Mass-shooter drills train potential mass shooters.

Here at Bluffton University, we just did our first annual mass-shooter drill. I think it is political theater at best and harmful at worst. The Washington Post wrote an article that puts the threat of mass-shooters in perspective.

People killed in mass shootings make up less than half of 1 percent of the people shot to death in the United States. …In 2015, more than 12,000 people have been killed by guns, according to the Gun Violence Archive.

For comparison, toddlers shot and killed more Americans than mass shooters did.

Americans seem to be particularly scared of mass shootings in schools, because this is where we focus our anti-shooter efforts, but schools have always been one of the safest places that students ever go. Only about 1% of the homicides of students happen on school grounds. The probability of dying in school is much lower than at home or in some other public area. As I wrote earlier, mass shootings at schools is an incredibly low-probability way to die. You should be more worried about deaths from lightening or drownings in bathtubs. At colleges, alcohol and suicides produce some of the biggest death risks that we should be more worried about.

Plus, there is no evidence that mass-shooter drills have any beneficial effect and they may cause harm. These drills train the shooters just as much as they train the victims. We are training an entire generation of students to strategize about mass shootings every year in some of the safest places where people ever gather. The tiny fraction of students at the fringe end of the bell curve who have a tendency towards mass shootings are going to be stoked by the annual mass shooting play at their schools and it is going to make the idea much more salient for them.

Every year they are going to see how trivially easy it is to defeat the pathetic countermeasures we play at in the drills. A smart mass shooter will be spending the time the students spend huddled in silence in darkened classrooms with shades drawn thinking about all the obvious vulnerabilities such as disabling the automatic sprinklers and igniting gasoline (like smoking-out rabbits). Or thinking about opening fire during a weekly ball game at a stadium. When schools do a mass-shooter drill in the middle of a packed ball game I will take them more seriously, but they won’t do it because administrators would never want to interrupt a nice sporting event for mass-shooter theater.  We have our priorities.

In addition to increasing the salience of mass shootings among all the mentally unstable people in the general population, we may increase other risks by being paranoid about mass shooters in schools too. For example, fire doors are being propped open during office hours so that the door locks can be permanently engaged in order to allow them to be locked in an instant by just swinging the doors shut. That is going to increase the risk of fire deaths which kill many times more Americans than mass shooters. Not only do propped-open doors permit fires to spread, doors that automatically lock upon shutting will slow down firefighters and endanger rescuers.

The US has a much bigger fire-death problem than most nations and these deaths are much easier to prevent than mass-shooter deaths in a nation with a constitutional right to own unlimited quantities of machine guns. Whereas I don’t see any politically feasible way to reduce mass-shooter deaths in America, the only reason we have an enormous death-rate from fire is negligence. Fortunately it has been dropping due to actions spurred by press reports about fire deaths, but it is still much higher than most nations which means that most of these deaths are preventable.  There is nothing in our constitution that prevents action against fire deaths nor any organized political groups that are adamantly pro-fire risk.  There is actual evidence that fire drills save lives and fires kill many times more Americans than mass shooters, so why don’t we do more fire drills instead of mass-shooter trainings?

Posted in Violence & Peace

We Pencils

Introduction: This essay is guest authored by a group of pencils.  Yes, we are a bunch of ordinary writing instruments.  Even though any one of us is very dumb, even a group of idiots can produce something much greater than the sum of their parts when they figure out how to work together.  Collaboration is what this essay is all about.  We think that Leonard Read’s famous 1948 essay, “I Pencil” was misleading about how collaboration works and needs updating.

We Pencils

We are lead pencils–the ordinary wooden pencils familiar to everyone who can read and write. This is our story, our genealogy. You may wonder why we would write this genealogy, but we are a mystery–more so than a tree or even a flash of lightning. Sadly we are taken for granted as if we were without import, but imagine life without us.

We pencils, simple though we appear to be, should merit your wonder and awe, a claim we shall attempt to prove. In fact, if you can understand us—no, that’s too much to ask of anyone—if you can become aware of the miraculousness which we pencils symbolize, you can help save the prosperity that mankind is so unhappily losing. We have a profound lesson to teach. And we can teach this lesson better than can an automobile or an airport because—well, because we are so simple.

Simple? Yet, not a single person on the face of this earth knows how to make one of us. This sounds fantastic, doesn’t it? Pick up one of us to look over. What do you see? Not much meets the eye— wood, paint, the graphite lead, a metal ferrule, and an eraser.

Innumerable Antecedents

Even though you are a distant cousin to everyone else on earth, you probably cannot trace your family tree back far enough to identify your relationship to more than a few thousand relatives at best. Just as it is impossible for you to name all your antecedents, so is it impossible for any of us to name and explain all of ours. But we would like to suggest enough of them to impress upon you the richness and complexity of every humble pencil.

Our family tree begins with actual trees, such as straight-grained cedars that grow in forests in Northern California and Oregon that are mostly owned by the federal government which manages 70% of the forests and 47% of all the land in states west of the Great Plains as you will see below.

Now contemplate all the saws and trucks and rope and the countless other gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the corporations and the numberless central planners that managed their fabrication: Glencore Xstrata Corporation mining the ore, ArcelorMittal Corporation making the steel and its refinement into saws, axes, motors by Techtronic Industries; the corporate logging camps with their beds and mess halls, the cookery and the raising of all the foods. Why, untold thousands of persons working for Kraft Foods had a hand in every cup of coffee the loggers drink!

Now contemplate the necessity of roads to get workers into the forests and get the wood back out. Without roads, most woods could never be harvested. US Forest Service workers managed our trees and State Transportation Department bureaucrats planned the roads to get them out to the railroad.

Can you imagine the individuals who work for GE Transportation in over 160 countries making the flat cars and rails and railroad engines and who construct and install the communication systems for the shipping containers that transport the wood for pencils?

Some of us were part of logs that were shipped to one of the 33 enormous sawmills in California that produce billions of board feet every year. Some of us were shipped to a facility in China like the California Cedar Products’s pencil slat mill in Tianjin.

