Tag: Markets

Strength, Negotiation, & Conflict Resolution

Peace, Negotiation, & Conflict Resolution

Posted on by jabittan
The easiest, or most clear and straightforward, way to resolve a conflict is through simple displays of force. The strongest party simply dominates another party. A weaker party is crushed, completely eliminated, or reduced to being inconsequential and incapable of defending or asserting their rights and needs. 
 
 
But conflict negotiation where the strongest dominate the weakest don’t necessarily lead to good outcomes for the dominating party. If the weaker party fights to the bitter end, then the stronger party faces serious consequences. Among animals, the alpha-male could be seriously wounded. Among countries, a prolonged war could ruin infrastructure and cost the lives of many combatants and civilians. The victor may end up with much less than what they imagined at the outset of their campaign of dominance.
 
 
Steven Pinker considers this concept, and how most modern countries find themselves in positions where they benefit more by becoming democratic, engaging more with global market economies, and participating in intergovernmental organizations via negotiation. Underpinning all these areas of a country’s political, economic, and relational norms and institutions is a shift in ideas of conflict resolution. Pinker writes, “a willingness to resolve conflicts by means that are acceptable to all the affected parties, rather than by the stronger party imposing its will on the weaker one,” is what is at the heart of countries becoming market oriented democracies that participate in intergovernmental organizations.
 
 
This is an important shift in modern human governance and institutional design. We frown on countries like Russia and leaders like Putin who are willing to resolve conflicts by force. We think more about our connections with peoples on other sides of the globe, who we will never meet, and their wellbeing. We are more willing to negotiate to resolve conflicts as opposed to exercise our strength and dominion over others to resolve conflicts.
 
 
This makes the world a safer place. It reduces the chances of violence and increases global positive sum outcomes. Countries cede a little of their own gains, their own power, and their own dominion for a tide that lifts all boats, and we are better off for it.
Market Economies & Peaceful Nations

Market Economies & Peaceful Nations

Posted on by jabittan
In his book on the decline of human violence, The Better Angels of Our Nature, Steven Pinker writes,
 
 
“A democratic peace strongly kicks in only when both members of a pair of countries are democratic, but the effects of commerce are demonstrable when either member of the pair has a market economy.”
 
 
Democratic peace theory suggests that countries that are democracies are less likely to go to war (especially with each other) than countries that are autocratic or otherwise non-democratic. But another consideration, that can be separate from how democratic a country is, is whether the country has an open market economy. If the country engages in trade with other countries, and whether that trade adheres to general market standards is an important factor in the likelihood of that country to go to war. “A country that is open to the global economy is less likely to find itself in a militarized dispute,” writes Pinker.
 
 
From a standpoint of global human peace, improved democratic institutions combined with global market participation are an important goal for all nations. The more we can encourage countries to democratize and engage in global markets, the more likely we are to see reductions in levels of violence. Historically, trying to push countries to democratize is difficult, but encouraging greater market participation seems like a better pathway to peace. A country’s leaders may not want a more democratic government, but they might be more likely to want the bounties of markets. Building more support and momentum toward open market economies can have positive externalities for everyone. 
A Link Between Consumerism & Nationalism

A Link Between Consumerism & Nationalism

Posted on by jabittan
In his book Sapiens, Yuval Noah Harari argues that consumerism and nationalism are linked through their shared status as imagined communities. Harari defines an imagined community as “a community of people who don’t really know each other, but imagine that they do.” In a market, we don’t know every producer or every other consumer. The actions of all the other producers and consumers impact us, and we may have niche markets that we are intimately tied to, but we don’t really know many other people in the market. In a nation, we may know a handful of people very closely, another handful of people well, and have a handful of acquaintances, but we certainly don’t know everyone. Nevertheless, we can act as though we know everyone in a community of gym enthusiasts, sneakerheads, or real estate investors. We can feel a unity and connection with all 330 million Americans, all citizens in the Deep South, or everyone living in our city. But these communities are imagined, we don’t really know everyone and don’t actually live in community with them.
 
