Innovative societies must have equality of opportunity

The current tax bill is largely motivated by the theory that if you give tax cuts to successful rich people, even though it increases inequality, it will be worth it because these elites will create jobs through innovation with the new money that the cuts hand them. This idea comes from the theory of the equity-efficiency tradeoff which claims that greater equity reduces economic productivity. The fatal problem for this theory is that highly unequal societies are not more productive. This is because there are many reasons why greater equity can increase efficiency. Because most people think that equity and efficiency are both good things, we should be doing a lot more research to figure out how we can get more of both. New research reported by Matt Yglesias is a start. It shows that we are wasting the talents of over 80% of high-performing kids because they are too poor to be able to innovate as well as the kids whose families are at least upper-middle class (top 20%):

  • Among affluent families, young kids who perform highly on math tests are much more likely to make successful inventions than low-ability kids.
  • But this isn’t true among low-income families. There, high-scoring and low-scoring kids alike are about equally unlikely to become inventors — suggesting that it isn’t a lack of aptitude that’s holding back poor kids; it’s that aptitude alone isn’t enough.

Some regions (the former slave states) are particularly bad at helping smart kids innovate:

To create more innovation, we don’t need more tax cuts for elites. We need to figure out how to create more equality of opportunity. Let’s figure out what they are doing right in Utah, Wisconsin, and Massachusetts.  The original paper is basically trying to figure out why parental income has such a big effect upon the patent income of their children.

The fact that smarter kids don’t produce much more patents than their peers unless they came from rich homes means that rich kids’ success isn’t just caused by rich people have smarter kids.  Rich kids also tend to be smarter on the tests by some combination of genetics and getting better nutrition, better schools, and better healthcare, but even for poor kids who beat out the rich kids at academic achievement and IQ, they still aren’t able to turn their talents into innovation that produces patents.

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Posted in Inequality, Public Finance

Monopoly power at the emergency room

There is a lot of monopoly power in healthcare in the US, and it has been driving up prices by decreasing competition. Research shows that greater consolidation in the hospital industry causes higher prices, but it is hard to explain data showing that emergency room fees have risen by 2/3 in only six years:

Rising prices means that fewer Americans are going to the ER:

Some of my students have said that they think the problem is that too many poor people are flooding emergency departments, but the available evidence shows that this isn’t happening.

One reason bills are so high is that consumers don’t have the resources to dispute the ridiculous bills.  You can help increase information for consumers if you share your ER bill here.

Posted in Health, Public Finance

Antitrust Regulation

Monopoly power (aka “market power” or “pricing power”) is simply the ability to raise prices without losing all customers. The US economy is increasingly dominated by large firms and all medium-to-large firms have some monopoly power. That is one of the reason bigger firms are more profitable than smaller firms, but even most small businesses also have some amount of monopoly power. About the only producers that do not have market power are tiny businesses that sell commodities (like small farmers) and most workers because most working stiffs are “price takers” who have virtually no ability to negotiate their wages nor the prices of the products they buy.  That doesn’t mean that the labor market is perfect competition however, because large employers have some amount of monopsonistic (buyer) power over workers.  Increasing monopsonistic power could explain why wages have not been rising as fast as labor productivity as shown in this graph from the EPI.

No firms larger than about 50 employees are in perfect competition in their output markets either. These markets are better described as monopolistic competition (if not outright monopoly). In monopolistic competition, there are many competing firms, but each firm tries to make their products slightly different from everyone else. For example, Banana Republic and Urban Outfitters are both selling clothing to the same people and are often competing in the same mall, but they work hard to differentiate their products so that they are not selling exactly the same thing. Product differentiation is an easy way for firms to get a little monopoly power. For example, there are over a million different restaurants in the US, but each firm offers slightly different food with different flavors, services, and branding. This product differentiation is what prevents restaurants from suffering from perfect competition in which they couldn’t raise prices on anything because competitors sell perfect substitutes.  There is still competition which means that profits aren’t very high, but without product differentiation, they could not survive at all.  

Monopolistic competition doesn’t allow monopoly profits because consumers can choose close substitutes, but it does create inefficacies because of lower economies of scale and wasteful efforts to differentiate products.  For example, toothpaste manufacturers spend vast amounts of money marketing the hundreds of different varieties of toothpaste that are available in the US in order to get some customers to pay a little higher markup on some of their brands. When firms use their market power to raise prices (and reduce output), it creates a deadweight loss for society unless they are investing their profits in ways that make society better off (such as by increasing productivity) rather than diverting profits for conspicuous consumption.

