The gender-pay gap misses manly risk

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.

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.)

Weekend reading

  1. Gendered path dependency hinders corporate performance
  2. We are moving from “endless” to scarce sand for the same reasons as the increase in scarce water: growing demand and mismanaged supply.
  3. Ex-EPA head Gina McCarthy talks about environmental policy, how the Trump team is doing it wrong, and why America is still in Paris. Watch “Environmental policy and the assault on science” (she starts at 6:45).
  4. A brutal, but fair, critique of a Dutch policy failure (taxes on expats)
  5. This essay on a struggle with student debt is heavy on pathos but not logos, as the author’s debt is the result of “pay whatever it takes for the degree(s) in English literature.” The Baby Boomers found themselves through sex,  drugs and questioning authority; their children are finding themselves indebted to authorities issuing certificates of knowledge.
  6. Melatonin is useful for sleep but don’t overdose.
  7. Speaking of [this blog], here are a few things economists agree on.

Review: Doughnut Economics

Kate Raworth’s book (2017) has attracted a lot of attention. Students has asked if I “teach the doughnut.” Raworth is feted as a rockstar at various festivals. Some reviewers claim a “breakthrough… that will help save the planet.”

So I had to take a look at this book, and a look was all I took.

First — and no surprise — Raworth has not discovered or uncovered anything. She’s just written out a number of well-known ideas that economists have discussed for decades.1

Second — and quite annoying — Raworth presents these ideas as a radical rejection of “conventional economics,” but her strawman caricature of those conventions is based on a Frankenstein-copy/paste-mess of ideas that are usually out-of-date, discredited or merely misinterpreted (by her).2

Third — and thanks god — she does explain a number of useful concepts that economists (and other social scientists) have been exploring for years. These ideas include many that I use for teaching and research, which is why I was not really impressed by the doughnut. (FYI, the idea is that we don’t want to “fall in the hole” of being too poor and miserable, nor “exceed the boundary” of unsustainable behavior.) With this in mind, I might recommend her book, as I would recommend Freakonomics or Economics: A Users Guide, except that all these books distort what economists actually do and the economic method. Raworth, in other words, gives a distorted view of economics (often derided as the “Econ 101 perspective”) that is likely to deceive readers into thinking they understand when all they’ve learned is a superficial perspective that falls apart when questioned.

I often say that an expert is someone who knows what’s missing from an argument (and thus what questions to ask). From this perspective, I can say that Raworth’s arguments are full of holes and wishful thinking.

Fourth — and here’s my elitist perspective — Raworth’s background (BA and MSc degrees from Oxford; 10 years at Oxfam) means that she has lots of real world NGO experience but lacks experience with markets and economic theory. It’s thus no surprise that she’s suspicious of “neoliberal markets” and unaware of economists’ work on market failures, environmental economics, etc. I often say that an expert is someone who knows what’s missing from an argument (and thus what questions to ask). From this perspective, I can say that Raworth’s arguments are full of holes and wishful thinking. I would have been interested in her analysis of development, as Oxfam’s model puts far more reliance on “good people helping poor people” (and often failing because they are either not that good or just do the wrong things; read my paper) than on poor people helping themselves (and succeeding when corrupt governments and dodgy aid groups are not conspiring against them).

Fifth — and here’s my impatience — I didn’t read her whole book. Indeed, I could barely manage the first two chapters before I sat down to write this. Her prose is chirpy and her passion clear, but I disliked her preachy and snide tone (“it’s us good ones against them bad ones, dear”) on topics that are familiar to me and better discussed by other writers. (I’m now reading The Secret of Our Success and — wow –Heinrich’s work is stunning; review to come.)

Sixth — and here’s the (w)hole — Raworth seems eager to toss out the baby (economics) with the bathwater (her confusions of economics with politics, human actions with human aspirations) in her quest to “think like a 21st century economist.” The sad part is that many all of these ideas were in circulation among economists in the 20th century, but not in general circulation. Why not? Because many people don’t like sharing the commons, many people want new cars, and many people, sadly, don’t care about poor people. So Raworth doesn’t need to “fix economics” as much as “fix humanity.” I doubt that this message will reach her readers — probably all of whom are well-meaning and well-off but politically naive or powerless. In every course I teach, I emphasize that markets are embedded in society/politics but that markets (where “excludable” goods are managed) have nothing to do with development or sustainability — the “non-excludable goods” that Raworth doughnut emphasizes — which are subject to political and community management.

Bottom line: I give this book 4-stars for its aspirational discussion of how we should behave, its selective review of useful economic ideas, and its overall emphasis on ideas that economists have been working on for 50-plus years. If you want to understand how economics actually works, then start here or here [pdf]. If you want a good overview of “political-economic thinking” and the state, then listen to Pete Boetkte (and read his SEA paper).