 
Regarding consumerism and nationalism Harari continues, “both are imagined communities because it is impossible for all customers in a market or for all members of a nation to really know one another the way villagers knew one another in the past.” Even if they are not really real, these imagined communities exist for a reason. They help us cooperate and coordinate among huge numbers of humans. “consumerism and nationalism work extra hours to make us imagine that millions of strangers belong to the same community as ourselves, that we all have a common past, common interests, and a common future. This isn’t a lie. It’s imagination.”
 
 
This imagination helps us connect with people we otherwise wouldn’t have a reason to connect with. It helps us trust people we otherwise wouldn’t have a reason to trust. It can go too far and lead us to purchase shoes for thousands of dollars or to die in wars started by the megalomania of a charismatic leader. But in general, consumerism and nationalism have become a foundation for large scale human cooperation in the modern era. We hide the fact that these communities are imagined and the better we do the better we can participate with the other members of our imagined community. It can give us a sense of purpose and meaning in interacting and living among other people, even if it is all based on shared myth.
Free Market Fueled Evils

Free Market Fueled Evils

Posted on by jabittan
The free market is praised as the best way to organize human activities and the best way to ensure that progress is made in important fields. If we want to solve climate change, then we need the free market to fuel new technological innovations for clean energy. If we want to reduce poverty, then we need the free market to run at full power to ensure everyone can find employment. If we want better justice around the globe, then we need the free market to operate without borders so that everyone everywhere is competing in the same economic system which values good governance.
 
 
But the reality is that the free market doesn’t really care about all these good outcomes. The free market is indifferent. It is happy to exist and fuel great advances as well as great evils. Yuval Noah Harari uses the slave trade in his book Sapiens as an example of the indifference of the free market to human morals and values. He writes, “the slave trade was not controlled by any state or government. It was a purely economic enterprise, organized and financed by the free market according to the laws of supply and demand.”
 
 
A free market is great, and we can benefit from the efficiencies and effectiveness of the free market, but we have to realize that it doesn’t come with a pre-defined set of values, except for maybe supply and demand plus efficiency. The free market doesn’t care about biodiversity. It doesn’t care about climate change. It doesn’t care about slave labor and exploitation. It simply cares about supplying product to meet the demand in the most efficient way possible. This means that free markets can be subject to abuse, inequality, fraud, and worse. Harari continues, “this is the fly in the ointment of free market capitalism. It cannot ensure that profits are gained in a fair way, or distributed in a fair manner.”
 
 
For human societies, morals, equity, fairness, and other ideas and concepts are very important. We certainly could have a world with subjugated humans dominated by a few who are able to wrangle free market capitalism for their own benefit, but few would say that our species would truly be flourishing in that system. We could have a planet where all resources were available to the engine of free market capitalism, but when we have killed off almost all plant and animal species besides the select few we have decided are valuable to us, then we might not like the climate consequences or the consequences of not having new plants and animals to study for medicines and science. “Capitalism has killed millions out of cold indifference coupled with greed,” writes Harari. This has been our reality, and could continue to be our reality.
 
 
However, human societies have decided there are things that are more important than pure free market capitalism. For humans to survive and flourish, it is important that we continue to recognize concepts like liberty, equality, and global security in the face of free market capitalism. We can strive for efficiency, but we have to recognize that is not the only thing that matters for us. We cannot allow the world to be burned by free market capitalism, or we won’t like where we end up. The free market has fueled many evils, and it is up to humans as a collective to decide how we will continue to have a functioning market economy and prevent such evils from continuing in our lifetimes.
Markets & Political Bias

Markets & Political Bias

Posted on by jabittan
The United States loves free market capitalism. Almost any political action that would raise taxes, introduce tariffs on foreign goods, or regulate an industry is met with incredible pushback and extreme rhetoric. Most people don’t have a great sense of what communism or socialism really are, but those terms are used extensively whenever the government proposes a new regulation or program that might interfere with a market. Free market capitalism is the heart of the United States, at least in rhetoric.
 