The inefficiency and unfairness of monopoly power has been recognized in law for thousands of years. It is why it is illegal for “competing” firms to conspire to raise prices such as:

In France, between 1997 and 2004, the top four laundry detergent producers (Proctor & Gamble, Henkel, Unilever, and Colgate-Palmolive) controlled about 90 percent of the French soap market. Officials from the soap firms were meeting secretly, in out-of-the-way, small cafés around Paris. Their goals: Stamp out competition and set prices.

Around the same time, the top five Midwest ice makers (Home City Ice, Lang Ice, Tinley Ice, Sisler’s Dairy, and Products of Ohio) had similar goals in mind when they secretly agreed to divide up the bagged ice market.

Contrary to popular belief, under U.S. laws, a monopoly is not illegal. In fact, the law grants monopolies for patented inventions in order to increase profits to give more incentive for innovation. Similarly, if a firm out-competes rivals by producing better products, that is not illegal. However, a merger that is intended to raise prices (and profits) by reducing competition is illegal because it hurts the economy (both the median income and per-capita GDP decline). But a big problem is defining a market to know whether there is monopoly power or not:

A monopoly is a firm that sells all or nearly all of the goods and services in a given market. But what defines the “market”?

In a famous 1947 case, the federal government accused the DuPont company of having a monopoly in the cellophane market, pointing out that DuPont produced 75% of the cellophane in the United States. DuPont countered that even though it had a 75% market share in cellophane, it had less than a 20% share of the “flexible packaging materials,” which includes all other moisture-proof papers, films, and foils. In 1956, after years of legal appeals, the U.S. Supreme Court held that the broader market definition was more appropriate, and the case against DuPont was dismissed.

…The Greyhound bus company may have a near-monopoly on the market for intercity bus transportation, but it is only a small share of the market for intercity transportation if that market includes private cars, airplanes, and railroad service. DeBeers has a monopoly in diamonds, but it is a much smaller share of the total market for precious gemstones and an even smaller share of the total market for jewelry. A small town in the country may have only one gas station: is this gas station a “monopoly,” or does it compete with gas stations that might be five, 10, or 50 miles away?

OpenStax’s Principles of Economics explains that anti-trust regulators began blocking mergers when the biggest four firms in an industry reached a certain concentration in the market, and later regulations began using the more sophisticated Herfindahl-Hirschman Index. However both measures share some weaknesses:

First, they begin from the assumption that the “market” under discussion is well-defined, and the only question is measuring how sales are divided in that market. Second, they are based on an implicit assumption that competitive conditions across industries are similar enough that a broad measure of concentration in the market is enough to make a decision about the effects of a merger. These assumptions, however, are not always correct. In response to these two problems, the antitrust regulators have been changing their approach in the last decade or two.

Defining a market is often controversial. For example, Microsoft in the early 2000s had a dominant share of the software for computer operating systems. However, in the total market for all computer software and services, including everything from games to scientific programs, the Microsoft share was only about 14% in 2014. A narrowly defined market will tend to make concentration appear higher, while a broadly defined market will tend to make it appear smaller.

There are two especially important shifts affecting how markets are defined in recent decades: one centers on technology and the other centers on globalization. In addition, these two shifts are interconnected. With the vast improvement in communications technologies, including the development of the Internet, a consumer can order books or pet supplies from all over the country or the world. As a result, the degree of competition many local retail businesses face has increased. The same effect may operate even more strongly in markets for business supplies, where so-called “business-to-business” websites can allow buyers and suppliers from anywhere in the world to find each other.

Globalization has changed the boundaries of markets. As recently as the 1970s, it was common for measurements of concentration ratios and HHIs to stop at national borders. Now, many industries find that their competition comes from the global market. A few decades ago, three companies, General Motors, Ford, and Chrysler, dominated the U.S. auto market. By 2014, however, these three firms were making less than half of U.S. auto sales, and facing competition from well-known car manufacturers such as Toyota, Honda, Nissan, Volkswagen, Mitsubishi, and Mazda. When HHIs are calculated with a global perspective, concentration in most major industries—including cars—is lower than in a purely domestic context.

Because attempting to define a particular market can be difficult and controversial, the Federal Trade Commission has begun to look less at market share and more at the data on actual competition between businesses. For example, in February 2007, Whole Foods Market and Wild Oats Market announced that they wished to merge. These were the two largest companies in the market that the government defined as “premium natural and organic supermarket chains.” However, one could also argue that they were two relatively small companies in the broader market for all stores that sell groceries or specialty food products.