  1. Example: The 1987 Brundtland Report
  2. Example: “There will be no shortage of the Earth’s resources, claimed the laissez faire economist Julian Simon in the 1980s, if markets are permitted to do their job.” That may be true by the strict definition of “market resources” such as oil or gold, but she uses this example to claim economists think “EARTH, which is inexhaustible — so take all you want” [p 70]. That statement is much broader, since Earth’s environment — as something we share in the commons — is not a market resource. This difference is known by the vast majority of economists (“negative externalities”) but I’ve written more here.

You can read all my reviews here.

Addendum (Dec 2022): This 2018 article on too much/too little energy use explains these ideas in a more reasonable way.

Weekend reading

  1. Blockchain and crypto will disappoint and succeed like other technologies
  2. Plastic straws provide insight into America’s cultural evolution, from eating out to women’s rights to environmental consciousness to political schism.
  3. Tech companies know more about your credit rating than credit agencies. Now what will they do with the information?
  4. Jean Tirole, a Nobel-prize-winning economist, on how to limit monopolistic abuses by tech companies
  5. Traditional statistics (with confidence intervals, degrees of freedom, etc.) is all wrong. We need to drop the math pretense and use our hunches, as recommended by Bayes.
  6. A short overview of six books discussing GDP and how it goes wrong
  7. This 1978 Q&A with Hannah Arendt is very relevant today: “If the ruling classes permit a small crook to become a great crook, he is not entitled to a privileged position in our view of history.”
  8. Climate change and rising seas expose the new normal of Florida: “We have to start relocating the things we value…”
  9. This 1965 view of abortion gives us as idea of the America that Trump and the Republicans want. (After watching Trump’s inaugural speech, I predicted they’d go after abortion. Make sure you vote in November if you support a woman’s right to choose when to have a baby.)

In praise of pondering

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?

* 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.

Weekend reading

  1. Neoliberalism’s roots date to a time when the rich wanted to protect their assets by confirming the precedence of voluntary trade over government intervention, but that meaning shifted to “pro-market” in the 1980s and now “crony capitalism” in the eyes of many. What’s the real meaning of neo-liberalism? It depends.
  2. It’s time for portable identity and a user-centric redesign of Facebook.
  3. Want to buy and sell in a really free market? Try Open Bazaar.
  4. The Dutch consumers association goes after packaging lies
  5. A prose poem on the wonders of water
  6. Cruel conditions (death in a Soviet gulag) can teach us about human nature.
  7. Repeating themes (of humanity)
  8. The origins of “well-regulated militia”
  9. The OECD points out that cities should align their planning with tax (and other incentives) because — no duh — incentives can undermine plans.
  10. Are you excited to have a “circular economy”? Who isn’t? The researchers who found 114 different definitions of the term. Which one do you choose?


The Ostrom Workshop loses its way

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. 

* 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.

Weekend reading

  1. Illiberal democracy seems to mean that Hungarian politicians can sell residency for cash
  2. Power is diffusing. Thus, there’s a need for more governance, at all levels of society
  3. The geography (rural vs urban vs suburban) of America’s divisions
  4. Surfers, property rights, the commons and gentrification in San Francisco
  5. What’s killing Americans? A primer on fentanyl
  6. Cooperation varies as water does, as a solid, liquid or vapor
  7. Sure, “try everything” to counter climate change, but not every idea is a good one
  8. The IMF has a special issue on digitalization and crypto (including this gem to “tax crypto”, this history of the pros/cons of fiat money, and LaGuarde’s wisdom on wait and see.
  9. Saving Curitiba and Vancouver from [excess] cars and roads
  10. A long look at Coke’s attempt to be “water neutral.” I think the journalist is a little too harsh on the company, given the massive issues with water management at larger scales, but it’s a good exposé of corporate and activist failures to understand water’s complexity. One big mistake: blaming Coke for the footprint of its supply chain when the real blame for “water use” falls with the consumers of the products.

Is the glass half empty or half full?

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?

Weekend reading

I read a lot, and I think you may enjoy reading these:

  1. Stuff your agenda, and you will lose time. Leave space to breathe.
  2. The Big Four accounting firms: “too few to fail, but definitely failing investors
  3. The Russian mafia are growing in America, often with help from Trump and his cronies
  4. Some options for privatization in Saudi Arabia [pdf] discusses water, oil, etc.
  5. How to Build a Smart City (an insightful podcast)
  6. Rich kids do better on the marshmallow test because their homes are calmer
  7. I watched “Downsizing,” a Matt Damon movie who’s plot revolves around some subtle discussions of sustainability and community. Recommended.
  8. Tech-culture: Customer feedback is worthless and longing for community 
  9. The decline of the Fourth Estate (reporters too lazy to check sources or find stories)
  10. Logic is hard.
  11. These villagers have kept their hand pumps working, with local rules of use

H/T to ED