Our cedar logs are cut by robots into small, pencil-length slats less than one-fourth of an inch in thickness. Other robots dry us in kilns and then tint our wood red for the same reason women put on makeup. People prefer that we pencils look pretty, not pallid white.

How many other robots in other factories made the lights, belts, motors and other equipment the pencil slat mill requires? Yes, although machines do most of the work in factories, there are people there among our ancestors too. There are engineers who programmed the robots and maintained the machines and janitors who swept the floors. There were construction workers who poured the concrete for the communist-government’s Three Gorges Dam hydroelectric plant, the world’s biggest, which supplies the mill’s power.

Don’t overlook the ancestors present and distant who had a hand in transporting numerous containers of slats across the globe. Most of them will be replaced by robotic self-driving vehicles in the near future, but that creative destruction will just bring other antecedents into our family tree.

Once in a Chinese pencil factory—hundreds of millions of dollars of robotic machinery and building, financed with capital accumulated in government-run Chinese banks—each slat is given eight grooves by a robotic machine, after which another robot lays leads in every other slat, applies glue, and places another slat atop—a lead sandwich, so to speak. Eight of us are robotically carved from this “wood-clinched” sandwich.

Our “lead” itself—it contains no lead at all—is complex. All of the land in China is owned by the communist government including nearly 80 percent of the world’s graphite deposits. Consider the graphite miners and the workers who made their many tools. They are slowly being replaced by machines just like the workers who used to load bags of graphite on ships. Even those who make large shipping containers in which the graphite is shipped and those making the ships are slowly being replaced by mechanization. Even the lighthouse keepers along the way who assisted in our birth have long-since been replaced by government-owned robotic lights. The harbor pilots will soon be replaced by robots too.

The graphite is mixed with kaolin clay from Georgia and wetting agents from a chemical factory. After passing through numerous semi-autonomous machines, the mixture is finally extruded like thin sausages, cut to size, dried, and baked for several hours at 1,850 degrees Fahrenheit, all untouched by any worker’s hands. To increase the strength and smoothness of the leads, robots then coat them with a hot treatment of waxes synthesized at petroleum refineries.

Robots then coat the naked cedar of our bodies with paint. Do you know all the ingredients of paint? Who would think that middle-eastern petroleum is the biggest part of it? That oil is chemically transformed into solvents like aliphatic and alicyclic hydrocarbons. Why, even the processes the AkzoNobel corporation uses to make our paint’s pigments a beautiful yellow involve the skills of many people that is too complex to explain.

Observe our labeling. That is a mixture of carbon black and polymer binders that is painted on and rapidly cured by heating. How does AkzoNobel make polymers and what, pray, is carbon black?

Our bit of metal—the ferrule—is aluminum. Think of all the robots who mine bauxite in Australia and the robots at UC Rusal who have the skills to smelt it and make shiny a sheet of alloy. It would take pages to explain just how one robot works and much more to explain how they make sheets of alloy.

Then there’s our crowning glory, inelegantly referred to in the trade as “the plug,” the part man uses to erase the errors he makes with us. It is made by distilling crude petroleum into its different chemicals and cracking them separately with catalysts into styrene and butadiene which are mixed back together with vegetable oil, sulfur, tints, heat, and many other inputs to chemically react into the final “rubber” that is extruded and cut into the desired shapes.

No One Knows

Does anyone wish to challenge our earlier assertion that no single person on the face of this earth would know how to make one of us without the help of many other people?

Millions of humans have a hand in our creation even though none of them knows more than a small fraction of the total that the others know. Now, you may say that we go too far in claiming in our creation the coffee pickers and food growers in far-off countries. This is an extreme position, but we stand by our claim. There isn’t a single person in all these millions, including the president of the pencil company, who contributes more than an infinitesimal amount of know-how or effort to make one of us. The only difference between the contribution of the president of the pencil company and the logger in Oregon is in the type of know-how and the amount of political power they have in their organizational structures. Neither the president nor the logger can be dispensed with, any more than can a chemist in the factories or the workers in the oil fields. Even so, the company president will get a lot more money because of his political power as a central planner in the process and the scarcity of the knowledge that top central planners gather.

Here is an astounding fact: Neither the oil field worker nor the chemist nor the robotics engineer nor any who cuts the trees or mines the ores performs his singular task because he wants to make pencils. Each of these workers wants pencils less, perhaps, than does a child in the first grade. Indeed, there may be some among this vast multitude who never even saw a pencil nor would they know how to use one. Their motivation is other than pencils. Perhaps it is something like this: Each of these millions sees that they can exchange their tiny work for the goods and services they need or want. We pencils may or may not be among these items.

Only the pencil company workers take pride in their contribution to us pencils, but they are a tiny fraction of the people who are necessary for producing us. There are only three pencil factories in the U.S. which produce about two billion pencils a year. Of course, this was only 14% of the pencils sold in America in 2008 (86% being imported), but it is amazing how few of the world’s workers make all the pencils in the world and even more amazing how very few pencil company presidents there are to mastermind the process.

So Many Masterminds

There is a fact still more astounding: the numerous masterminds, dictating and to some degree forcibly directing the countless actions which bring us Pencils into being. They are involved in almost every step of every manufacturing process. The Invisible Hand is also important for giving managers incentives to help coordinate the work of multinational corporations, but markets merely intermediate between the boundaries of companies that are run by bureaucrats and MBAs, the unsung heroes of our story. It is a mystery why the bureaucrats aren’t more appreciated for the miracles they produce.

Everyone agrees that only God can make a tree because we realize that we ourselves could not make one. Indeed, can we even understand a tree? We cannot, except superficially. Even though we could describe the molecular configurations manifested in a tree, no one could record, let alone direct, all the constant molecular changes that transpire across the life span of a tree to produce its majesty. Such a feat would be unthinkable.

