had been using China as a “dumping ground” but also some head shaking among economists who prefer to see more, rather than less trade, as trade allows countries and people to specialize in what they do best (“comparative advantage”). 

I think those reactions are not as important as two other points. 

First, it shows that the Chinese government is willing to “stand up” for its people, by blocking the import of garbage. That perspective might be slightly distorted by nationalism and NIMBYism, but it is probably more popular with citizens than efficiency or potential job losses in the recycling industry. (It’s also popular with proponents of the “circular economy” who want to see more local management of inputs and waste outputs.)

Second, I don’t think there will be many job losses, as this move fits into a trend of “greening” China that has been developing over the past decade. This trend might be invisible in the statistics for air quality or coal consumption, just as it is perhaps over-emphasized in the massive deployment of solar and wind power, but there’s clearly something going on. In this case, I see an “interesting” (not accidental) confluence between the sudden drop in international demand for Chinese recycling services (via the ban on imports) and a growing desire to clean up China, which translates into a domestic demand for recycling. The ban, in other words, might be part of a plan to shift Chinese productive capacity towards domestic consumers.

For evidence of an intentional shift, I’ll note that China has been placing less emphasis on export-led economic growth and more emphasis on the domestic-driven sort (since the 2011-2015 Five Year Plan), meaning that an increasing share of firms and workers are now selling goods and services to fellow citizens rather than internationally. *  

How far do they want to go? Guess…

My one-handed conclusion is that China’s ban on imported waste is part of its ongoing policy of improving life for its increasingly wealthy citizens who demand better, cleaner lives.

* Read PDF reports from McKinsey (2009) and the Demand Institute (2015)

So what happens in a drought?

If you were walking along the path on an island in Gothenberg’s archipelago, you might have thought you’d run into another selfie-mad idiot, but that’s me doing a TV interview on drought in the Netherlands.

Not just any idiot

Only a few seconds of that interview was aired (I show up at 2:40), but my main points — that farmers and nature would bear the brunt, unlike citizens who would still have 24/7 drinking water — have been showing up in the news, along with some interesting infrastructure implications:

My one-handed conclusion is that heat waves and drought, which are getting worse with climate disruption, are going to cause a lot of trouble for people as well as lower our standard of living. (I just spent €50 on a fan that I could have spent on wine!)

Quantified disappointment

I am a big fan of statistics, facts and data, and the internet has made quantification easy, fast and cheap. In fact, I think a little too easy, fast and cheap for our own good (or my own good).

As you know, you can get market data by the second, count your “friends” on social media, see precisely how much something you’ve done is “liked,” or even check your bank balance as you ride an elevator. 

As a blogger, I can get data on how many visitors come by my site, which posts are viewed more often, where these visitors come from, and so on.

Except now, on this blog, I do none of those things that I used to do at Aguanomics. I dropped tracking to reduce flows to the “data dragnets” deployed by Google (via their free “Analytics” service), Facebook (via their “like” button) and other services. I also chose ignorance for my own sanity, as I have no real way of using the data to write better posts (I don’t use advertising, so I don’t need to refine garbage clickbait posts), and I can’t really get a quality feedback from quantified activity. 

As evidence (for myself), I can think of the many terrible articles on topics I know that get 1000x the reads/likes/shares on other sites, along with dozens of ignorant, simplistic, and trying-to-be-helpful-falling-on-deaf-ears comments. I can also remember “Ask Me Anythings” that I’ve done on Reddit that had 300 to 5,000 upvotes. Those votes disappointed and thrilled me, respectively, and they did reflect different degrees of engagement, but they did not perhaps represent failure or success to readers. If anything, I had more time to give better answers in the “slow” AMAs than I did in the popular ones, where the same question was asked ten times, and I struggled to give short answers to everyone.

We all know that it’s taboo to “talk salary” with friends, family and co-workers because those conversations rarely go well. Maybe it’s nice to know that you make more than anyone, but does that knowledge actually mean anything? Are you happier? Healthier? What about your relations with work colleagues? At my university job, we know we make roughly the same salary because we’re on a bureaucratic scale, and that knowledge removes at least one source of friction that might exist at a job where people are paid based on their negotiating skills, the boss’s prejudice and/or some quantified dimension that may not correlate very well with your actual contribution. 

When I give grades to students, I see exactly the same dynamics: They give too much attention to the grade (especially when nitpicking to raise it) and  too little attention to my comments on what they did right and wrong and how to improve. They resist when I say “grades don’t matter,” as they know that many graduate schools and hiring departments will judge them by their grades, but maybe that filtering indicates that study or work in those places will involve an endless chase after even more grades or KPIs? 

I’m rather happy and relieved to lack data on how popular this new blog is, as it leaves me free to think more about what to write. I am happy to be off Facebook (and, soon, Twitter), as I don’t need to worry about how many likes my latest brainfart post gets, or from whom, or in comparison to the paid popularity of some “thought leader.”

It’s no accident that (sane) people ask “do you love me?” when they need some attention instead of “how much do you love me?”, as it’s easy to be pleased with “yes” and far-too-easy to be disappointed with “7.8.”

My one-handed conclusion is that we need less, not more, quantification in our complex, multi-dimensional, and unique lives.

What quantification would you banish to improve your life? Why don’t you?