UPDATE: Note that my analysis only applies provided these contracts were genuine compensation packages and not deliberately created for the purpose of siphoning money from the government as some (unreliable) reports are suggesting now.

UPDATE 2: The bit about fraud seems to have been more populist BS spread by Andrew Cuomo, the New York Attorney General. It seems highly likely this was just an attempt to ride the wave of populist anger to ‘get those guys.’

Anyone who has been paying attention to the media lately will have noticed the outrage over the bonuses being paid to AIG employees, particularly employees in AIG’s financial products division. The division responsible for the deals that necessitated the government bailout. Disgustingly even relatively clearheaded individuals have jumped on this populist bandwagon and just in case we needed another lesson in the failures of democracy congress is demanding heads. People complain about the lack of transparency about the government’s response to the financial crisis but if this is how the public responds maybe they don’t deserve it.

Let’s be totally clear. This outrage is over mere terminology. No one was making a fuss about the fact that AIG employees, even those in the financial products unit, continued to be paid their salaries. Getting mad because some employee compensation is called bonuses rather than salary is about the stupidest thing imaginable. No one even looked at what these people were payed before this bonus scandal. People are mad for no other reason than the fact that wall street pays out significant chunk of it’s employee compensation in the form of bonuses. Sure, there were demands that the very top level of the company (CEO, CFO etc..) no longer be paid their huge salaries but we aren’t talking about sweatheart deals cut by a friendly board in this case but relatively standard payments on wall street to top level talent¹.

Just in case rational thought escapes you on this issue let me put this question another way. Do you think that the government should stop payment on all uncashed paychecks to AIG employees in the financial products division? Even those employees who did their job well and are needed to help unravel this mess? If not why do you think it should take away bonuses for these employees? In both cases the employee was promised certain compensation in return for certain work/performance and calling it a bonus or paycheck doesn’t change that fact. Certainly it’s totally unacceptable for the US government to void valid employment contracts made by AIG after tricking those workers into continuing to labor under them since the bailout.

More reasonably one might think that the government should have allowed AIG to lapse into bankruptcy and simply fail to honor employee compensation agreements in general, no merely the bonuses. Of course this has nothing to do with the outrage being expressed by the public and their elected officials but it’s at least coherent enough to rebut. However, this would undermine the very motivation for rescuing AIG from bankruptcy as it would have created doubt about whether AIG would make good on it’s debts. Sure, the government could have decided to guarantee some AIG debts despite the bankruptcy but that leaves everyone wondering if the government will pay off their claim or if some unpopular behavior on the part of the creditor would convince congress to leave them on the hook. Any plan that let the government pick and choose which preexisting AIG obligations they would honor would have been a disaster.

Still, whatever you think about the wisdom of the bailout of AIG at this point it would be totally unacceptable for the government to renege on these bonuses. The government choose to simply infuse capital as if they were some private investor rather than to nationalize the company now it needs to live with that choice. Trying to use it’s legislative power to eliminate these bonuses now would induce fear in other AIG creditors, reduce the government’s flexibility to infuse banks with capital, and generally do great harm to future bailout attempts. Not to mention that the cost to the taxpayers from the resulting lawsuits and our interest in keeping top talent at AIG to unravel their finances. Even assuming none of the employees due bonuses leaves in anger or can find a better offer (the best people always have offers) so long as the government still owns part of AIG every single highly paid employee will wonder if they will really get the package promised them.

What’s so particularly absurd about all of this is that all this opposition that is being generated towards future bailouts or stimulus packages as well as the potential for harm if the government really voids these contracts is happening over about 1 400th of the amount we paid to bail out AIG. It’s like lending your friend $1000 to cover his mortgage this month and then making a big fuss over the fact that he still purchased coffee for the girl he asked out the month before.

The more I see the more convinced I am that democracy is a truly awful system.

So one mantra that keeps being repeated during this financial crisis is that executives in the financial industry shouldn’t be rewarded, e.g., with golden parachutes, for their bad judgment. Now obviously the government should insure these executives don’t come out of this any better than they would if the government didn’t intervene. For instance if an executive would have received a much smaller pay out if the company went into bancruptcy and the government steps in to prevent this the executive shouldn’t profit from the government’s action. However, far from being a matter of commonsense fairness forcing these executives to give up the contractually required and legally guaranteed compensation they are do is the height of unfair government seizure to satisfy rabid populist motives.