Rather than relying on a market definition, the government antitrust regulators looked at detailed evidence on profits and prices for specific stores in different cities, both before and after other competitive stores entered or exited. Based on that evidence, the Federal Trade Commission decided to block the merger. After two years of legal battles, the merger was eventually allowed in 2009 under the conditions that Whole Foods sell off the Wild Oats brand name and a number of individual stores, to preserve competition in certain local markets…

This new approach to antitrust regulation involves detailed analysis of specific markets and companies, instead of defining a market and counting up total sales.

Basically, the new approach since the 1980s has been to try to predict whether a merger will be good for consumers by lowering prices or bad for consumers by raising prices (and reducing the quantity of production) rather than focusing on how much one firm controls a particular market. One problem with the new approach is that it is much more complex than a simple index of market concentration and analysis of theoretical benefits to consumers is more uncertain and thus subjective. Another problem is that the new approach cannot measure the effects of greater concentration of economic power upon politics (more potential for corruption and regulatory capture), wages (greater potential for inequality and an increase in wasteful conspicuous consumption), and innovation (which is suppressed by too much monopoly power). These issues can’t be determined in the short-run analysis of consumer benefits that currently dominate anti-trust analysis because they snowball over decades and are too hard to model. The old model for limiting monopoly power was probably better at preventing these long-run problems.

Anti-trust regulation also bans particular business practices that big firms can use to compete unfairly with smaller rivals and it is hard for giant monopolies to avoid using their power to compete unfairly. This is why monopolies are occasionally broken up. Illegal business practices include:

predatory pricing occurs when the existing firm (or firms) reacts to a new firm by dropping prices very low, until the new firm is driven out of the market, at which point the existing firm raises prices again. This pattern of pricing is aimed at deterring the entry of new firms into the market. But in practice, it can be hard to figure out when pricing should be considered predatory. Say that American Airlines is flying between two cities, and a new airline starts flying between the same two cities, at a lower price. If American Airlines cuts its price to match the new entrant, is this predatory pricing? Or is it just market competition at work? A commonly proposed rule is that if a firm is selling for less than its average variable cost—that is, at a price where it should be shutting down—then there is evidence for predatory pricing. But calculating in the real world what costs are variable and what costs are fixed is often not obvious, either.

…The most famous restrictive practices case of recent years was a series of lawsuits by the U.S. government against Microsoft—lawsuits that were encouraged by some of Microsoft’s competitors. All sides admitted that Microsoft’s Windows program had a near-monopoly position in the market for the software used in general computer operating systems. All sides agreed that the software had many satisfied customers. All sides agreed that the capabilities of computer software that was compatible with Windows—both software produced by Microsoft and that produced by other companies—had expanded dramatically in the 1990s. Having a monopoly or a near-monopoly is not necessarily illegal in and of itself, but in cases where one company controls a great deal of the market, antitrust regulators look at any allegations of restrictive practices with special care.

The antitrust regulators argued that Microsoft had gone beyond profiting from its software innovations and its dominant position in the software market for operating systems, and had tried to use its market power in operating systems software to take over other parts of the software industry. For example, the government argued that Microsoft had engaged in an anticompetitive form of exclusive dealing by threatening computer makers that, if they did not leave another firm’s software off their machines (specifically, Netscape’s Internet browser), then Microsoft would not sell them its operating system software. Microsoft was accused by the government antitrust regulators of tying together its Windows operating system software, where it had a monopoly, with its Internet Explorer browser software, where it did not have a monopoly, and thus using this bundling as an anticompetitive tool. Microsoft was also accused of a form of predatory pricing; namely, giving away certain additional software products for free as part of Windows, as a way of driving out the competition from other makers of software.

In April 2000, a federal court held that Microsoft’s behavior had crossed the line into unfair competition, and recommended that the company be broken into two competing firms. However, that penalty was overturned on appeal, and in November 2002 Microsoft reached a settlement with the government that it would end its restrictive practices.