Similarly, we Pencils are complex combinations of the miracles that manifest themselves in nature: cellulose, petroleum, aluminum, graphite, and so on. But to these miracles an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows cooperating under the direction of numerous human masterminds who manage large and small companies of employees working together. These companies simultaneously compete and cooperate with each other in response to market prices and management negotiations. Although only God can make a tree, he never made a pencil and we insist that managers are required to coordinate the people to make us. Without managers, mere markets can no more direct the millions of individuals that bring us into being than they could put molecules together to create a tree. Markets help give managers guidance, but the managers are the real key to the process.

The above is what we meant when we wrote, “if you can become aware of the miraculousness which we Pencils symbolize, you can help save the prosperity that mankind is so unhappily losing.” For the citizens of the world have forgotten the interdependence that creates wealth and are voting for politicians who have been helping wealthy elites grab power away from middle class interests and cause the median income to stagnate as inequality has skyrocketed since the 1970s. This has stymied the aspirations, talents, and creativity of the masses of ordinary citizens.

If one is aware that managers are necessary to arrange individuals into creative and productive patterns in response to human necessity and demand—then one will possess an absolutely essential ingredient for freedom: a desire to work for better governance. Freedom is impossible without this desire because the absence of government is anarchy and chaos. There is no freedom in anarchy. Only poverty and violence.

That is not to say that all governance is created equal and all managers benign. Just the opposite. Bad managers love power for the sake of power or try to selfishly extract as much out of others as possible. Good managers set up conditions within which their people naturally and spontaneously flourish productively. All managers have some coercive power over others, but the best managers use it sparingly and rely more on inspiration to motivate their people to follow the better angels of their natures.

But even the worst governance is no worse than the absence of government because governance is leadership and people have always needed leadership to survive and prosper. Without governance it is impossible to accomplish complex creative production involving the coordination of multiple people. To give a trivial, yet ubiquitous example, consider the delivery of the mail. National mail delivery has stereotypically been performed by a government monopoly, and some governments are much more efficient at it than others, just like some corporations are managed better than others. Ironically, Scandinavian nations are usually considered more socialist than the US, but in Sweden and Denmark, private postal corporations compete to deliver mail and are efficiently regulated by the government instead of directly owned by the government. Regardless of whether mail is delivered by a government agency or a private corporation, the management issues are largely the same. Without hierarchy and management, there is no national mail service. Markets alone cannot provide it nor can individual men acting freely. Only bureaucracies led by masterminds with varying amounts of coercive power can deliver the mail anywhere in a nation within a few days for the tiny price of a stamp. That is another miracle if you stop to think about it. How much would you charge to deliver a letter across the country in less than a week?

Now, in the absence of faith in governance — in the unawareness that leadership is necessary to help individuals naturally and miraculously cooperate to achieve ends that are greater than any one person — the individual might reach the erroneous conclusion that mail can be delivered without any governmental masterminding. That individual might become an anarchist.

For although democratic capitalism manages the economy better than communist dictatorship, even communism works much better than anarchy. Pencils were produced in abundance even by the central planners of communism. Here are striking photos in 2012 of the Soviet Union’s original 1926 pencil factory that is still operating! We Pencils have been produced by both communist central planners and corporate managers, but we have never been produced in the absence of government.

Testimony Galore

If we Pencils were the only products that could offer testimony on what men and women can accomplish when they are bound together under effective management, then those with little faith in governance would have a fair case. However, there is testimony galore: it’s all about us and on every hand. Mail delivery is exceedingly simple when compared, for instance, to the masterminds who manage the making of an automobile, airport, or Iphone.

Delivery? Why, in this area managers in large corporations and governments have delivered the human voice around the world. They deliver 150 passengers from Seattle to Baltimore in less than four hours. They deliver gas from Texas to one’s range or furnace in New York at unbelievably low rates. They spend millions of dollars per mile building roads to subsidize the delivery of people and millions of other things! None of this would be possible without governance at multiple levels of society.

The lesson we have to teach is this: To have a prosperous society we need managers to lead and bureaucrats to nudge people to work act in harmony with each other. Let society’s legal apparatus create useful obstacles like property rights, but not be excessive. Some obstacles like patents are useful to create more creative energies, but too much intellectual property rights inhibits them. Let governments coercively extract taxes to pay for excellent schooling to encourage creative know-how and give everyone the opportunity to contribute back to society.

Know that inequalities of power are inevitable in every society, but that some societies manage to produce more benefit to the median individual than others. Be skeptical of powerful people who claim to be self-made because just as every pencil is the creation of millions of people, every billionaire and dictator is too. These elites can only accumulate power by limiting other people’s freedoms. Because all power ultimately derives from control over others, powerful people should contribute back to society in proportion to the power that they have. Because all power ultimately comes from others, greater power also brings greater responsibility to serve others too.

A manager who realizes that she has a duty to give back to her people will have happier, more productive people and that may even make her richer than if she tried to use her power to selfishly maximize the amount that she takes from them. This is one reason why most dictatorships are so poor. Most dictators are too selfish and don’t give back enough to their people to enable them to flourish. Democracies are better because they limit the ability of the ruling elites to leverage their power to selfishly extract resources. Unfortunately, democratic sentiments can be warped by elites who spend fortunes marketing myths to the people about how economic elites need less responsibility and more control because, they say, the invisible hand of God has blessed them with the divine right of wealth. Wealth is property which always involves some amount of coercion. Not all coercion is unjust, but libertarian elites are happy to cynically take advantage of the coercive force of government that is necessary to create and maintain property rights for them while claiming to object to government coercion overall.

We Pencils, seemingly simple though we are, offer the miracle of our creation as testimony that good management is a necessity of prosperity and wherever there are groups of humans, some form of management is as inevitable as the sun, the rain, and the good earth. Given the natural resources at our disposal, the only difference between shared cornucopia and unjust famine is the quality of governance.


