Monday, May 24, 2021

The Debits, The Credits, The . . . People We Exploit


Imagine being a fly on the wall overhearing various nefarious conversations at a major corporation's board of directors meeting. 

Imagine them trying to save money by paying women less, trying to please customers by not hiring racial minorities, contemplating intellectual-property theft, discussing a newfound way they can literally defraud customers, etc. 

These would all obviously be wrong (morally and ethically not to mention in many cases criminally), and these ideas would not be within the scope of fiduciary duty. The board of directors of a public company does owe a fiduciary duty to shareholders. That duty requires it to put the interest of shareholders first including doing their best to maximize shareholder value. Yet that duty does not extend to wrongdoing on behalf of shareholders or the firm nor does it excuse them morally or ethically from guilt. 

I think these examples above are the easy cases. At least they should be easy for you. Let's consider something a bit more challenging.

Should we put cronyism in the same unethical category? Is pursuing special favor from the government at the expense of the public unethical? Are benefits to a firm and its shareholders legitimate when they are derived through socially destructive means? Undoubtedly there are meaningful differences in degree and type. 

At what point does activity like developing and utilizing business relationships, networking, and advocacy cross over to be unethical--cronyism if you will? I believe one clear marker would be when that behavior would be reasonably expected to violate the rights of a third-party either actually or potentially with good likelihood. That is a clumsy test, I know. While it leaves lot left for interpretation, I do think it gets to the essence of the problematic case.

In one realm we have competitive behavior in the pursuit of success. In the other we have coercive behavior in the pursuit of unearned gain.

It is difficult to disentangle behavior and results between these two worlds. In fact people participating in an activity during or after the fact would find it quite challenging even if they could put their natural bias to the side--the bias to believe they were acting in good faith and to good ends using good information and sound logic. It is hard to see when the world generally and the business world in particular is as political as ours has become.

As a result cronyism is perhaps a natural cancer within capitalism that requires active resistance. It extends beyond simply lobbying for advantageous contracts. It includes businesses supporting expensive regulations such as safety standards and minimum wages. When the railroad industry supports limits on truck size and trucker hours or when Facebook asks for the government for Internet regulation or when Amazon lobbies for a $15 minimum wage, they are all doing so for competitive advantage. If those policies would also result in a social benefit, it would be rather coincidental and not at all self-evident. 

Cronyism is endemic and pervasive. The cure is neither obvious nor likely easy. Just identifying the responsible parties is quite hard. As Michael Huemer says, blame everybody and nobody.



P.P.S. This post's title is taken from a line in this Jake Johannsen comedy special from the 1990s.

Sunday, May 23, 2021

Where to Eat When Traveling

Summer travel season is quickly approaching. And this one promises to be crazy. On the supply side places are figuring out reopening on the fly in a rapidly changing environment and dealing with temporary shortages (in the common rather than economic sense). It may develop into an economic shortage if prices are not allowed to adjust, which I suspect will happen in many instances.

On the demand side personal balance sheets have never been so flush with cash. Combine that with the pent-up demand from a year without travel, and you have a recipe for a surge in customers. 

The list below is not time sensitive to this upcoming season. I want it to be evergreen, but hopefully it is additionally helpful for the vacation chaos of 2021.