Although Microsoft was never subjected to much actual anti-trust penalty by the end of the case, the very fact that Microsoft was being investigated from 1992-2002 for anti-trust problems was healthy for competition in the tech industry. For example, without this anti-trust case, it is possible that we would not have Google nor Apple today. The growth of Google depended on an open internet and Microsoft was being investigated for using its control over computer operating systems to control the internet by monopolizing internet browsers. Without any constraints, Microsoft might have crushed the young Google Corporation just like it had crushed many other promising internet startups like Netscape (which was the focus for Microsoft’s anti-trust trial). During the court case, Microsoft had been arguing that they didn’t have a monopoly over personal computers because Apple Computer provided competition by producing a small fraction of the market for computers. Then Apple Corporation filed for bankruptcy! So Microsoft rescued Apple by buying $150m in Apple shares (which had been nearly worthless) and committing to develop key software like Microsoft Office for the Apple operating system, their main “rival.”

So without the anti-trust case motivating Microsoft to rescue Apple, the world would never have gotten the Ipod, Iphone nor any of the other consumer products that Apple subsequently developed.

Posted in Public Finance

Shoulda bought Bitcoin a year ago…

The WSJ found a great way to show how much bitcoin has risen this year:

Their video is fun too. Many bitcoin fans argue that this price rise is based on the fundamental value of bitcoin. I agree with the WSJ that it is an enormous bubble. This bubble won’t be as damaging to the rest of the economy as any of the others shown on the graph, but bubbles are often wasteful and in this case, large amounts of electricity are being wasted as thousands of computers are running hot to “mine” additional bitcoins. The electricity used to mine bitcoin this year is bigger than the annual usage of 159 different countries! Here is a map of the countries of the world that use less total electricity than the bitcoin miners:

Not only does bitcoin waste lots of electricity in “mining” new coins, it is also extremely energy inefficient at making transactions.  Business Insider says:

Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING.

…Not only does Bitcoin use a vast amount of electricity to complete transactions, it uses an almost exponentially larger amount than more traditional forms of electronic payment.

“Bitcoin’s energy costs stand in stark contrast to payment systems that have the luxury of working with trusted counterparties. E.g. Visa takes about 0.01kWh (10Wh) per transaction which is 20000 times less energy,” Brosens notes, pointing to the chart below:

This inherent inefficiency of bitcoins is one reason why I think it is a bubble.  There are more efficient ways to make black-market payments and avoid paying taxes.

Posted in Medianism

Trickle-down vs. flood-down

Thomas Sowell wrote a 20-page book called “Trickle Down Theory” and “Tax Cuts for the Rich” that he is selling on Amazon for $5, but you can download it for free on his website. In it, he argues in favor of tax cuts, particularly for the wealthy, using two basic arguments, 1) that lowering tax rates will bring in more government revenues (the so-called Laffer-curve argument) and 2) that tax cuts will increase GDP (mmutilitarianism).  Mmutilitarianism is the philosophy that inequality doesn’t matter because only the production of goods and services (as GDP attempts to measure) matters. Sowell hates the idea that a tax cut for the wealthy could be justified on the basis that some benefit might trickle down to non-wealthy people because he is a mmutilitarian who thinks it is immoral to consider issues of class (inequality). For example, he says:

Repeatedly, over the years, the arguments of the proponents and opponents of tax rate reductions have been arguments about two fundamentally different things. Proponents of tax rate cuts base their arguments on anticipated changes in behavior by investors in response to reduced income tax rates. Opponents of tax cuts attribute to the proponents a desire to see higher income taxpayers have more after-tax income, so that their prosperity will somehow “trickle down” to others… [Proponents of tax-cuts for the wealthy argue that they] can change the total output of the economy, while the other side is talking about changing the direction of existing after-tax income flows among people of differing income levels at existing levels of output.

In his National Review column, Sowell has repeatedly claimed that nobody is advocating for “trickle-down” economics and he issued a challenge several times, “to name any economist, outside of an insane asylum, who had ever said any such thing. Not one example has yet been received, whether from economists or anyone else.” I’ll give him one: me. I’m in favor of trickle-down economics if the trickle is big enough and in the case of modern-day Venezuela, there are probably policies to help the wealthy that would indeed trickle down enough to be well worth doing. Another famous example is philosopher John Rawls who wanted all policies to be judged on how well they benefitted the person who was the worst off. He recognized the need for policies that benefit the richest people in society because some inequality is necessary for providing trickle-down benefits that help the poorest people. He didn’t use the term “trickle down,” but the flow of resources to the poorest was the only reason he would support policies to boost the incomes of the richest members of society.