We are writing this in response to Leonard Read’s essay “I Pencil” which he wrote because he thought Americans placed far too much faith in government and didn’t recognize the miracles of everyday markets. He worried that the invisible hand is so hidden that most people didn’t realize its power and put more faith in socialism. He had good reason to be worried because he was writing during the heyday of the Cold War when the Soviet Union was becoming a superpower and communist movements were popular around the world. Twenty-eight nations around the world adopted communist government at some point during Read’s life and many more became socialist. The vast majority of the population of the world lived under socialist rule for at least half their lifespans (more than thirty years) during this era.

Today socialism is unpopular and we are in danger of the reverse because people put too much faith in the myth of unfettered capitalism because they think capitalism is being directed by the invisible hand of God when in actuality an increasing share of our daily existence is shaped by the invisible powers of management. In particular, corporate power has been rising for decades and it is have even reshaped many of our markets. Elite capitalists now have far more control over society than was the case in 1948 when Read wrote his essay. Stock market capitalization has been steadily growing faster than the economy as a whole because large corporations are have been growing increasingly dominant and taking over more of the economy. Even government-printed money is being replaced by electronic payments that are increasingly managed by two corporations: VISA and Mastercard.

According to the census, 64% of Americans now work for the biggest 2% of America’s firms. Most people now work for managers rather than markets. The BLS estimated that in 2012, only 6.7% of American workers were self-employed entrepreneurs or unpaid family members. In 1950, 25% of workers were self-employed and large corporations were much less important. Although markets had been expanding their influence across greater and greater areas of life for two centuries, information technologies are now giving managers greater power to control ever greater spheres of influence and along with demographic changes, this is causing markets to slowly retreat. Markets have probably already peaked somewhere around the year 2000 and we are slowly moving into a post-market era.

The coming rise of artificial intelligence will only accelerate that trend by devaluing the skills of more and more classes of workers while raising the income of a few elite owners. Industrial capitalism has only existed for a couple hundred years in Europe and a few decades in the much of the rest of the world. It developed as the result of the technological changes that brought the industrial revolution and some parts of the world are still waiting for this revolution to come. The whole point of economic development in the third world is for poor countries to figure out how to copy the industrial revolution that made the industrialized world rich. Now many scholars think that we are entering a post-industrial age that many are calling the information age. What kind of economic and political system will that bring?

Every technological era has brought changes in economics and politics. The hunter-gatherer era had tribal government which was so loose that some scholars argue that it isn’t government at all, but there was always an important role for tribal leadership and management. The agricultural era brought civilization and monarchy became the predominant form of government. The industrial revolution has brought mass democracy. What system of governance will the information revolution bring?

As an information age sequel, we’d like the Iphone to write, “I Iphone” about its family tree. Actually, Mariana Mazzucato already wrote the story in The Entrepreneurial State, chapter 5.  She documents that the 12 most amazing technologies that are combined to create the Iphone were invented using government funding at crucial early stages.  That includes everything from the internet to Siri.  Tim Harford also made a 7 minute podcast telling the story.  Obviously, pure government (communism) didn’t build the Iphone, but then neither did individuals purely coordinated by free markets.  In the 1940s there were a lot of starry-eyed leftists who thought that all we need is to get rid of (or minimize) markets and today there are a lot of starry-eyed rightists who think all we need to do is get rid of (or minimize) the government to achieve prosperity.  Both are wrong.

Most people understand that strong corporate governance is essential to modern capitalism, but national government is too. Capitalism cannot exist without a strong national government providing a minimum set of regulations so that courts can arbitrate disputes: Successful stock markets require detailed accounting regulations and corporations require limit liability protections and research and development require patents and public education funding and insurance companies require insurance regulations. Some nations have regulations that encourage stronger markets than others, but none of these essential institutions of capitalism arise independently of the regulations and other government actions that nurture them. The key to capitalist prosperity is getting the regulations right. That is good management.

The Western USA, beloved by cowboys, is the most socialist region.

When people talk about how the western states’ geography feels free and open without restrictions, they are talking about how it is mostly owned by the government.  That is why there is relatively free access in the west. Most of the land in the eastern states is privately owned and there are much greater restrictions on recreational use because property rights are the right to exclude others. That is the whole point of private property. This map shows the distribution of federally owned land.

Because this map only shows federal ownership, it leaves out vast territories owned by the state governments. For example, state government owns a quarter of the state of Alaska leaving less than 1% of Alaskan territory for ownership by private citizens. There is a lot more land in the east that is owned by state and local governments including roads, parks, schools, and rivers, but these are divided into numerous small parcels are rarely big enough to give the expansive sense of freedom that the vast national forest or BLM territories give.

Ironically, the socialist land management of western states makes people there feel freer than in the east. It encourages libertarian sentiments and some libertarians get extremely upset when the government tries to act like a private landowner and exclude them from abusing public land such as by overgrazing. Public ownership reduces exclusions which is why our socialist road system is so incredibly popular despite its mind-bogglingly high cost to build and maintain. Government ownership of roads is extremely expensive real estate, particularly in urban areas where road density is concentrated. A newly paved road costs anywhere from a minimum of about $2 million per mile in rural areas to more than $10 million in urban areas. Maintenance is also very expensive. Resurfacing a 4-land road costs about $1.25 million per mile. Despite this cost, we call the most expensive roads freeways. This expensive system connects all of the most important places together as you can see in this a map of nothing but the roads in Florida. The most valuable regions pop out visibly because they have more roads. (This map and many other states are available for purchase from Fathom).

The Chinese government claims to be communist although they have adopted numerous capitalist reforms, which they call the “Chinese characteristics” of Marxism. Socialism is usually defined as the government ownership of the means of production and one area where China has continued the communist tradition is the public ownership of all land. Everyone in China must rent any land that they want to use privately. The western states have a similar tradition.

A last word for lovers of pencils.

Leonard Read wrote “I Pencil” about a miraculous supply-chain of globalization in 1948, and the world has become a lot more globalized since then. He traced the network of inputs to make a “Mongol 482” pencil made by the Faber-Castell Pencil Company, the largest and oldest pencil manufacturer in the world. It is headquartered in Stein, Germany, and still operates 14 factories in 10 countries around the globe. This brand was bought by Staedtler in 1978 and then by Sanford, a division of Newell Rubbermaid in 1994. They shut down their US production, but the Mongol 482 brand is still produced in Venezuela for sale in South America and the Philippines.