Subject to revision, here is my advice list:
  1. Eat the local cuisine - Back in grad school I was on a summer study abroad in the south of France--I learned a lot and 90% was not in the classroom. There were several lessons learned in food. One was Pizza Hut and McDonald's (royale with cheese aside) is the same the world over. Another was Tex-Mex in Toulouse is about as silly as that sounds--I don't think this would have been different had I not been from Tex-Mex country. 
  2. Eat where locals (not tourists) are lining up - This helps you avoid the "world famous" place that is resting on its laurels. 
  3. Dine where you will be comfortable - There is a lot to be said for challenging one's comfort zone. However, don't get so far out of your comfort zone that you can't relax and enjoy it. This includes go where your attire will fit in reasonably well and where your group will fit in. Got your kids with you? Then you're skipping passed Chez Paul. And keep in mind that truly kid-friendly places don't have to advertise that they are kid friendly.
  4. Choose quantity of places over quantity of servings - When possible, choose two places over one for dinner and breakfast, perhaps three places over two or one for lunch.  Order smaller portions to accommodate. Diversification is a good strategy in more things than investing. For example, pick up coffee and a pastry early and then have or share an egg dish or waffles in an hour at another place. Don't worry about clearing your plate. That is a bad policy in general any way. 
  5. Allow spontaneity / don't over plan - Reservations are necessary sometimes, and a rough outline plan is usually rewarding. Still many mistakes are made when adherence to a plan is strictly enforced. In battle no plan survives first contact with the enemy. In travel no dinner reservation survives the next bend in the road. Many a meal has been thwarted because of an unexpected photo op, "five more minutes at the craps table", a "quick last ride" on It's A Small, Small World, a shortcut through the park, etc. Also, that celebrity who is imminently about to leave the Plaza snuck out through the back door an hour ago. Go meet your friends for dinner.
  6. Know your budget, allow some excess, stick to it - You're on vacation, dammit! And you want to take another sometime soon as well. Indulgence does not imply bankruptcy (read that both ways--an excuse and a warning). 
  7. Use the small/medium/large/small ratio (related to #6) - You can only eat so much the same as you can only spend so much. The law of diminishing returns applies. Don't follow a calorie indulgence with another one. Space it out and pace yourself. You cannot see all of Europe in one trip. Likewise you cannot eat all of Europe in one trip.
  8. [updated to add] Choose off hours - Places don't typically loose their magic when they aren't at peak capacity. Often they gain. This is not the case for places where the ambiance or surrounding entertainment is part of the experience, but that is about the show and not just the food. The last time I was in Vegas our group wisely choose not to go to Hash House A Go Go during the brunch rush (two-hour wait!) and instead went there around 6 pm getting right in. People are right to flock to that place. They are foolish to be so conventional thinking pancakes only work between 8-11 in the morning.

I'm not sure how much, but Tyler Cowen deserves a hat tip for certainly some of the above list.

This picture both supports and contradicts some of my list:



Saturday, May 22, 2021

Most Charity is a Failure


I know you want to do good, and I know you want to think that wanting to do good combined with doing something results in doing good. Unfortunately, you are very likely and in most cases completely wrong. 

I suspect that most people will either reflexively disagree with and disregard my position on this or accept it at face value as a necessary consequence of human social failure. I also suspect that most people who have extensively studied this area as well as most people deeply involved in this realm will either strongly agree or disagree with me. 

For this post I imagine each of these four constituencies as potential audiences. 

First of all understand that charity isn’t always about doing good as Robin Hanson would tell us. Often it is a bundled good which combines a desire to dream altruistically and be recognized as altruistic with little connection to outcomes.

Second of all note that government action (i.e., forced collective action) is usually worse in all regards. At the very least with a failed charity we can more easily delude ourselves that what we are doing is on net beneficial and not resource or happiness destructive. And then there is the side benefit that we did it basically through voluntary agreement and persuasion rather than the threat of ultimately deadly force. 

Third of all let us distinguish between charity and other not-for-profits.* A charity is looking to benefit an underserved beneficiary. There are other not-for-profits that are actually just tax-favored gifts to one's own hobbies and personal enjoyments. The focus of this post is charities as commonly understood.

The problem with not-for-profits in general is that they are responsive to donors rather than customers as Arnold Kling elaborates

Donors and customers both have desires they want met. To understand if they are satisfied the donor is presented the answer while the customer largely gets to judge for himself. The marketing to donors strongly tends to be aspirational and promise-based whereas customers have to consider the actual outcome and experience. Additionally, donors have two biases at play further constraining their willingness and ability to be critical: selection bias (they already are supportive of the cause ex ante) and confirmation/endowment bias (they want to believe they made good choices).

Sam Harris makes great points in this podcast like how charities don’t stop existing often enough—they can be failing or have completely succeeded but they still are in operation, which implies they are wasting resources.

Just like in the fine art market where no participant has a strong reason to discover much less publicize a forgery and does have powerful incentives to suppress such information, participants in the not-for-profit sector are incentivized to self-promote and cross-promote the whole edifice as being successful. 

The challenge for charities are the classic problems of the seen versus the unseen, moral hazard, conflicts of interest, and the law of unintended consequences. 

This TED talk on African orphanages has elements of all four problems. 

ProPublica has been reporting for years on the failings of the American Red Cross.