Don’t get me wrong. I’m not claiming that executives aren’t paid too much¹ and I certainly believe that the way executive pay is set ought to be reformed, probably via government regulation. However, the fact that executives pay is too high doesn’t justify taking it away after the fact. There are a ton of people who are overpaid relative to what their job performance is worth. Maybe it’s postal workers, or perhaps skycaps, certain real estate agents or maybe the clerk at the local video store² who spends his day watching movies. But regardless of which wage earners you think have overpaid jobs would you think it was fair for the government to step in and confiscate their pension after the fact because ‘they didn’t deserve it for the work they did?’ Of course not. Just like overpaid wage earners these financial executives had other jobs they could have taken but they choose the jobs they did partially because of the compensation the contracts and the law guaranteed them even if things turned out poorly. The legislature may want to change the laws to prohibit these kinds of contracts in the future but those executives who choose to work in the financial sector based on the legal framework at the time shouldn’t be blackmailed out of the compensation due them so the legislature can cover it’s ass for not having these laws already on the books.

I’m also skeptical that these executives truly demonstrated bad judgment. Certainly they demonstrated poor judgment as far as preserving the long term worth of the companies they ran. However, even the best of us, whatever our intentions, are influenced by human level incentives. Even if we deny executives golden parachutes when their corporations fail we can’t take back the high salaries paid out during the upside of the bubble. Moreover, there isn’t much we can do to change this. People, even executives, want to know their compensation is in their hands not wait on it for many years as we would have to do to eliminate the incentives to participate in the upside of a bubble. But even more important than the economic incentives are the social incentives.

We are wired to want to be on top of the heap and executives are no different. Making record profits gets you on the cover of Fortune, the admiration of colleagues and all the other benefits of being the man of the hour. Playing it safe and conservatively managing your company brings only the questionable pleasure of schadenfreude when the bubble finally bursts. Worse, a system of (purportedly) merit promotion virtually guarantees corporate executives are unduly risk prone. By rewarding those who seem to have made the best deciscions in the past we are effectively selecting for those individuals who took risks and got lucky[^lotto]. If you reward the people who made the most money last year your virtually certain to get someone who bought a whole lot of lotto tickets.

The upshot of all of this is that old money may not be such a bad thing. If you are the CEO because the corporation has been in the family for generations your at least not selected for being a gambler. Additionally your incentives are much better aligned with the long term interests of the corporation (and the economy at large). As a Ford, Dow or what not the lure of immediate fame is reduced while the social pressure not to squander your family wealth is increased. I’m not sure if this has any real world significance but it’s something interesting to think about.

Like everyone else I’ve been following the crisis on wall street and the proposed government bailout. Just like the rest of the American populace (excepting a few experts) I lack the ability to really evaluate the need for or the sufficiency of the proposed bailout and I worry about jumping to give a broad grant of authority to a few members of the executive branch in the midst of a panic. However, just because a proposal has risks doesn’t mean it isn’t the best option. During times of war the executive branch, and military generals in particular, are given the awesome power to choose who lives and who dies but despite the risks and temptations this creates we don’t believe a congressional committee ought to second guess those choices. True, this is not a war but the same observation applies: just because concentrated power poses risks doesn’t mean it’s not the best overall bet.

I would like to believe in this case oversight by some board of experts, e.g., the federal reserve board, would be possible and beneficial but this might not be practical. However, the idea floating around that congress should provide direct oversight scares me. Obviously, congress should follow the actions taken during the bailout and intervene legislatively if it discovers any abuses but, even if constitutional¹, giving a congressional committee the power to review bailout decisions would be a bad idea. Not only do the congressmen involved lack the expertise to make truly informed decisions but they’ve already demonstrated their willingness to put the rhetoric of getting even above the interests of the country. Senator McCain has even done this in the name of putting America First, though Obama and the democrats in the senate aren’t any better.