 
However, as Yuval Noah Harari writes in his book Sapiens, “there is simply no such thing as a market free of all political bias.” Markets on their own are not perfect. Clickbait headlines and designed obsolescence of smartphones are two frustrating examples of imperfect markets. In both instances, unequal information and misaligned financial incentives provide motivation for the producer to provide sub-par products. These examples are relatively harmless, but they do contribute to a larger problem within markets – a lack of trust between consumers and producers.
 
 
Harari continues, “the most important economic resource is trust in the future, and this resource is constantly threatened by thieves and charlatans. Markets by themselves offer no protection against fraud, theft, and violence.” Clickbait headlines have made me distrust internet links and headlines that sound juicy. I make it a point to never click on a Yahoo! article after being burned too many times by clickbait headlines when I was younger. I simply don’t trust what appears to be valuable information on the internet – a problem that has larger spillover effects as our population comes to distrust any information. In terms of smartphones, government regulation actually did play a role in changing the problem of designed obsolescence. Apple was deliberately slowing down older devices in an attempt to force users to buy newer devices – Apple claimed they had to slow phones down to prevent battery degradation and damage to the devices (eye roll). The result has been better performance of older smartphones for a longer lifetime.
 
 
“It is the job of political systems to ensure trust by legislating sanctions against cheats and to establish and support … the law.” We make investments and purchase goods when we can trust the market actors and that our investment will payoff in the future. I continue to purchase Apple products because I have seen an improvement in the problems of designed obsolescence and devices failing to function after just a year. Market intervention from the government helped stabilize the market and ensure that consumers had access to better products. However, I still don’t click on many articles, especially if the headline sounds like clickbait. I still don’t have trust in internet information, a space that the government has done little to regulate. The market on its own hasn’t established that trust, and as a result I make deliberate attempts to avoid the market. Free market capitalism, in these two examples, actually seems to work a bit better when there is some regulation and intervention, something that seems to contradict the general idea surrounding markets in the United States.
Money & Trust

Money & Trust

Posted on by jabittan
Currencies are not always intuitive. At a basic level, human trade is more straightforward when we can trade item for item, service for service, or knowledge for knowledge without the use of a different medium of exchange. After a natural disaster, on the playground with playing cards, or in the neighborhood, exchanges of similar things without a currency can be common and straightforward. If you have a lot of extra water but need fuel for a generator after a hurricane, you can probably come to agreement with someone close by who has extra fuel and is need of water. A limitation, however, of exchanging like goods, as can be seen in all three examples, is that such exchanges often require proximity and trust with the individual. Young kids on the playground probably wouldn’t make a lot of trades with random kids they don’t know from other schools (I did as a kid and got burned by a fake card). And neighbors will help each other out, but few of us would ask someone from several blocks away to check on our house while we are on vacation and few of us would shovel snow from the driveway of a house that wasn’t immediately next to ours (no matter how generous we feel during the holidays).
 
 
Currencies are able to overcome these barriers. “Money is the most universal and most efficient system of mutual trust ever devised,” writes Yuval Noah Harari in his book Sapiens. Money allows us to make exchanges with people who are not in our immediate proximity and who we don’t know. I wouldn’t shovel the driveway for someone I didn’t know who lived a few blocks away from me, but I would certainly give them a few pieces of paper or coin in exchange for a lamp if I saw one I was interested in at a garage sale. I don’t need to know the person, know anything about the lamp, or demonstrate that what I was trying to trade them was of equivalent value to the lamp. We could both trust the currency I was using in the exchange and smile and move on without ever seeing each other again.
 