TOMS Shoes has faced forceful criticism about its charitable program of donating a pair of shoes to a poor child for each pair of shoes purchased. In a rare case of reversal TOMS now donates 1/3 of its profits directly to "grassroots" efforts. This may be much better than their prior famous-cum-infamous program that had the unintended consequence of displacing development in poor countries. 

New York not-for-profit hospitals asking their patients for donations makes one wonder just how not-for-profit they really are. 

There are unintended consequences for heartwarming charities like Make-A-Wish, et al. When resources are directed to one thing, they cannot also be used in any other area. There are always tradeoffs.

Add to the classic problems listed above the simple element that good intentions are not sufficient for successful solutions. Case in point would be food drives where the obvious need is not the obvious solution.

It is possible to bring strong doubt to the ultimate value of any charitable organization. The fact is most do not stand up to scrutiny.

Yet we want to do good; so what is a good doer to do?

I am a weak proponent of effective altruism. It is a way to distinguish between what works and what does not. To quote admirable, strong effective altruism advocate Peter Singer, "Effective altruism is based on a very simple idea: we should do the most good we can." He goes on to explain:
Effective altruism is notable from several perspectives. First, and most important, it is making a difference to the world. Philanthropy is a very large industry. In the United States alone there are almost one million charities, receiving a total of approximately $200 billion a year, with an additional $100 billion going to religious congregations. A small number of these charities are outright frauds, but a much bigger problem is that very few of them are sufficiently transparent to allow donors to judge whether they are really doing good. Most of that $200 billion is given on the basis of emotional responses to images of the people, animals, or forests that the charity is helping. Effective altruism seeks to change that by providing incentives for charities to demonstrate their effectiveness. Already the movement is directing tens of millions of dollars to charities that are effectively reducing the suffering and death caused by extreme poverty.
Second, effective altruism is a way of giving meaning to our own lives and finding fulfillment in what we do. Many effective altruists say that in doing good, they feel good. Effective altruists directly benefit others, but indirectly they often benefit themselves.
Third, effective altruism sheds new light on an old philosophical and psychological question: Are we fundamentally driven by our innate needs and emotional responses, with our rational capacities doing little more than laying a justificatory veneer over actions that were already determined before we even started reasoning about what to do? Or can reason play a crucial role in determining how we live? What is it that drives some of us to look beyond our own interests and the interests of those we love to the interests of strangers, future generations, and animals?
Finally, the emergence of effective altruism and the evident enthusiasm and intelligence with which many millennials at the outset of their careers are embracing it offer grounds for optimism about our future.
It would be nice to have a roadmap and a good introductory guide. Given all of this, effective altruism seems like the way to go. So, why am I only a weak proponent?

Well, it turns out the world and its problems aren't quite so simple. Consider Peter Singer's famous thought experiment on the drowning child from his book The Life You Can Save (taken here from a Vox interview):
Imagine you’re walking across a park. Somewhere in that park there’s a pond. You know the pond is quite shallow, but you see something splashing in the pond. When you look closer, you’re shocked to find that it’s a small child who seems to have fallen into the pond and is flailing around because it’s too deep for this small child to stand. So, you look around for the parents or the babysitter, but there’s nobody. There seems to be only you and the child. Your next thought is, I better run down to the pond, jump into the pond, and grab the child. Not hard to do. No risk to me because the pond is shallow.
But then it does occur to you that [saving the child] is going to ruin your most expensive shoes. You’ll be up for some hundreds of dollars to replace them and other clothes you might ruin. So, you think, why shouldn’t I just walk away and not have to go to the expense of replacing my shoes? Now the question for everybody is: If somebody did that, would you think that was really the wrong thing to do? Would you think that you had done something seriously wrong in leaving the child very probably to drown? Most of the people who I ask this of say that would be an awful thing to do — it would be terrible to allow a child to drown because you didn’t want to go to the expense of buying new shoes, even if they were expensive ones.
The point of the thought experiment is to then switch to the situation that we really are in. We live in an affluent society where we often have considerably more than we need to meet all our basic needs, enjoy life, and make reasonable provision for the future. We also are living in a world in which there are millions of children who die each year from preventable causes and there are effective organizations that would gladly accept a donation from you that would increase their ability to save some of these children. So, if you’re not helping to save some of these children, then are you really all that different from the person who walks past the child in the pond?
This is a compelling story and a powerful argument in an of itself. However, there is something bigger going on here. Why is this child drowning? As an analogy for children suffering, dying in fact, on a daily basis, where are the parents? Why are these children dying when they could so easily be saved? Why are they repeatedly falling into the pond to drown? The deeper question becomes what is the institutional, societal, cultural failure that has brought this about. 