When Leonard Read wrote “I, Pencil” in 1948, the US had dozens of pencil companies running dozens of small factories across the nation.  By the year 2000, 86% of us Pencils sold in America were imported, mostly from China.  There are now only three pencil factories in the US (although two of the factories mostly just assemble pencil parts made overseas) and these three factories produce two billion of us Pencils each year.  In 1948, the US pencil industry employed many more factory workers, and they probably produced all of US demand without significant net imports. Even so, the dozens and dozens of US pencil factories in 1948 produced 25% fewer pencils per year than our three factories do today.  In an era when pencil companies were smaller and more numerous, market competition was more important relative to corporate management, but management has always been more essential than markets as the Soviet Union’s production attests.

Leonard Read did a great job of illuminating the undeniable miraculousness of markets and international supply chains when he wrote “I Pencil,” but effective management has always been more important and is increasingly so in the information age.

We Pencils were inspired by a libertarian organization who mailed a book about “I Pencil” to the owner of this blog in 2016 as part of a well-managed marketing effort to spread libertarian ideology among university professors. They recognize that markets don’t work well enough to disseminate their ideology, so they give away their propaganda like a government handout. Other managers have made the story into a cheesy movie that was also produced more like a welfare program than a market product. We encourage you to compare this essay with the original (naturally available as a free handout).

Posted in Globalization, Managerial Micro, Public Finance

Mmutilitarianism: The accidental ethical foundation of economics and business.

Note: This is an adaptation for students of an old post.

Everyone has some sort of moral philosophy whether they realize it or not.  The three major schools of ethics are deontology, consequentialism, and virtue ethics.  Deontology is an ethical system based on legalistic rules that impose a duty on everyone’s actions.  Consequentialism or teleological ethics judges actions based on whether they produce good outcomes.  The most influential school of consequentialism is utilitarianism which aims to maximize the average utility (happiness or wellbeing) of all people.  Utilitarianism is the idea associated with Jeremy Bentham who argued that we should try to achieve “the greatest happiness of the greatest number” of people.  Virtue ethics says that people should act in ways that demonstrate virtues and/or improve their character.  Religious ethics usually favor deontological and virtue ethical reasoning, but all three systems are sometimes used.

But when push comes to shove, most people throw out these systems and act like moral relativists.  Moral relativism isn’t really a moral philosophy because it is the negation of all of the above.  It is the idea that there is no ethical system that universally applies in all circumstances to decide right from wrong.  Many ethicists criticize moral relativism as nhilism, but even if it isn’t an attractive goal, it is a pretty good way of describing how people usually behave.  Most people decide what is right and wrong based on their contemporary personal circumstances and social pressures.

For example, the Southern Baptists are now staunchly anti-abortion, but were fairly pro-choice until well after the landmark 1973 Roe v. Wade ruling.  The contemporary Baptist church press praised the ruling and in 2003, the church officially apologized for their earlier position.  This looks a lot like moral relativism even though the Southern Baptists have always been trying to follow the word of God.  Similarly, most people simply go with whatever their gut tells them is right or wrong.  People’s guts often lead them to make morally relativistic judgements that often seem even more bizarre than the Southern Baptists’ flip flop on abortion.   I don’t mean to single out the Southern Baptists.  Most people are morally inconsistent regarding abortion, and everyone takes self-contradictory ethical stances at different points so it isn’t surprising. We are all sinners and cognitive dissonance theory suggests that we tend to go to great lengths to try to justify ourselves.

Economists are moral relativists like everyone else, but two philosophical schools imbedded themselves into the history of economic thought to produce a peculiar result.  First neoclassical economics was founded within utilitarianism in the 1800s.  But some elites hated utilitarianism because of what economists used to call the law of diminishing marginal utility of money.  This is the idea that an additional dollar gives more bang for the buck for poor people than for rich people.  For example, if a twenty-dollar bill was blowing down a street where both a homeless guy and Bill Gates were walking, who would be more excited to run after it?  To most people, it is obvious that the homeless guy would value the money more because it could alleviate his hunger pangs for days whereas it would just add an unnoticeably small amount to what Bill Gates is already giving away to his philanthropies every day.   Bill Gates has so many billions of dollars that he would hardly notice any marginal benefit from yet another $20, and it probably would not even be worth his time to chase it down in the wind.  That is the idea of diminishing marginal utility.  The amount of utility or value that an additional dollar gives someone depends on the total dollars that the person already has.

The sum of global utility would thereby increase if Bill Gates lost a $20-bill and the homeless guy found it.  This is why diminishing marginal utility has always been such a politically controversial idea.  Some elites consider the discussion of the concept to be tantamount to class warfare because it gives a clear justification for progressive taxation and safety-net social programs to help the less fortunate.  Diminishing marginal utility is so controversial that utilitarians still seem shy about discussing its political implications.

Utilitarians also have worries about redistribution.  They worry about whether taking $20 from Bill Gates would reduce his incentive to work and produce new goods that would benefit the poor.  They worry about how to redistribute money fairly so that it doesn’t create corruption and inefficient dependency.  But diminishing marginal utility is a powerful reason to think about the economic classes and where resources would get the most bang for the buck.

Elites attacked utilitarianism for decades, and they finally succeeded in driving it out of economics in what has become known as the ordinal revolution of the 1930s and 40s.   They were aided by a new fashion in the philosophy of science called logical positivism that was a form of nihilism with regard to ethics.  The logical positivists simply rejected all ethics as unscientific and rejected utilitarianism on this ground.  They suggested that economics should be split between normative economics which is not really science because it is motivated by ethical goals and positive economics which is true science that only describes how the world actually works and not how it should work.