Rather than focusing on fixing the financial meltdown from the news I’ve seen congressmen are getting caught up in making sure that CEOs are denied their golden parachutes or demanding that we bail out homeowners as well as the ‘fat cats’ on wall street. Now one might think this rescue package is unjustified or unnecessary but the only reason to pursue the bailout is to prevent the economic instability from spreading to the larger economy. The worry is that without government intervention confidence in financial instruments will collapse thus denying individuals and businesses the credit they need to drive the economy. If you don’t think the problems in the financial sector threaten the general economy then you shouldn’t supporting any bailout at all. Unlike the collapse of the financial sector there is no reason I’ve heard to believe that not bailing out homeowners would cause a general economic collapse. Maybe as a matter of policy the government ought to be helping these troubled homeowners more but that’s a different issue and should be carefully considered not allowed to interfere with an emergency bailout.

The obsession with golden parachutes is even worse. One can argue all day about whether it is just for CEOs to receive gigantic compensation packages but the truth is that the cost of CEO compensation at financial institutions is a minuscule percentage of the 700 billion dollars proposed bailout. Rather than focusing on this insignificant cost our representatives could be doing more to save us money by focusing on the details of the actual bailout. Moreover, I worry that some kind of golden parachute poison pill in this bailout would create an incentive for CEOs to avoid taking part even if it is in their companies best interest. Besides, I don’t see why the fact that these CEOs miscalculated means they shouldn’t be compensated at the rate they negotiated. We don’t think basketball players who don’t perform as well as expected or get injured making a stupid play ought to return the money from their contracts why is it any different for CEOs? This isn’t to say there aren’t general reforms that should be taken about CEO pay in general, e.g., giving stockholders greater control over it, but it is to say that congress should be more concerned with saving the US economy rather than making sure everyone suffers.

So I often find myself trying to make the case that people are especially irrational when it comes to voting and other activities where the emotional content is large but individuals have little influence over the outcome or aren’t very affected by it but I’m stymied by a lack of a good example. I can point them at “The Myth of the Rational Voter” for good theoretical and empirical arguments but a good example is worth a lot. I ran across a good one today listening to the KQED discussion about the proposed golden gate suicide barrier. Now I think a suicide barrier is almost certainly unjustified at the cited cost for reasons I give below but what’s interesting/scary isn’t that people disagree with me. If you think there are substantial third party benefits from a suicide barrier or even just make different plausibility judgments from me in a way that consistently favors the barrier you could reasonably think it is a good idea. What’s both scary and interesting is the sorts of motivations people have for thinking a barrier is obviously a good idea and their failure to even indulge in the sort of cost/benefit analysis that would be appropriate for this kind of question.

During the debate the mental health professional opposing the barrier offered rational responses and citations pointing out the faulty reasoning used in arguments for the efficacy of the barrier those who wanted the barrier would call in to say something like, “you admit a barrier might save some people so how many lives is enough?” or, “If you just say we will always have suicides your saying we will always have poverty and…” and those callers at least were making cogent arguments. Many others simply related their personal knowledge of people who had tried to commit suicide and otherwise used emotional ploys (likely unconsciously) to frame the question as whether you were for or against suicide. One caller even went so far as to explicitly express her outraged amazement that someone in the mental health profession would be so cold and unfeeling as to not want to stop suicides.

What is notable about these remarks is that the guest opposing the barrier was arguing that it simply wouldn’t be effective and that we should put our resources into mental health services rather than barriers. The only role these arguments, or the anecdotes offered in the SF gate series promoting the barrier could have in the argument is to make people feel bad for not supporting the barrier. Indeed, despite the fact that at some point we must trade off cost against lives saved (a billion dollars would not be a cost effective price to pay to save one person) some of these arguments derive their force only by pushing the opponent to bite the bullet and admit that these lives aren’t worth X dollars.

To be fair, the callers opposing the barrier were no better. Their arguments seemed to be little more than thinly glossed resentment at being forced to accomodate suicidal individuals. Also the lady supporting the barrier did make reasonable points by citing several studies that on their face would seem to suggest a barrier would be effective. These studies were pretty much the same ones mentioned in this article and fairly easily rebutted. For instance, showing that survivors of one attempt have good prospects for survival is almost totally useless and may even work argue against the barrier. Not only do the survivors constitute a biased sample containing few of those most intent on killing themselves but this statistic, if valid, argues for ensuring that people first attempt suicide in a fashion that is likely to be prevented. Yet, unless you believe a large portion of people who jump off the golden gate bridge do so on impulse while crossing the bridge for unrelated reasons, you would expect that putting up a suicide barrier on the golden gate that is known to be nearly foolproof would drive people contemplating suicide to focus on another location that may not be so easily monitored. Moreover, making it impossible to jump off a particular bridge seems much more akin to taking a single gun off the street or blocking access to one type of barbiturate while leaving others on the market than the wholesale elimination of one convenient method of killing yourself, e.g., putting your head in a coal-gas stove. Not to mention the fact that a single historical data point about gas stoves is highly suspect, likely involves plenty of confounding factors and the rise in suicides 15 years hence is inconsistent with the supposed claim.