Effective altruism has a blind spot. It does not do much more to seek to correct the underlying causes of problems than do all the other naïve approaches to charity. It may have a better rate of attaching bandages to wounds, but they are still just bandages. 

Perhaps that is too uncharitable. I don't mean it to be so harsh. Yet the fact remains too often organizations that pass the effective altruism test are not addressing underlying causes of problems. 

It is an illusion that lives can be bought like cars. For a start, the evidence is nearly always in dispute. The alleged effectiveness of the Deworm the World Initiative—which, at the time of this writing, ranked fourth in GiveWell’s list of top charities—runs contrary to the latest extensive review of the evidence by the Cochrane Collaboration, an organization that compiles medical research data. Maybe Cochrane is wrong, but it is more likely that the effectiveness of deworming varies from place to place depending, among many other things, on climate and on local arrangements for disposing of human waste.
More broadly, the evidence for development effectiveness, for “what works,” mostly comes from the recent wave of randomized experiments, usually done by rich people from the rich world on poor people in the poor world, from which the price lists for children’s lives are constructed. How can those experiments be wrong? Because they consider only the immediate effects of the interventions, not the contexts in which they are set. Nor, most importantly, can they say anything about the wide-ranging unintended consequences.
However counterintuitive it may seem, children are not dying for the lack of a few thousand dollars to keep them alive. If it were so simple, the world would already be a much better place. Development is neither a financial nor a technical problem but a political problem, and the aid industry often makes the politics worse. The dedicated people who risked their lives to help in the recent Ebola epidemic discovered what had been long known: lack of money is not killing people. The true villains are the chronically disorganized and underfunded health care systems about which governments care little, along with well-founded distrust of those governments and foreigners, even when their advice is correct.
I consider effective altruism as a second-best solution. What would the first best be? Something as unpalatable to most as it is highly effective: economic growth through a pro-business environment that embraces free trade of all kinds and open borders in all places. 

Production vastly outworks charity. That is the way to escape poverty of all dimensions. 

It is a big world with complex and complicated problems. There is a role and a need for charity. Part of that is the moral and spiritual benefit bestowed upon the giver. Part of that is the actual good delivered to the beneficiary. 

We should strive for charity that is effective and efficient--that accomplishes the goal and does so without an unnecessary use of resources. A very big part of that is properly defining the goals long before and continually as we evaluate the options, analyze the progress, and retire the accomplished. 

The natural state of man is abject poverty. Charity does not and cannot solve that. Charity is funded from production to smooth out that which production illuminates as a temporary and undesirable shortcoming. Put another way: Charity fills the gaps we can at least hope to fill by virtue of production until production can eliminate them altogether. 


P.S. Alternatively, perhaps you're interested in ineffective altruism?


*In the debate between the terms 'not-for-profit' and 'nonprofit' I think I believe nonprofit (or non-profit) is the worse term as all entities earn profits, or at least they should. The critical distinction is what the entity can do with the profits earned and if profit is the ultimate goal.  A for-profit firm is and should be ultimately concerned with maximizing profit (we can litigate another day how Milton Friedman was completely right on this). A not-for-profit is not primarily driven to generate or maximize profit. It is driven to achieve outcomes but do so in an efficient manner (not destroy more resources than it creates). Being nonprofitable is prima facie bad since that organization is more explicitly in the pursuit of achieving particular outcomes without doing so profitably. 

Friday, May 21, 2021

The Virtues of the Market Process

It is not because it brings about better outcomes for the best. It is because it is the most reliable method for bringing about better outcomes for the least. 

The market knows (and continually discovers and improves upon) what otherwise cannot be known: where, when, and how much to do what. 

This is in part because the market aggregates knowledge in a way that creates better knowledge and in part because the market communicates that knowledge effectively. Both parts work in tandem as the process is a continual positive feedback loop. 

Key to all of this is the market process's combination of two powerful forces: incentivizing the pursuit of knowledge and rewarding the discovery of knowledge. 