Everyone should support a trickle-down argument if the trickle is big enough. For example, suppose we give a dollar in tax breaks to Bill Gates and he somehow could invest that dollar that would indirectly cause the income of the poor to increase by $1,000. That would be an incredible investment and even a mmulitarian like Sowell would support it even though it decreases inequality because it is an increase in GDP in this case.  However, mmutilitarians like Sowell would probably think that this is a ridiculously impossible example because they tend to think that rising inequality is good for GDP because of their mistaken belief in a strong equity-efficiency tradeoff, but trickle-up is also possible.

Another recent example of a proponent of trickle-down economics is one of Trump’s top economic advisers, Gary Cohn who said ” When you take a corporate tax rate at 35 percent and move it to 20 percent … We create wage inflation, which means the workers get paid more; the workers have more disposable income, the workers spend more.  We see the whole trickle-down through the economy, and that’s good for the economy.”

The immediate beneficiaries of a corporate tax cut are the wealthy owners of corporations:

Trump’s chief economist, Kevin Hassett also used a trickle-down argument when he said that their proposed cut in corporate taxes would “increase average household income in the United States by, very conservatively, $4,000 annually.” Hassett says that this tax break for wealthy Americans can be justified because it would also benefit the middle class.

Although National Review writers like Thomas Sowell don’t like the term, “trickle down,” it is revealing how important trickle-down economics is at the National Review because they have used the phrase in hundreds of different articles. A Google search of the site reveals 1,110 pages using the terms “‘trickle-down’ and “tax”. For example, National Review author Ryan Bourne argues in favor of lower corporate-tax rates because they will hopefully “boost worker wages”. Similarly, Steven Horwitz wrote an article that is similar to Sowel’s which Horwitz titled, “There is No Such Thing as Trickle-Down Economics” in which he argued that “There’s no economic argument that claims that policies that themselves only benefit the wealthy directly will somehow “trickle down” to the poor.” Ironically, in the same article where he said that trickle-down isn’t a valid argument, he actually made a trickle-down argument himself because it is a good argument to justify policies whose immediate beneficiaries are the wealthy. Horwitz ended his argument by saying, “improving standard of living for everyone that results from more economic freedom [such as tax cuts] will be more of a flood than a trickle.”

And if he is right that the trickle is a flood, then everyone should support trickle-down economics. The real debate is whether there really is enough trickle-down to justify the tax cuts for the wealthy.

Even better, we should focus on trickle-up economics. Let’s help the rich get richer by strengthening the middle class (and poorer) who will then be able to pay higher rents to the rich.

Posted in Public Finance

Rural politics

Farming communities have always been less cosmopolitan than urban areas, and that makes them more culturally conservative, but my sense is that they used to be more economically liberal in the past than today. Today, the most solidly conservative parts of the nation are the rural areas and this is obviously due in part to their cultural conservatism, but perhaps they have become more economically conservative too as mean farm incomes have risen. For all of history until recently, average farm income was lower than average non-farm income. However, today the average farmer earns more than the average non-farmer. Of course there is very high inequality in farm income and it is probably increasing as the average farm size (and wealth) rises, so that doesn’t mean that the median rural farm worker earns more than the median non-farm worker, but perhaps rising average farm incomes have increased rural economic conservatism to match rural cultural conservatism.

Posted in Medianism

Escaping the tyranny of climate

Note: this is an abbreviated repost of an article I wrote for my Economic Development class that I’ll be using for a guest lecture on climate change.

Humans co-evolved with our technological inventions for warming up in the cold: fire, shelter, and clothing.  Our large brains would not work without the precise temperature regulation provided by our nearly furless skin.  Even the remnant fur on our heads is there to insulate the most temperature-critical body part by shading it from intense sun and warming it from the cold while the naked skin on the rest of our body can radiate out the enormous heat created by our brains.  Although our brains are only about 2% of body weight, they generate 20% of the heat of our bodies and they don’t work well if they overheat.  Brains must be kept within a very narrow temperature range to work correctly. Because human skin is better at eliminating heat than retaining it, humans have needed heating technologies to survive even moderate cold snaps: fire, shelter, and/or clothing.

Whereas humans have always had technologies for warming up, it was not until the 1950s that humans had an equally reliable technology for cooling down when trying to work in a place that is too hot.  And cooling down is crucial for our brains to function well.  Witness our naked bodies for evidence.  Before the air conditioner, people could not work when the weather gets too hot.  They were forced to siesta during the heat of the day or migrate into the cool of the mountains during hot seasons.  Here is an estimate from NOAA of how much less time humans can do physical labor outside in the tropics compared with temperate zones:

labor_capacity-1

By their estimate, people in the tropics can’t spend as much time doing physical labor as in the temperate zone where people can spend roughly 50% to 300% more time working. The bottom graphs shows that this would get much worse with 3 degrees of global warming.