Still, even if you generously believe that the barrier will prevent a number of deaths approximately equal to the 34 confirmed suicides that occur some years this simply doesn’t get you to the conclusion that a suicide barrier is justified. For instance economic studies suggest that we implicitly trade off a single life for about 1.5 million dollars. Importantly even if our individual choices in terms of risks and rewards would place a higher dollar value on a statistical life it’s the choices implicit in government decisions that are really relevant since if we could use the 50 million that it will likely cost to build the barrier to save more lives some other way surely that would be preferable. Thus not even counting the loss of utility that might occur from a degradation of the bridge aesthetics nor the fact that the life of a suicidal person is likely to be less enjoyable and thus contribute less utility than an average member of society (suicidal people really do feel more unhappy than most of us) the barrier is a close call. With these factors considered it seems to me that the costs outweigh the benefits.

If you disagree that’s fine but it’s disturbing that people support these projects merely to avoid thinking of themselves as cold because they weigh the cost against the value of the lives lost. That doesn’t make you warm and caring, it makes you a moral monster. Deciding that someone’s life isn’t worth the amount of money it costs to save may seem cold but it’s not as horrific as letting people die because you wanted to feel warm and fuzzy so you couldn’t be bothered to balance the lives this money could save if used to improve road safety with those that might be saved via a suicide barrier.

So a couple days ago there was a hysterical story on slashdot saying we were running out of rare earth elements. Apparently this whole thing was started by Armin Reller, a materials chemist at the University of Augsburg, whose predictions of mineral extinction dates inspired an article by Robert Silverberg in Asimov’s science fiction magazine and reported in a new scientist story that was in turn picked up by one of the Wall Street Journal blogs. Already we should be pretty skeptical. We have a panicked warning driven by multiple commentaries on a single scientists remarks and, going by the failure of any of these stories to cite a journal article for Reller’s remarks, they may not even beer peer reviewed¹.

There is certainly a kernel of truth in these stories as in most of the misleading articles New Scientist publishes. However, these articles make it sound as if we are going to run out of various rare earth metals the way you might run out of toilet paper at home, i.e., we used it all up and have to make do without it. Indeed the article in the Asimov magazine explicitly analogizes this ‘crisis’ to a science fiction scenario of a world without usable iron. True, the prices of many rare earth metals and even Zinc are rising rapidly and for many of them we are currently using them faster than they are being mined. But does that mean we will ‘run out’ or even have to give up our flat screen TVs with Indium based transparent transistors or fancy new Intel CPUs with Hafnium based high-k dielectric? Certainly not. Moreover, we most certainly won’t ‘run out’ of these metals the way these stories suggest.

The idea that the Indium on Earth is just going to be used up in 2017, Terbium in 2012 and Zinc in 2037 is just absurd from both a geological and economic point of view. As an economic matter the market won’t simply let us keep increasing our consumption until we suddenly run out. Rather, when demand increases relative to supply the price rises and decreases consumption. If companies really believed zinc was going to simply run out in 2037 do you think they would be selling it cheaply enough to make it cost effective to make pennies with it or use it in many other trivial ways? There isn’t any great crisis ahead, merely a rise in price for these metals that will cause other metals to be substituted where possible and wasteful uses to be eliminated (eliminate the damn penny!) while essential uses (LCD displays, CPUs) continue. If you don’t believe me put your money where your mouth is. If you think we will simply run out of Terbium in 4 years buy up some Terbium or Terbium futures and you’ll make a fortune.

It’s an even more absurd proposal from a geological perspective. Neither Indium or Gallium occurs naturally in high concentrations in any mineral. Rather small quantities of both these minerals are isolated from Zinc deposits (Sphalerite) and in the case of Gallium Bauxite and coal as well. Already then something seems fishy about the suggestion we would run out of Indium in 9 years but wouldn’t run out of Zinc for another 20 years after that. Surely companies aren’t going pull all of the worlds Zinc deposits out of the ground so they can isolate the 50ppm of of Gallium and then pay to store the Zinc for another 20 years. Moreover, some simple math shows how absurd the suggestion is that we will simply run out of Zinc.