This false dichotomy between positive and normative economics is a mistake known as the positivist fallacy.  It is impossible for scientists to avoid ethics and when economists tried to avoid ethics, they ended up developing an accidental ethical system called mmutilitarianism.   For example, the positivists’ own argument against normative reasoning was itself based on normative reasoning. They said that ethics is bad for science which is itself an ethical (normative) judgement.  This is ironic because ‘bad’ is an inherently normative judgement.

Mmutilitarianism is an abbreviation for “money-metric utilitarianism” that is just like utilitarianism except that it is simpler.  One of the problems of utilitarianism is that nobody (except God) can really measure how much utility different people are getting, so all we can do is guess about what would maximize utility.  Mmutilitarianism simplifies things by assuming that utility can be perfectly measured in dollars which everyone can observe.  That also solves the problem of diminishing marginal utility because a dollar is always a dollar.  Under mmutilitarianism, it doesn’t matter if Bill Gates or the homeless guy gets the dollar.  All that matters is that somebody gets it.

Mmutilitarianism is the byproduct of a torturous intellectual history.  Utilitarianism was the dominant ethical system until the logical positivist intellectual fad of the 1920s rejected normative (ethical) concerns as metaphysical and unscientific.  That led economists to try to eliminate ethics from economics and the result illustrates the impossibility of eliminating ethics from human endeavors. Instead of eliminating ethics from economics, the positivists unwittingly turned economists into disciples of mmutilitarianism, which filled the ethical vacuum.  All organizations and communities need some kind of ethical basis to be able to organize around and build common agreements, and mmutilitarianism filled this niche.  It has been encroaching on business schools, legal judgments, and public sentiment ever since.

The positivists also disliked subjectivity.  For example, they attacked psychology for trying to study cognition and perception because these are inherently subjective and only measurable from a 1st-person perspective.  The positivists argued that subjective experience is unscientific because scientific evidence must be verifiable to 3rd parties.  They attacked the entire concept of utility for being a form of cognition and perception that they considered unobjective like psychology.

The economists who attacked utilitarianism in the ordinal revolution ended up developing mmutilitarianism which they called the “new welfare economics” and it greatly simplified economic prescriptions.  They simply assumed constant marginal utility of money which means that all we have to do to achieve “the greatest happiness of the greatest number” of people is to count up the total amount of money that people earn every year.  This is what gross domestic product (GDP) is and mmutilitarianism is the moral philosophy which gives GDP so much heft.  GDP became by far the most common and important measure of economic welfare in the world.  Oddly mmutilitarianism was more satisfactory for the positivists perhaps because, unlike utility, everyone agrees that it is possible to fairly objectively measure money.  Somehow they were able to overlook the obvious normative problems of the “new welfare economics”.

Everyone who thinks about mmutilitarianism for even a few seconds rejects it.  Even though it is a mutation of utilitarianism, self-described utilitarians completely reject mmutilitarianism because they reject the idea that a dollar gives the same amount of utility to everyone.  Economists who are unwitting devotees of mmutilitarianism reject the term because they think they are positivists.  They think that economics rejected utilitarianism over a half century ago and they don’t realize that they using any ethical system.  But economists are always making normative judgements that more than 95% of economists agree upon such as free trade (good), rent control (bad), monetary stimulus during a recession (good), and raising gas taxes (good).

Ethics is particularly important for a social science like economics whose ideas have, in Robert Heilbroner‘s words, “shattered empires and exploded continents;  they buttressed and undermined political regimes; they set class against class and even nation against nation.”  ¡¿Yep, nothing ethical about that.  Move along now!

Instead of using the term mmutilitarianism, economists talk a lot about “efficiency”.   When economists talk about efficiency, they are usually talking about maximizing money-metric utility (or mmutility).  I call it mmutilitarianism to honor its roots in utilitarianism, and because that is exactly what utilitarians would believe if they thought that money is the best measure of utility with constant marginal utility of money.  That is really the principal difference between the two schools of ethics.  Utilitarians believe that utility is difficult to accurately measure in large part because of diminishing marginal utility of money.  Mmutilitarians believe that utility is fairly easy to accurately measure because there is constant marginal utility of money and so we can simply add up dollars to seek the greatest sum of mmutility.  Someone’s worth is literally measured using their ability to pay in dollars.  And because a homeless guy’s dollars have the same mmutility as Bill Gates’ dollars, that means that the billion poorest guys on the planet are literally worth less than Bill Gates when deciding what is good for the economy.

In mmutilitarianism, the value of any government action is determined by estimating the willingness to pay of all people involved and subtracting off the dollar costs.  This is called cost-benefit analysis.  The wellbeing of any group of people is measured by adding up all the dollars that they get for the final goods and services that they produce and dividing by the number of people in the group.  This is mean GDP, the holiest measurement of mmutilitarianism.

Ethical egoism (a philosophical justification for selfishness) is one of the consequences of mmutilitarian thought.  If every dollar is worth the same to everyone, then selfishness is justified because it doesn’t matter who gets the money and the only thing that matters is increasing the total money value of the economy (max GDP).  Mmutilitarians typically think that selfishness is an excellent motivation for maximizing the production of GDP which is one reason why they promote selfish ends.  Mmutilitarians even conflate selfishness with rationality and often imply that altruism is irrational or even bad.  Mmutilitarianism was exported to other social sciences and business schools by economics imperialism too.  For example, in political science, realism is akin to mmutilitarianism and business schools teach that maximizing profits (a form of mmutility, remember) is the moral responsibility of business.

This is unfortunate.  Both national economies and businesses work best when people work together for mutual benefit, so pure selfishness is counterproductive.  Economic policies should benefit everyone including the middle class, so median income is a better measure of national progress than mean income (per-capita GDP).

