July 2, 2010

A Malthusian look at the past generation, preface

Propagandists for the free market understandably feel besieged, given how anti-market the public is, and seek to boldly drive home how wondrous the free market is. I don't disagree with that basic outlook, but in their efforts to really sell the market, a lot of its advocates commit what Bruce Charlton calls the Texas Sharpshooter Fallacy. That is, you fire off a bunch of shots in who knows what direction, and then draw targets over the resulting bullet-holes -- look at what a great shot I am!

To really wow the public, such economists look for whatever shows the largest gains within recent history and point out how wonderful that is. There is little a priori or independent motivation that these areas really matter to human beings; the sheer gains themselves are supposed to dazzle us. Even if the area is one that obviously matters to people, they never argue that the large gains within the area translate into similarly large gains to human well-being -- or whether, as you might expect economists to propose, the gains to human well-being show diminishing marginal returns.

To take an example, free market advocates love to point out how much more memory the average personal computer has today compared to 1980, and how much cheaper it is. No reason is given for why computer memory matters to human well-being, probably because that would expose the argument to a pretty obvious criticism -- namely, that the average person cares more about other things than how much memory their computer has, so that this improvement should carry a lot less weight than, say, the change up or down in the cost of housing, food, energy, etc.

Even if we accept that computer memory were a big deal to people, no evidence is given that the gains to human well-being are an unbounded function of computer memory size. Presumably, as with much else in economics, there are diminishing marginal returns. When you go from a computer that only has 1 MB to one with 100 MB, you'll notice how much more you can do. It will seem like a "computer from the future." But going from 100 MB to 10 GB, you may still notice a difference, but it won't be much. Aside from shut-ins with obsessively large porn collections, there's just not that much that people use their computer for that will show astronomical improvements to their well-being -- certainly it will be less amazing than going from 1 MB to 100 MB. Going from a 10 GB hard drive to a 1 TB will seem even less impressive to the average person.

To take a more objective look at how the American standard-of-living has changed over the past 20 to 30 years, I'll go with some pre-existing scale of the important things to people -- why not Maslow's hierarchy of needs? It could be any other serious attempt to rank what matters in life, but this one is familiar enough to most people, and more importantly we cannot be accused of the Texas Sharpshooter Fallacy by using it. Maslow has already set up a list of targets that people should aim for if they want to improve human well-being, and now we'll see how much or little improvement there has been in those areas. Again, I have no interest in the history of the American diet or of computer memory per se -- it's how those changes translate into better or worse lives for real people. This means I'll focus a lot on whether diminishing marginal returns to human well-being seem to have set in during the past generation in these key areas.

In entries to come, I'll look at these areas in detail, but at the outset my impression is that the past 20 to 30 years show little improvement in the standard of living. Remember, we are never interested in the absolute changes -- clearly we have more and cheaper and more varied stuff than 30 years ago, but to judge whether diminishing marginal returns have set in or not, we have to judge this change against the change between, say, 1840 and 1870, or 1870 to 1900, etc. Both non-fiction and fiction alike from those periods remarked on how dizzying the transition was from a pre-capitalist agrarian economy to a free-market capitalist economy. Indeed, they were obsessed with it.

Yet in real life, no one remarks on how the America of 2010 could not have even been dreamt of in 1980 -- yeah right. We're only 5 years away from the setting of Back to the Future Part II, and I still don't have a damn hoverboard! Let alone flying cars or instantly self-drying clothes. The reason that all of that mid-20th C. fantasizing about "the future," such as The Jetsons, got it wrong is that they were extrapolating the exponential increase in the standard of living from the early part of the transition to industrial capitalism. They didn't imagine that this growth would increase but at a slower and slower rate, so that the standard of living would more or less plateau.

This is the essence of Malthusian population growth -- some new niche opens up, and while the population starts to fill it, resources seem infinite and the population shoots up at a faster and faster rate. However, they start to impinge on one another, or their ability to extract resources from what they've got shows diminishing marginal returns, or whatever -- but after some point the former apparent infinitude of resources is revealed to be an illusion, and it turns out that the environment will only support so many people. If it is much lower than this carrying capacity, that leaves some of the niche to still be exploited, which will drive population up. If it is much higher, not everyone will be able to make it, which will drive population down.