Zinc makes up .0004% of the Earth’s crust and the continental crust in turn accounts for .374% of the earth total mass. Wikipedia tells us the Earth has a mass of 5.97 * 10²⁴ kilograms and doing the math gives us 8.910¹³ metric tons of Zinc in the continental crust. Given a current consumption rate of about 7.110⁶ metric tons a year we could continue at this rate for 10 million years before we depleted the Zinc in the crust.

Of course we can’t efficiently extract anywhere near all the Zinc in the crust and it’s the notion of efficient extraction that’s central to this issue. Unlike the toilet paper you keep in your bathroom mineral deposits aren’t all equally easy to extract until you suddenly run. If we were willing to pay more for minerals like Zinc companies would start mining locations that were formerly unprofitable. Conversely if the amount of Zinc we have sitting around in storage shrinks the price of Zinc will rise and consumption will decrease. Likely the numbers quoted in the New Scientist article describe the point at which current rates of usage will deplete the proven reserves of these various minerals in the ground. In other words they tell us how long these metals would last if mining companies didn’t bother to go look for more, didn’t start extracting ore from regions currently unprofitable when prices increased and people kept using them at the same rate despite increased scarcity. We might as well assume the Martians are stealing our metal with ray guns to predict future catastrophic shortages. Now I’m just guessing at what these numbers are supposed to actually mean (the articles couldn’t be bothered to tell us that) but there is no doubt that none of these articles gives cause to be anxious.

So listening to a piece about the RIAA lawsuits against college students got me thinking about just how broken the american legal system is in this regard. The adversarial system is supposed to encourage good precedent by ensuring that individuals on both sides of an issue have incentives to present their case as effectively as possible. Whatever your opinion about the RIAA’s lawsuits it’s clear that the exact opposite is occuring in this situation.

Instead of those individuals with the best defenses taking them trial we see just the opposite happening in the RIAA cases. While there are many individuals whose cases raise tough questions about the accuracy of the RIAA’s identifications or whether merely making songs availible constitutes infringement the case that was most throughly defended so far was that of Jammie Thomas who insisted on claiming she hadn’t even made the songs available despite the singularly strong evidence showing this to be a lie. Unsurprisingly the jury saw through the blatant deception and convicted her without reaching any of the serious issues.

Some might dismiss this as an isolated oddity but I think it reflects fundamental incentives that our system creates when large companies sue individuals for massive damages while offering cheap settlements. Given the fact that under the American rule even a successful defense might cost 60-100k any reasonable individual is likely to swallow their pride and pay the couple thousand dollars of bribe money, even if they know they were misidentified. This creates a situation where only the copyright analagos of tax protestors or the judgement proof are likely to defend their cases. Hardly providing ideal test cases. Certainly foundations and charities like the EFF and ACLU can help offset this problem but not every situation is popular enough to attract these deep pockets and our justice system shouldn’t require charitable aid to produce fair results.

One might be tempted to move to the English rule but while this rule would help even this seems to leave a dangerously imbalanced playing field. Corporations are likely to sue private individuals in such a fashion only when they hope to gain massive deterent benefit while the individual can only hope to gain a few thousand dollars. For instance suppose you produced a mix tape pushing the boundaries of fair use which you gave away for free. A group like the RIAA may have a large financial stake in convincing others such behavior will be punished while your potential gain from pursuing the lawsuit under the English rule is just the few thousand the settlement offer proposes a rational defendent will still stimply pay the protection money and give the corporation their example. Besides, the English rule risks unfairly deterring individuals from suing corporations lest they get left with the massive bill the corporation ran up on lawyers.

Hopefully some clever economist can imagine some clever scheme that results in even better incentives but it occured to me that a partial solution to both this problem and the dangers of the English rule more generally might be the following. Create a system where by default the lower pays their own attorney’s fees and gives the winner the amount of money he (the loser) spend on attorneys. This would then minimize the harms of the English rule (you still control the maximum risk you undergo) while giving some extra incentive for ‘example’ defendants to go to trial in hopes of winning a relatively large payout since their example status likely means a great deal of lawyers fees were paid out in selecting and pursuing their case.