Nobody defends mmutilitarianism as an ethical ideal either from religious or secular ethical principles because it is based upon false assumptions that systematically lead to ethical errors, but it is better than nothing.  It fills a practical purpose for guiding decisions about what is good for “the economy” because it is a convenient, simple ethical system that helps avoid wasteful errors that societies would (and did) make without it.  Society needs some kind ethical system to guide economic policy, and mmutilitarianism has filled this important niche. seeks to make a tiny improvement to economic thought by replacing mmutilitarianist measures with measures based on medians.  The median person is a useful focal point for thinking about “the economy” and the economic wellbeing of people.  Economic policy should focus more on measuring the median individual rather than the mean dollars.  Businesses should think about how they are impacting the median stakeholder in addition to thinking about profits which mostly accrue to elites.

Posted in Medianism

The rust belt isn’t as rusty as the cotton belt.

Trump won the election by swinging several rust belt states. Several
have written about the economic struggles of the rustbelt and how that contributed to Trump’s win there. Yglesias argues that these narratives are misleading because the rustbelt isn’t actually struggling. I live in it and I can attest that it is relatively prosperous. Kevin Drum colored the standard census map to highlight the counties with the lowest median income in pink.

This show clearly where the really struggling, depressed counties are located, but it would be even better if it showed where the people are rather than where mostly empty land is. Most poor Americans are in conservative states that were completely uncompetitive politically and so the electoral college system gives more incentive for the president to ignore their concerns in favor of industrial policy for a factory in Indiana because that signals concern for the rust belt which happens to be full of swing states. That is why the electoral college distorts the machinery of democracy. Democracy should favor the median voter, but the electoral college currently makes it favor relatively wealthy rust-belt states and that attracts articles by journalists who try to make them seem particularly deserving when they are not.

Posted in Public Finance

Real median wage growth highest in 15 years

The Atlanta Fed regularly publishes a measure of median nominal wage growth for several interesting demographics, but for some reason, they don’t publish any measure that is adjusted for inflation, so I created one using a running 2-month average of the Trimmed Mean PCE Inflation Rate.

As you can see, real median wage growth was stronger in November than it has been in 15 years. If this persists, Trump will preside over another golden age of growing wages like we had in the late 1990s. Voters who selected Trump because they wanted change may have been upset by low-low wage growth under Obama, but things are finally looking up recently.

This is a bad measure of overall wellbeing because the majority of Americans have a wage of zero dollars per hour because they don’t do market work. But everyone consumes market goods in order to live, so what we need to measure wellbeing is a measure of median consumption like MELI. During the recession a lot of low-wage workers were laid off which kept the median wage growth fairly steady until after the recession officially ended. Median consumption fell because of the large rise in unemployment.

This graph is just a measure of how well the labor market is performing to help the median worker.

Posted in MELI & Econ Stats

Fixing the machinery of democracy

The goal of is to focus less on a minority with elite power and more on the vast group of people in the middle or even below the middle. In economics, that means focusing more on the median income, and in politics, that means focusing on the median political view. That is just another word for democracy. Most people think that the USA is a democracy in which the majority rules, but we aren’t. Our democracy is flawed like almost all democracies in a way that becomes obvious after you think about it for ten minutes.  We are have a plurality voting system, not a majoritarian voting system.  This is a problem because democracy isn’t very popular right now, but a lot of the so-called failures of democracy are not really failures of democracy. They are really examples of how voting systems are not democratic because they elect someone that the majority rejects. This is leading to democracy becoming so unpopular that voters have essentially rejected it in some nations by voting for authoritarian rulers! It could happen in the US too.  Here is a scary chart by the New York Times

Less than 30 percent of American millennials think it’s essential to live in a democracy. Millennials are our future. Although this data predates the present election, right now millennials are probably particularly disenchanted because Trump was particularly unpopular among millennials, and he was had the lowest approval overall in history at only 41 or 42% approval. Gerald Ford is the only previous president who began his presidency below 50% approval, but he wasn’t elected president. (The graph lacks a vertical scale, but the continuous horizontal line is at 50% for reference and there is a shorter line marking the average for each president.)

A 54% majority voted against Trump. Even many people who voted for Trump really disliked him and wished they had another option to vote for. Polls suggest that Trump would have lost in a 2-way election against every other plausible candidate whether Republican (Kasich, etc.), Democrat (Clinton, Sanders, etc.), or third party (Johnson, Stein, etc.).

It is too early to say how good or bad Trump will be as president, but there are numerous examples throughout history when a terrible person was elected because the machinery of democracy was flawed and a passionate minority selected a leader against the will of the majority. For example, Hitler won an election where he seems to have been opposed by vast majority of the electorate. Hitler wasn’t a failure of the popular will. His election was a failure of the democratic machinery to recognize the popular will. There are numerous examples of democratic machinery selecting unpopular candidates like this throughout history. Recently in India the extremist Hindu Bharatiya Janata Party won with only 31 percent of the vote, and has been running the country as if it has a popular mandate ever since. Mohamed Morsi won in Egypt with similar levels of support from extremist Muslims.  His unpopularity later led to his deposal in a military coup.

The electoral college system a uniquely American undemocratic flaw, but that is not even the worst part of our system. Our main flaw is shared with most election systems around the world. It is that they are pluralistic, not majoritarian. They elect NOT the choice of a majority, but the choice of the biggest plurality. For example, Trump should never have been selected as the Republican candidate because a majority of Republicans opposed him throughout the primaries. Because Trump’s opposition was split until near the end, he actually only got a fairly small minority of Republican votes in the primary. Less than 15% of eligible Americans showed up to vote in the Republican primaries, and a minority of them chose Trump, so only about 6 percent of eligible American voters actually selected Trump in the primary which is 4% of all Americans. Trump developed a very enthusiastic following of 4% of Americans who showed up to rallies and supported him in the primaries, but that was a tiny minority of Americans that selected one of the two candidates that we were all limited to voting for in the general election. Although Trump had higher negatives and lower overall support than any other Republican candidate during the primary, he won states because he had a small plurality of enthusiastic supporters who loved the unusual features that separated Trump from the rest of the Republican field.