 
Money expands the scope of who we can interact with and facilitates markets by providing a medium through which we can compare different goods, services, and information. It is hard to trade information about an approaching winter storm for a gemstone, but if enough people are willing to give someone money if they can relatively accurately predict the weather, then that forecaster can go purchase a gemstone. If we couldn’t trust the forecaster, if we only had goods and services to exchange for their information, the market couldn’t exist and trades could only rarely take place. Instead we trade currencies, or numbers from digital bank accounts, for information, goods, and services. The money, or digits on the computer screen, are not in themselves valuable, but through our system of trust they become valuable. Currency enables trust and is further enhanced by trust, allowing us to cooperate with more people than just our neighbors or the other kids on the playground.
Can Markets Work Without Human Sacrifices?

Can Markets Work Without Human Sacrifices?

Posted on by jabittan
In Tell Them Who I Am Elliot Liebow writes, “Unemployment, underemployment, and substandard wages are system failures only when viewed from the bottom. Looking from the top down, they are seen as natural processes essential to the healthy functioning of a self-correcting market system. From that perspective, it is as if the market system requires human sacrifice for its good health.” Liebow argues that markets can and should function without such failures. He argues that we have deliberately crafted a system that allows and accepts these market failures at the expense of greater marginal profits and returns on investments. The costs of the failures become spread over society, while the marginal gains are concentrated in the few market leaders.
Liebow encourages us to see homelessness as a system failure. He encourages us to see the support of the homeless as a responsibility of everyone within society and as a responsibility of the system as a whole. His book argues that we cannot rely on the few shelters, the minimal government assistance, and family members of those in need if we want to reduce homelessness. We all have to recognize the costs of homelessness, the way that social and market forces can drive people to homelessness, and the actors who are not helping to solve the problem. In particular, Liebow argues that businesses are not doing enough to solve homelessness:
“As if by magic, the onus of welfare and dependency is lifted from the system of work and the employers and placed on the workers and the unemployed right in front of our very eyes, and no one is any the wiser.”
I don’t think markets need to operate in a way that sacrifices the poorest people. There are statistics about the numbers of employees at companies like Walmart who receive food stamps or Medicaid benefits. Companies are able to pay minimum wage to their employees, and Liebow argues the companies themselves are subsidized for their low wages by our system that provides free healthcare and food to those individuals who cannot earn enough through their job. This shifts the burden of supporting the workforce from the companies that require the workforce in order to be profitable to the workers themselves. This accepts that we will have human sacrifices in order for profits to stay high and for the price of cheap goods to remain low. Liebow thought this was a problem and believed that it was possible for effective markets to exist without such human sacrifices.
I would also argue that there are many jobs that are not being done because we focus so highly on private markets. Companies want to be as efficient as possible, meaning they focus on where they can generate the highest profit. As a result, we don’t build enough affordable housing, our parks and greenspaces are littered with trash that no one is incentivized to clean, and lots of recycling goes to landfills instead of being sorted and reused. These are not all wonderful jobs and it would be hard to get homeless people to do these types of jobs, but the point is that our system which sacrifices the poor also sacrifices those jobs that don’t make the marginal cost benefit analysis worthwhile for corporations. There is work that can be done if we can find a way to allow public institutions to do it. Shifting from a sense of sacrificing the poor may encourage them to actually participate in society by doing these jobs, especially if we can make them suck a little less. Such a system would be a big departure from our current approach to markets, but it is probably necessary if we want greater social cohesion and less poverty and homelessness.
Who Wants Market Regulation?

Who Wants Market Regulation?