I also think some scheme should be considered that prevents corporations from backing out of cases that might go the wrong way. However, on the other side I think that there out to be special scientific decisions with precedential value that corporations can use to easily defend against massive product liability lawsuits but these are both matters for later posts.

One person suggested that I look to the IPCC report on global climate change. Now the IPCC 2001 report does have a a report on Impacts, Adaptation and Vulnerability but this report reaches no real conclusions, instead couching it’s conclusions in statements like the following.

Even though increased CO2 concentration can stimulate crop growth and yield, that benefit may not always overcome the adverse effects of excessive heat and drought.

This is exactly the way that the IPCC should report on the economic issue. Their credibility depends on only endorsing the strongest most clear cut scientific consensus and it is far more important for them to maintain this credibility than to give clear economic guidance. While the models they propose are useful they don’t truly provide much guidance for someone who is trying to quantify the costs to a future richer society of dealing with climate change at that time compared to the costs of various solutions implemented now.

Moreover, I’m not sure this is something that is best addressed by an organization like the IPCC since I suspect that actual policy choices may be primarily determined by the risk of low probability but extreme events like large scale wars breaking out or the extreme end of the climate predictions turning out to be accurate. Certainly what we need first is much more publicly visible work by economists to boil down the conclusions of various climate models to approximate costs and benefits using reasonable assumptions. At this point what is needed isn’t precise answers but merely order of magnitude calculations to get a sense of what magnitude response is required.

So I finally got my application in for the NSF postdoc and got some needed sleep. So instead of working on my math like I should be now I went and downloaded the new Radiohead CD, “Rainbows.” Now I don’t actually like Radiohead that much so I didn’t pay anything at all¹ and that’s a perfect example of the inefficiency of the current copyright system. I’m likely to get some positive utility out of this (satisfying a hoarding instinct if nothing else) and this utility is a pure loss on a normal copyright system. However, it’s pretty annoying to hear all the people on the media and in forums act as if the fact that people are paying Radiohead for their CD shows that this is a plausible alternative model.

Even paying $0 for real honest reasons (worth less to me than transaction cost of using a credit card) even I was inclined to feel a little bit guilty and no doubt this is what causes people who actually like Radiohead to chip in a reasonable amount. But one feels guilt primarily because you feel that Radiohead is somehow stepping out on a limb by trusting users to set their own price. If this was ever to become a common practice that pressure would disappear. More critically is that the very people like me this system benefits will cause it to break.

People have strong intuitions of fairness and if you ever tried to distribute music more generally with this sort of system people would start feeling like suckers when they pay twice what their friend did for the music. Ultimately there will be an inevitable slow creep to the bottom as people check with their friends and see that their only paying $6 so that’s not cheating if I do that or come up with other reasons why it’s okay not to pay a bit less. I mean hasn’t everyone someone justifying their use of P2P by saying they would buy music if only the studies didn’t produce such crap? The same process of self-justification would start to happen with self-priced products as well. Besides, who is going to decide to buy 5 CDs worth of music they only sorta like for their car trip because they only have $15 to spend and they value the CDs they really like more than that?

No, I’m afraid solving the inefficiencies of the copyright system will require a fundamental change to the system of IP for creative content. Some means of truly collective purchase is required and the best system that I can think of at this point is to put works in the public domain after 3 years or so with a taxpayer funded system that compensates content producers based on numbers of tracked downloads from some central online repository. Maybe some clever person can figure out something better but as IP fills a bigger and bigger role in our lives the unacceptable inefficiencies of the current market become less and less bearable so sooner or latter something will change.