Amartya Sen and Eric Maskin explained:

In the early contests, Mr. Trump attracted less than 50 percent of the vote… a majority of voters rejected him. But he faced more than one opponent every time, so that the non-Trump vote was split. That implies he could well have been defeated in most (given his extreme views on many subjects) had the opposition coalesced around one of his leading rivals. In such a scenario, he might have been out of contention long before he could ride his plurality victories toward his first outright majority win…

American primaries are not the only recent elections to produce winners lacking the support of a majority of voters. In India, the Bharatiya Janata Party received only 31 percent of the vote in the last general election, but got a majority of parliamentary seats. (Even including political allies, their vote share was no more than 39 percent.) The B.J.P., a right-wing party with a Hindu ideology for which only a minority of Hindus voted, has been running the government since, which is fair enough, given the electoral system. But it has also been persecuting political dissent as “anti-national.” Even majority support doesn’t give leaders in a democracy a right to stifle dissent. Invoking the battle cry “anti-national” in the name of the entire nation seems especially pernicious from a government without majority support.

As with the Republicans and Mr. Trump’s flirtations with fear and violence, India now suffers the ill effects of a serious confusion when a plurality win is marketed as a majority victory.

… Replacing plurality rule with majority rule would improve American primaries. More broadly, an understanding of the critical difference between a plurality and a majority could improve politics around the world. In an open letter to Prime Minister Narendra Modi in India, Gopal Gandhi, Mahatma’s grandson, wrote that “69 percent of the voters did not see you as their savior,” adding that they also “disagreed on what, actually, constitutes our [country].”

Sen and Maskin propose a voting system that is better than our plurality voting system, but their article is riddled with subtle errors because they promote a system that isn’t as good as Approval Voting or Score Voting. If you want a fun, in-depth explanation of these voting systems, read Gaming The Vote by William Poundstone.

On page 91, Poundstone shows how bad our voting system has been for the presidency. Here is an amended excerpt of some of the bigger failures:

  • 1824: John Quincy Adams lost popular vote w/ only 31%
  • 1844: an abolitionist spoiler elected a slave-owner.
  • 1848: a former Democratic president sabotaged the Democratic Party.
  • 1860: 4-way vote split contributed to the Civil War.
  • 1876: Rutherford Hayes lost popular vote w/ 48%
  • 1888: Benjamin Harrison lost popular vote w/ 48%
  • 1892: Grover Cleveland lost popular vote w/ 46%
  • 1884: a Prohibition Party candidate helped elect an “ally of the saloon.”
  • 1912: a former Republican president prevented the reelection of a Republican president.
  • 2000: a consumer and environmental advocate elected the favored candidate of corporate America.
  • 2016: Donald Trump lost popular vote w/ 46%

At least 11 out of 49 presidential elections did not go to the most popular candidate because of spoilers or the Electoral College. That is a failure rate of at least 22%, and a lot of these presidents were disasters. Even though the 1860 election gave us Lincoln, who was a great president, it also gave us the Civil War so that election is hardly a success. Poundstone writes, “Were the plurality vote a car or an airliner it would be recognized for what it is — a defective consumer product, unsafe at any speed.”

The machinery of our democracy was put into place at a very undemocratic time when only a tiny percent of Americans were allowed to vote and slave-owners got extra voting power for owning more slaves even though slaves could not vote. Indeed, slavery is one of the reasons the Electoral College was instituted. It gave slave states more power than they would have had under a popular vote and there is still an element of this.  Bill O’Reilly supports the Electoral College on the basis of preserving “white privilege.”  Since the Constitution was first written, our democracy has changed from something that white male elites enjoyed to something that most Americans enjoy.  Here is a list of major improvements to democracy.

  • 1810: State religious requirements mostly eliminated
  • 1850: Property ownership requirements eliminated
  • 1870: Abolish slavery (15th Amendment)
  • 1920: Women can vote (19th Amendment)
  • 1961: Residents of DC (Bigger than WY) can vote.
  • 1965: Blacks and Native Americans (Voting Rights Act — expanded in 1970, 1975, and 1982).

Mass democracy is a very new thing in the history of the world. There were zero nations where a majority of the adult population could vote in 1900. Today the majority of the world’s nations has universal suffrage or thereabouts. More progress should be expected in the next century to make democracy work better at representing the will of the majority. Anti-democrats often rail against democracy by calling it a dictatorship of the majority, and that is the worst possible way to think about it.  But any other political system would be a dictatorship of a minority which is even worse. America’s system regularly gives a dictatorship to a minority to select our president against the will of the majority. A simple solution would be to eliminate the electoral college and use approval voting or score voting instead. Instant runoff voting is an alternative that has gotten a lot more attention, but it isn’t as good even though it too would still be a big improvement over our present system.

Posted in Public Finance

Lions, tigers, bears, and deer. Oh My!

Earlier I wrote about the terrorism that is brutally killing 38,000 Americans this year in nightmarish fashion. I have now identified a group is responsible for 200 of these deaths and they are not even legal American citizens. What group sounds more lethal, the sharks, the snakes, the snakes, the wildcats or the deer? The deer should be the name that strikes terror into your heart. According to Brian Resnick:

every year, deer are involved in 1.2 million motor vehicle collisions, resulting in around 200 deaths, according to the Insurance Institute for Highway Safety. That makes deer deadlier than predators like the North American grizzly, great white sharks, and all venomous snakes combined.

Resnick argues that we could reduce this problem by more hunting or, more controversially:

a reestablished cougar population decreases the number of deer-vehicle accidents by 22 percent. The estimate is based on the assumption that “a single cougar would kill 259 deer over an average 6-year lifespan,” the paper notes. Each cougar, then, would yield a $37,600 savings in auto insurance claims. In total, the paper argues, a reestablished cougar population would save about five human lives a year and prevent 680 injuries…. the increased cougar horde would only injure around five people a year, and maybe cause one death.

Here is a more comprehensive article about deaths due to animals.

Update: Paul Neufeld Weaver wrote to point out that the first two sentences were muddled, so I hopefully clarified them now. Thanks Paul!

Posted in Public Finance, Violence & Peace

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