Posted on by jabittan
“Those who profit from the current situation – and those indifferent to it – will say that the housing market should be left alone to regulate itself. They don’t really mean that,” writes Matthew Desmond in his book Evicted.  In the world that Desmond investigated, the world of low-income housing, the ones who don’t think any government action needs to be taken to regulate or stabilize the market are the landlords and people able to make money from slum housing. The people exploiting market failures and extracting rents say they don’t want any changes in housing policy because they favor a free market, but what Desmond’s quote hints at is that they don’t really exist within a free-market, and they currently profit from existing government action (not just inaction) on housing policy.
The quote from Desmond reminds me of senior citizens who protest changes to Medicare with signs that say “Keep your government hands off my Medicare,” seemingly unaware that Medicare is a government run health program. The line between government and markets is not always clear to people, and what people actually want in terms of government market regulation doesn’t always line up with people’s stated political beliefs or stated beliefs about government intervention. We can have high minded opinions about the proper role of government relative to markets, and we sound better and more impressive when we do, but the bottom line is that we are all likely driven more by our own self-interest than our high minded opinions of governments and markets.
I am currently listening to Ron Chernow’s Hamilton biography on audiobook. I am struck by how our nation’s founding fathers quickly broke down into self-interested policy quarrels that were couched in high minded political rhetoric, but seemed to perfectly back the self-interest of the given founding father. Jefferson in particular seemed to be a master of this kind of deception, arguing that America should have a minimal government and reflect a populist standpoint. However, Jefferson owned slaves and had a vast agrarian plantation and his policies seemed to clearly favor his own lifestyle. His actions can be well understood when viewed through the lens of The Elephant in the Brain by Kevin Simler and Robin Hanson who suggest that most of our behavior is signaling and that we generally (and deceptively) act on self-interest more than we would ever admit.
All of this is to suggest that most people don’t really have any independent and objective views of government regulations of markets. Desmond’s quote about housing markets shows that people are driven by self-interest, that they discount regulations that favor their financial interests, and that they misrepresent government policies that make them better off. When our own self-interest, our own bottom line, and our social status are on the line, we are willing to compromise our high minded positions to adopt the view that is expedient to our own interests. This was true of Jefferson and Hamilton in the first Presidential Administration after the adoption of the Constitution, and it is true today in housing, Medicare, and other government and market areas. Landlords, real-estate agents, and others who currently profit in the housing market are in favor of government tax breaks on mortgage interest, of housing vouchers, and other policies that help ensure people can afford high rents. They view the market as being free without fully acknowledging these interventions and how they benefit from them.
Housing Markets, Rent, and Workers

Housing Markets, Rents, and Workers

Posted on by jabittan
I don’t necessarily think that heavy handed government control of the provision of goods or services is the best way to organize our society and our resources, but I do think government intervention has a place. I think markets are great mechanisms for providing goods and services efficiently, but I think it is also clear that markets leave out some individuals and even well functioning markets have their points of failure. I also don’t believe there is some sort of dichotomy between government provided services and markets that cannot be breached. I think there is a need for government action when markets break or where markets fail to address people’s needs. Housing in particular seems to be one of those spaces.
There is not much incentive for landlords to provide low rent housing options to low-income renters. In his book Evicted Matthew Desmond shows how this leads to a limited supply of low rent housing options and how that low supply artificially inflates the cost of those options. Low rent, poor quality housing often isn’t actually that much cheaper than more expensive, nicer units which makes life for those in poverty unbearable. The standard advice to middle income renters or homeowners is to avoid spending more than 30% of your monthly income on rent or a mortgage. For the lowest income people in our society, that idea can be laughable.
Desmond also shows that simply raising wages for low-income individuals is not enough to avoid the high cost of rent. The limited supply of affordable housing options doesn’t exist in isolation. It exists within larger markets and forces, and will respond to other factors in the economy. Desmond writes, “when the American labor movement rose up in the 1830s to demand higher wages, landed capital did not lock arms with industrial capital. Instead landlords rooted for the workers because higher wages would allow them to collect higher rents. History repeated itself 100 years later, when wage gains that workers had made through labor strikes were quickly absorbed by rising rents.”
This dynamic between landlords and the wages of renters demonstrates a market failure. Rents can soar to absorb an increase to a worker’s income. People need a place to live, and even if the conditions are terrible, they cannot pass up housing. But as rents take larger and larger shares of their income, they have less to spend on groceries, utilities, and other necessities or enjoyments of life. The government does help people with food and some utilities, but people can hardly engage in our capitalistic society if an overwhelming amount of income is directed toward rent. Government provided low-income housing seems to be a necessity to correct for these market failures. Clearly large, densely crowded housing projects were not the right solution, but when we look at housing across the country we see a lot of different approaches to housing. Dense housing structures are not the only option, and other alternatives for reasonable and affordable government provided housing need to be attempted to help make the housing market work for more people and avoid eating any increase in wages that people earn as they try to escape dilapidated housing.
Housing Vouchers - Joe Abittan - Matthew Desmond - Evicted