Crucially, there is some plateau or steady state or carrying capacity that the population reaches (fast at first, then more slowly). Overly optimistic people see unbounded improvements to human well-being, at least for some unspecified "near term," while overly pessimistic people see a forthcoming bust in the standard of living, as though we might return to how people lived in the 1400s in Europe, or worse. Malthusian thinking, modeled mathematically by logistic growth, is a mix of both: in this model, growth never turns down for long periods of time, but it is not unbounded either, as diminishing marginal returns set in when the growth is halfway between 0 and the carrying capacity.

In the Malthusian view, the good news is that the hardcore doom-sayers -- people who think capitalism will collapse back into feudalism, hunting and gathering, etc. -- are wrong. Growth only increases. Still, the bad news is that after awhile the increases will be barely perceptible to the human mind, or more importantly that these changes will not boost our well-being by very much. We will have filled up the once-virgin niche of capitalism, and things won't get much more exciting until an entirely new social order opens up that's even better than what we've had for the past 200 years or so.

Also, the faster the rate of growth, the sooner this nausea will set in. Imagine a movie theater that holds 100 people -- if patrons come in at a rate of 1 per second, it won't even take two minutes for the place to fill up; while if they come in at a rate of 1 per minute, it will take an hour and 40 minutes to fill it up. Again it's just an impression, but it seems like the transition from agriculture to capitalism proceeded much more swiftly than did the change from hunting and gathering to farming.

The switch from hunting and gathering to agriculture let populations go from around 100 members to around 1 million members, and the switch from agriculture to capitalism, let us go from there to about 1 billion members. Thus the new niche opened up by capitalism looks about as great compared to the starting point as was the new niche that farming opened up. So, if we're traveling roughly the same distance from when the niche opens up to when it's filled up, but moving at a faster speed, we should expect the period of really dazzling change to be relatively shorter than it was during the H-G to agriculture shift.

I'm not worried about precisely locating the point where growth changed to a leveling-off shape compared to a sharper-and-sharper-upward shape. Probably no earlier than 1930, but no later than 1990; eye-balling the picture, it looks like we came close enough to the plateau during the 1970s or '80s. I'm picking the past, let's say, 30 years just to see if diminishing marginal returns have already set in, whether that began right then or earlier in the '40s, I don't care. Partly this is so I can gripe about how "oh please, we had that when I was a kid," but also because the examples should still be fresh in people's memories and the discussion won't seem too arcane.

1 comment:

  1. This should be an interesting series. The Fourth Checkraise linked to some blog entry showing all the fancy electronic shit you could buy today for the price of a mid-range home stereo system 30 years ago but most of it was stuff I didn't care for anyway. Contrast the real cost of electronics to, say, the real cost of a house in a "good" neighborhood - the latter has risen over the past 30 years despite all the free market advances, and I would consider such an asset to be much more essential to "the good life" than an iPhone.

    I too get upset when the capitalism people overstate their case as it gives ammunition to Thomas Frank in his midweek profanation of the Wall Street Journal op-ed pages. Although 70% of the time he confuses free market capitalism with "crony capitalism," he spends the rest of his time pointing out that the free market doesn't produce utopian results, and this should never have been substituted for "maximized efficiency" in the first place.

    My Predictions:
    Physiological - Slight gains, mostly in availability, variety, and taste of food in urban areas, offset by poorer actual diet and less sleep.
    Safety - Gains past point of diminishing returns in safety from violence, minor gains in health related to early death from heart disease, cancer, & AIDS, less surplus property and employment.
    Love/belonging - big loss due to less trust
    Esteem - big loss due to wider communities & winner-take-all
    Self-actualization - largest net gain of any category due to ease of obtaining information using Internet. You could argue it doesn't do anything the public library didn't do but I think that's overstating the case.

    To sum it up - big gains at the tip of the pyramid at the expense of diminishing returns and/or loss at the base.


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