So recently I’ve been reading “The Myth Of The Rational Voter” (which I highly recommend). Mostly the book makes a rigorous case for the intuitively obvious position that most people’s beliefs have more to do with what makes them feel good about themselves or what their friends believe than what the evidence shows. However, it also makes the simple, but profound, point that most people exercise far better judgment when they have significant value riding on the question. For instance even people who have the strong religious belief that god favors their cause and even that martyrdom brings stupendous heavenly rewards seem to reevaluate their position when they find out the other guy has the bigger army. It also explains the puzzling phenomena of religious tolerance. That is how can people who presumably think that belief the ‘true’ religion significantly increases the chance of eternal salvation abide what should be the ultimate form of child abuse, raising children in heathen religions¹. Listening to Steven Levitt (of freakonomics fame) give a talk today about how people tend to play the “dictator game” further solidified my certainty that this trade off between self image and more prosaic forms of self interest underlies most kinds of human interactions.²

Now “The Myth Of The Rational Voter” makes the case that many common political views can be explained by the fact that the social and psychological costs and benefits for espousing political beliefs far outweigh the minuscule chance that any individual will change the outcome. For instance the average liberal gains far more utility thinking of himself as racially conscious and being recognized as such by his friends for supporting affirmative action than he is likely to lose if it turns out that affirmative action harms minorities while imposing unnecessary costs on society (and vice versa for the conservative). After all his vote is extremely unlikely to change anything. Similarly the cost of seeming cold hearted and that pain of adopting a cynical view creates an incentive for people to boycott the products of low wage asian factories regardless of the evidence that this is a net harm to the very people laboring in those factories but when the prices are sufficiently lower for Chinese goods people tend to reexamine this belief.

Now if this account is true the trillion dollar question is how can we protect democracy from these sort of harmful incentives. The theory suggests what is needed is to make sure the people making the decisions have more directly at stake in the outcomes. Now the most traditional solution would be to add more layers of indirection to the system. Instead of having voters directly express their opinions on senators and presidents, thereby making policy decisions fairly responsive to public opinion, one could move to a system more like what the US founding fathers originally imagined with local elected officials voting for their constituents on national offices. While I do favor this reform it has it’s drawbacks. For one it is inherently unstable. The public wants more direct power and it is in the interest of any officials they elect to give it to them. Secondly, while being one of a small few with the power to truly decide policy does make self-image relatively less important (the consequences of your choice are now greater) it also increases the relative social and political pressures. For instance while the supreme court obviously does a lot better job deciding questions of law than the general public³ cases like Bush v. Gore suggest that the much greater dependence of their social and professional lives on strong partisans has a detrimental effect. Or alternatively that the public declarations of allegiance to one side or the other usually necessary to reach high office radically increase the costs of changing one’s mind once entering office. While an individual might only feel a bit foolish when they change their mind on a political issue someone who has achieved high office based on public affirmations of strong support for some view may feel like an out and out hypocrite.

A more radical, and likely more effective, solution would be to randomly choose some relatively small number of citizen electors. For instance instead of holding nationwide elections for president a year or two before the election we would randomly select 1000 or so registered voters from around the country and let these people choose the next president. Instead of spending massive amounts of money running campaign ads and campaigning all over the country politicians would spend the next year explaining in detail their policy views to these 1000 individuals along with the arguments and data needed to make their case. Given the much larger impact of the decision of each of these individuals they would have a greater incentive to genuinely familiarize themselves with the issues and relatively less reason to simply vote on feel good views. Of course to avoid the risk of politicians promising these voters programs targeted at their needs selection as a citizen elector would have to come along with a quite significant cash award reducing the impact of individual government programs on their lives, e.g., they would no longer have much selfish interest in bringing government jobs to their industry or region. However, this would be a relatively small cost to pay compared to current campaign budgets and it would certainly be miniscule compared to the potential increases in efficiency.

Unfortunately, I’m doubtful that the electorate would trust a system that relied so heavily on random sampling. After all most of the populace seems to strongly (and unjustifiably) believe that it would be better if everyone voted but don’t seem inclined to adopt the obvious solution of replacing voting with polling. So another solution might be to somehow create incentives for the electorate to get things right. Now obviously one can’t incentivize value questions as you can’t readily determine the right result but luckily people seem to largely agree on questions of fundamental value, at least much more than they agree on questions of efficacy. For instance their is broad agreement, despite some specific differences, on what schooling policy should aim to achieve. The debate between people favoring school choice or eliminating teaching unions and those opposing it is the efficacy of various policies in achieving these ends. Therefore one might imagine a system that proposes specific measurements of the effects of various policies and rewards those who correctly predicted those outcomes with cold hard cash. In other words we would divide voting on policies up into questions of value and questions of implementation with monetary rewards attached to correct choices on predictions about implementations.