Throughout history, observers have noticed that cooler geographic regions have been richer than hot regions.  For example, the richest part of the globe is the temperate zone in the northern hemisphere, but even in the southern hemisphere, the richest part of Brazil is its temperate south, the richest part of Africa is its temperate south and the same goes for Australia.  Even in tropical countries like Mexico, Bolivia, and Ethiopia, the majority of economic activity is at high altitudes where the temperatures are cool.  Whereas the majority of the Mexican population lives above 5,000ft, most people in temperate nations prefer to live in lowlands near bodies of water.  The island states of Indonesia and the Philippines have a lot of economic activity, but much of this territory is surprisingly temperate due to temperate ocean breezes or high altitudes as you can see in the following map which comes from 2001 research by Sachs, Mellinger, and Gallup.

 

They discovered that 8.4 percent of the world’s inhabited land area, produces 52.9 percent of the world’s income. The blessed geography of wealth is the temperate zone within 100km of an ocean-navigable waterway.  Per-capita income is 2.3 times greater than the global average in this region.  Being in a temperate zone has been an economic blessing that accounts for a lot of why some places are richer than other places.  Global warming will expand the zone of tropical weather and shrink the cool temperate zone.  Fortunately, we have some reason for optimism: the air conditioner.

 

The southern US is the poorest region of America has been for all of history, but since the spread of the air conditioner in the 1950s, it has been growing faster and it is finally catching up.  Ed Glaeser found that the two main factors that are correlated with regional population growth in the US after 1960 are warmth in winter and the prevalence of college educated workers.  The air conditioner is the main reason why the south has been the fastest growing region of the US since 1960.

For example, the Cleveland Fed made a graph showing how the air conditioner contributed to shrinking cold-weather cities and growing hot-weather cities:

hot population

Cooler working temperatures simply make people more productive.  In Caribbean nations, short-term drops in temperatures are correlated with large increases in GDP.   Cooler temperatures seem to reduce crime and make people less impatient and violent. Air conditioners can bring higher productivity and patience to any climate, but even with modern air-conditioning, extreme heat reduces economic output even in the US:

Tatyana Deryugina and Solomon Hsiang find that hot days are bad for the economy — not just in poor countries with an overwhelmingly agricultural workforce, but in the United States of America. Here in the US, “productivity of individual days declines roughly 1.7% for each 1.8°F increase in temperature above 59°F.” That means that “a weekday above 30°C (86°F) costs an average county $20 per person.”

…Hot days kill growth both because of negative impacts on agriculture and because it seems that, despite air conditioning, people simply work less efficiently when it’s hot. …Extreme cold is unpleasant, but as a society we can live through it and even thrive. Extreme heat saps our will to live in a more fundamental way, crushing the economy and driving long-term immiseration.

 

Before the air conditioner, heat waves were deadly in the US.  Now they are more of a mere annoyance that keeps people inside.

The above graph shows that before the air conditioner (red line), heat waves caused mortality spikes.  Since 1960, relatively few Americans have been unable to escape the heat and have had problems.  Because most Indians are too poor to afford air conditioning, they still have large mortality spikes during heat waves.

Burgess, Deschenes, Donaldson, Greenstone, 2017

Tragically, the idea for mechanically cooling living space was invented in the 1840s by John Gorrie, but didn’t take off.  Unfortunately, he was unable to get financial backing and died bankrupt.  He marketed it as a remedy for malaria and yellow fever because he believed in the common theory of the day that malaria was caused by bad air (which is literally what the word ‘malaria’ means) and he believed that cooling the air could keep the poisonous gasses away.

Perhaps his idea was ahead of its time, but he might have just been targeting the wrong market.  He might have been more successful if he would have marketed it for industrial and luxury markets because that is how  Willis Carrier succeeded when he reinvented the air conditioner a second time in 1902.  He initially found success selling them to printing and textile factories to stabilize the humidity that wreaked havoc with production and that focus on humidity is why they got the name air conditioners rather than air coolers. Nobody tried using them to cool the air merely for human comfort until the first residential unit was installed in 1914 in Minnesota (of all places) and they became popular in the 1930s in movie theaters and finally revolutionized life in the sunbelt in the 1950s as the technology improved and costs dropped.

Posted in Medianism

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