Housing Vouchers

Posted on by jabittan
Housing vouchers have been a major political win for landlords and realtors. Matthew Desmond’s book Evicted is about the real negative consequences of America’s high cost of housing, and he addresses housing vouchers which have been one of the main forms of public assistance for low-income renters. Our country likes market, or near-market, mechanisms to provide aid and assistance. Housing vouchers represent that preferred market mechanism, especially when compared to government provided, low cost housing. However, housing vouchers are not necessarily the most efficient way to provide assistance to those who cannot afford a place to live.
Desmond writes, “In Milwaukee, renters with housing vouchers were charged an average of $55 more each month, compared to unassisted renters who lived in similar apartments in similar neighborhoods. Overcharging voucher holders cost taxpayers an additional $3.6 million each year in Milwaukee alone – the equivalent of supplying 588 more needy families with housing assistance.”
Housing vouchers are taken advantage of and abused by landlords and the companies managing apartment complexes. If an individual with a voucher is not facing the full cost of the housing unit, then they don’t have the same market pressures to find alternative housing options. The result is that higher rent can be charged, with that higher rent absorbed by the voucher. Money and aid is ultimately wasted, and families who could receive help do not receive it.
The extra money that can be made by overcharging voucher holders is a windfall for landlords and realtors, and unsurprisingly, both groups lobbied for voucher systems rather than government provided housing. Desmond writes, “Landlords and realtors saw government-built and -managed buildings offered at cut-rate rents as a direct threat to their legitimacy and bottom line.” If the government could provide housing at reasonable rates, then renters wouldn’t have to put up with high rent and lousy living conditions in slums. Contrasting a voucher program that encourage rent seeking behavior, those who profit from vouchers would lose money under a system bolstered by public housing and would have to lower rents or improve property to compete against government housing that didn’t have a profit motive.
It is easy to say that government-built and -managed housing has failed in the United States and that vouchers are clearly the superior way to provide housing assistance, even if they are inefficient. But I don’t think that is a truly valid argument, and I don’t think Desmond would find it a compelling argument either. Massive housing projects in the United States were built in a way that clustered poverty, creating dense units of low-income individuals. Research from Raj Chetty has shown that economic integration and mixing is important for social and economic success, and the experience of those living in dense housing projects supports Chetty’s research. Housing projects were also constructed at a time when cities and local governments were disinvesting in inner cities, before lead abatement programs had taken hold, and when the nation had not yet begun to reckon with its racist past. In some ways it seems as if these approaches to government housing projects were intentionally designed to fail.
I don’t see any reason why government-built and -managed housing could not be successful today if built in a more dispersed manner, if designed to integrate poor, and constructed to be responsive to the racists history of housing, drug, and incarceration policy of our nation. Of course this would require real investment from the government, contrasting the disinvestment that mass housing projects once witnessed. Political considerations are the real barrier, as realtors and landlords would surely seize upon the history of failed housing projects, and stoke fear of crime and dereliction that many American’s likely harbor around public housing. Unfortunately, our unwillingness to imagine a new form of government housing means that we are stuck with inefficient housing vouchers, lobbied by (and potentially doing more to benefit) landlords and realtors than the people who are the intended recipients.