As a market participant I am invigorated and rewarded for bringing about better outcomes for others. The eventual effect of this across all participants is to satisfy the infinitely complex and conflicting desires of ALL others, and this happens in each instance of market activity because prices, the market's tool for communication, encapsulate all desires in a single, universal signal. 

The hallmark of the market's achievements is how from nothing comes more and more (resources) to give us more and more (happiness) for more and more (people). 

Thursday, May 20, 2021

Two Short, Partial Lists . . . More or Less

We don't just have wants; we have wants about our wants. 
                    -- The philosophy of Harry G. Frankfurt as channeled by Russ Roberts

Things I would like to like less: 
  • Football
  • Running errands
  • Donuts
  • Saving and salvaging old stuff
  • DIY
  • Collecting
  • Piddling around the garden
Things I would like to like more: 
  • Baseball
  • Exercise
  • Tea
  • Live concerts
  • Playing golf
  • Attending church
  • Math
This is a very partial partial list. I could go on and on. And it changes over time, but these items are fairly constant. 

One might say that I am yearning to be someone else, and that would be partly true. Such a yearning can be a healthy aspiration or a smothering burden. I don't think I'm deluding myself to believe I keep it on the healthy side. 

And this is more about how I wish I ticked rather than how I wish I acted. Any good economist rightfully responds to the statement "I want to have X" (where X is a new job, a Ferrari, more time to travel, etc.) with the terse reply "Obviously, no you don't."

While these are not desires I can completely bring about, I can work on them. Perhaps I should/will, but perhaps I'm partial to leaving aspirations as they are.

Wednesday, May 19, 2021

Timelessness of Seinfeld Rendered Untimely by Tech Changes

Seinfeld, the greatest  sitcom in history (a title I don't give lightly), has a humor that I believe is timeless. However, most of the episodes contain elements that are today impossible because of technological advances. Obviously this is applicable to a great many movies and TV series episodes of the past. 

Here are some examples from Seinfeld where the main premise is null in today's world--mostly because of mobile phones and the Internet:

  • S1, Ep2 The Stakeout - Jerry and George stake out the lobby of an office building to find a woman Jerry met at a party but whose name and phone number he didn't get.
  • S2, Ep4 The Phone Message - George leaves several awkward messages on a girlfriend's answering machine, then decides to steal the tape.
  • S3, Ep6 The Parking Garage - The four get stuck in a parking garage for hours when they forget where they parked.
  • S4, Ep14 The Movie - Jerry does a set at a comedy club, then goes to meet George, Elaine, and Kramer afterward to see a screening of Checkmate. However, a simple miscommunication causes the four to keep missing each other at two different theaters.
  • S7, Ep8 The Pool Guy - Kramer discovers that his phone number is one digit off from that of a popular movie-finding service and offers help to those that mistakenly call his number.
  • S9, Ep20 The Puerto Rican Day - Jerry, George, Kramer and Elaine get stuck in standstill traffic due to the massive Puerto Rican Day Parade.



P.S. After creating this list I had the good sense to Google it. No surprise there has already been extensive research into this phenomenon

Tuesday, May 18, 2021

Failure Due to a Lack of Imagination


How can you possibly have this without that

How can we have great TV without commercials that are viewed? 
Journalism without newspapers? 
Lending without banks? 
Currency without gold backing government issuance? 
Meat without slaughtered animals? 
Cars without gas? 
Cars without drivers? 
Mail delivery without a U.S. Postal Service?
Etc... 

If the demand for X is there, supply will come. The specific means of supply are almost always sufficient but not necessary. In fact the means of supply are constantly shifting and fleeting as competition makes sand of once sturdy foundations. 

This is all for the better for society no matter the temporary pain specific producers must endure. We hold back change, question new developments, innovations, and techniques, and stifle entrepreneurial exploration all for lack of imagination and faith in the process. 

It is not just regulation where government is aiding the bootlegging vested interests at the behest of the Baptist worriers. We see slow adoption and disapproving dismissal throughout society--all the way from concept to highly proven result.

Yes, there is another side to this. Chesterton's Fence is an important force for good. But it is just a starting point in the conversation about change asking us to slow down and consider what we may not fully understand. It is not an ironclad rule that change must be bad. And it fades from being relevant as those with the most at stake and who are the most involved are the ones leading the way for change.