Frankly this later solution actually seems less politically feasible and harder to implement than the former one. However, even if both of these options aren’t truly likely to be adopted hopefully someone will come up with some clever way to better align the interests of people making political decisions and the interests of the country at large that is more palatable. Certainly something must be done as it is unconscionable for us to sit here and let others suffer more than necessary just so we can have the luxury of feeling better about ourselves and not having to challenge our closely held beliefs.

So I just heard about one of the stupidest pseudo-environmentalist public awareness campaigns on NPR’s marketplace. One of their reporters (Tess Vigeland) has decided to carry her trash around with her for two weeks. She is blogging about this experience here and challenging other people to take “Tess’ Trash Challenge” and do the same. Now if I was doing something as dumb and annoying as carrying my trash around with me I wouldn’t want to be doing it alone either but why the hell is she doing this in the first place?

Apparently this is part of a new American Public Media project called Consumed which plans to:

Is our consumer society sustainable? American Public Media takes on that question in a new special series, Consumed. We’ll follow consumerism from its origins to its dominance over the world’s economy and, arguably, its culture. And we’ll examine how, and if, it might be adapted to reduce its destructive consequence while keeping store shelves stocked.

Apparently they, along with groups like the Zero Waste Alliance, are advocating achieving “Zero Waste”¹. But for the love of god why? The answer Tess gives is distinctly unsatisfying.

Garbage critics say we’re going to run out of places to put it, and that even if we had enough space, all we’re doing is encouraging consumption. Others argue the landfill issue has been greatly improved because of technology — it’s not the old city dump anymore.

Now it may be that we have an infrastructure problem and need to spend more money building new, deeper landfills. I don’t know. But we sure as hell aren’t running out of literal space to bury trash. Tess quotes the EPA as saying we generated 245.7 million tons of municipal waste in 2005. Now it seems reasonable to suppose that after compactification this waste will have at least the density of water. That means the total amount of trash created in one year fits inside 0.26 cubic miles. Now admittedly filling a square pit that deep with trash probably poses some technical challenges but given the huge empty spaces in the american west we hardly are running out of literal space to store our waste. We aren’t even running out of literal space to store our waste without significant environmental impact. Hell all the shit we make came from somewhere so it could never be more than a problem of recompactification and containment.

In other words the trash issue is a purely economic problem. It might start to cost more to build landfills but that’s it. We just need appropriate regulations to make sure trash is disposed of in a safe fashion and we can sit back and let the price of garbage disposal take care of the problem for us. There is absolutely no reason at all to turn this into a moral crusade and the idea of the Zero Waste Alliance that this is a way to save money is absurd. Of course some increase in the amount of recycling is probably money saving but to the extent it’s economically efficient it will be incentivized by garbage fees. The fact that companies aren’t doing this for profit is strong evidence that it would cost more money than it would save. Garbage collection does not have large externalities.

So what explains the fuss? It’s yet another example of the substitution of our emotional reactions to what seems like waste for our rational judgment about consequences. This is why I hate the word sustainability so much. This word invites us to make these errors by conflating our emotional idea of leaving things the same as they were when we started and it’s supposed definition in terms of being able to continue behaving as we are now. Even the definition itself is problematic because no particular state of affairs is sustainable or unsustainable only rules for future behavior. Thus talking about whether our consumerism is unsustainable tricks people into thinking “why yes if we keep creating trash at an (exponentially) increasing rate we will run out of places to put it so it’s unsustainable and we better stop.” The problem is that this isn’t even a plausible model for our societies future behavior. The right question to ask is, “If we continue to price garbage disposal at or above the cost of creating creating landfills we will be able to continue.” The answer here is a resounding yes.

This sort of thing is why I despise most of the environmental movement (though there are many reasonable people who are part of it). There are very real environmental concerns that we need to deal with like global warming but they are economic and engineering challenges not moral judgments about our waste or consumer culture. Not only do stupid pseudo-environmental worries like this one do great harm by distracting from real issues like global warming they also help cement the idea in many people’s minds that environmentalism is just that stupid moralizing concern about wasting shit. Part of the reason so much of the right is still hostile to global warming is because the environmental movement managed to push most environmental questions out of the practical realm and into a moral one. Maybe in the past that was necessary to get results on important issues. I don’t know but this sort of shit with trash and sustainability is just garbage.

I expect this sort of thing from the BBC. I’m disappointed to see it on NPR’s marketplace of all things.