Relative Poverty or Consumerism: Choose your evil.

I recently spent a day in a room with public school teachers, education experts, and humanities types. I was the only one there with any experience in empirical data or the kind of formal logic commonly used in empirical disciplines. My time with this group (I get to do it again for 2 days in May) will form the basis of a number of posts, but here’s the first.

One of the things that gets this group worked is consumerism (they often use the label capitalism but consumerism is more accurate). “Consumerism is the capitalist system trying to keep the worker down.” “Consumerism is destroying the planet.” “Consumerism is nothing but lies designed to keep us all unhappy.” If you’re reading this I’m sure you are familiar with this type of statement. I’m not going to discuss the veracity of these statements here (there is some truth here). I want to focus on a glaring hypocrisy.

Shortly after the outpourings affirmation of anti-consumerist ideology the discussion moved onto relative poverty, specifically decrying the unequal distribution of income for people identified as indigenous. (To be honest there was some actual discussion education related topics in between, but nobody want to hear about that).

I want to be clear – there are some people in this country living in deplorable conditions, many of them on reserves. In many cases, these living conditions count as absolute poverty and need to be addressed. Not tomorrow, but now! (Yes, I do have a suggestion, but it definitely isn’t politically correct and would likely piss off a number of people who were in that room to no end). Absolute poverty isn’t what they were talking about so I won’t either.

The concern was that some people are getting richer faster than others, as it always is with relative poverty. It isn’t about the fact that some people don’t have enough to meet a standard of living we would consider basic in this country (living high off the hog in most of the world).

So what does an increase in relative poverty without an increase in absolute poverty mean? It means that some are getting richer faster than others. So what does becoming richer really mean? It means you have more consumption opportunities than before. Consider your stereotypical working class joe. They are in no danger of starving to death, generally have a decent roof over their head, and can even afford some luxuries. So why would anyone be worried that other people are becoming relatively richer? The only possible reason is that consumption and *gasp* consumerism yields benefits. For the argument to make any sense it must be that the group getting richer is gaining happiness and those not getting richer are not. Remember that the only meaningful difference is consumption opportunities. If consumer is so “bad” we should be celebrating any reduction in consumption opportunities of any group. The worry about relative poverty is the worst form of keeping up with the Joneses.

So which is it, is consumerism bad or is relative poverty bad?

Happy Shiny People (for academics)

I recently visited a number of universities in the Maritimes. For those not in the know there are a lot of very small universities in the region. These universities tend to have small student bodies and a similarly small faculty compliment. In talking to these people something became very clear.

The happiest and most productive of departments I visited was at the smallest of the universities I visited. This of course got me thinking. What makes university faculty most likely to be productive? (BTW this is an issue I’m personally concerned about.)

The university in question has had a stable student population for decades (about between 2250 and 2500) and does have a fairly large endowment. On the down side it does have something of a history of labour unrest, with a potential for faculty strikes every few years.

What has always amazed me about this group is how much pleasure they take from their work and how much research they actually get done despite an onerous teaching load. Thinking about it for the last couple of weeks, I’ve spotted a few things to consider.

1) Few layers of administration. This is a small university with relatively few AVP’s DAVP’s, ADAVP’s, associate dean’s, coordinators, etc. This means there is a hope of influencing the outcome of administrative decisions. Despite this it is possible for a department head to devote comparatively little time to admin busy work. Unlike larger schools in which most faculty members don’t know who is making administrative decisions this week and don’t feel they have any meaningful say in the direction the university takes or have to spent countless hours in meetings that accomplish nothing.

2) The group legitimately respects each other and gets along. When hiring, attention was paid to how different people appeared to “fit”. In a small group this is exceptionally important. You need someone who is going to be of a complimentary temperament. Many academic units ignore this to their detriment. Ideally, you need someone who agrees with just enough not to make you insane. I’ve seen this group subject their own (and my work when I visit) to intense thoughtful scrutiny. It isn’t always the velvet glove sort either, but it is always done in a way that lets you know it’s about making it “right”.

3) Really bright, engaged, students. I’m not even talking about graduate students, though they offer fill this role. The students I have encountered there are genuinely engaged, willing to challenge, and capable of putting up a really good intellectual fight. There is accordingly a great atmosphere of academic debate and thought.

Considering all these factors, it really makes me wonder if Universities in Western Canada have taken a wrong turn in pursuing size. Would a larger number of smaller universities better achieve the stated objectives?

Paying for "IT"

There is an ongoing debate about prostitution in many countries around the world. The question is whether or not it should be legal. An interesting quirk of Canadian law is that prostitution isn’t illegal but solicitation is. You can pay for sex, but cannot talk about paying for sex and mean it.

On the legalization side there are a lot of positive arguments. Places from Amsterdam to New Zealand have legalized prostitution. There hasn’t been an explosion of drugs, violence, family break up, or any of the expected maladies that you might think would go along with legalization.

On the plus side, many places with legal regulated prostitution have less trouble with violence toward sex workers (police are now actually called), fewer sex workers addicted to drugs, and a better chance of controlling STD’s through regular health checks.

So why not just accept it legalize the open and honest exchange of sex for money? There are the usual moral objections and I can wrap my head around some of those.

But let’s put on our cynic hats for a moment. Let’s say we legalize prostitution. Who loses? In general it would mean a transfer of relationship power from people who withhold or limit sex. Think about this; you’re in a bar trying to woo someone and aren’t getting anywhere. If prostitutes are legal, safe, and not entirely shunned you aren’t going to put that much effort in at the bar. You likely won’t be buying drinks for somebody else all night, you’ll give up and go for the open exchange.

You likely won’t put up with a partner withholding sex to get what they want either – again you’ll just opt out. This means a significant reduction in power for anybody who holds out the possibility of sex as leverage. Makes you wonder about the true motives of some who object to legalization.

The unfairness of fair trade

I’m intrigued by the idea of so called fair trade as a development mechanism. Two of the most developed countries in the world (Canada and the U.S.) were initially heavily exploited and saddled with “unfair” terms of trade and yet here we are, near the top of the list in term of standard of living. Thus it can’t be a simple fact that unfair trade prevents development.

Let’s take a closer look at “fair” trade. In many cases fair trade involves the purchase of a product at a premium, if there were no premium it wouldn’t have to be marketed differently from plain old trade (I’m always amused when people tell me having to pay more is a good thing). The basis for the premium is that the trade is fair and the consumer gets to feel good about giving extra money to someone deserving (read less well off than they are themselves). So you’re really buying two goods, the coffee, knick knack, or what have you, and the belief you’re a good person. A large part of what you’re purchasing when you buy fair trade coffee is the warm feeling of doing good while getting your daily caffeination. So far no harm, no foul.

Here’s the catch, you only get the good feeling of helping someone who’s worse off. This means you’ll only be willing to pay the premium so long as the people on the other side of the exchange are poorer than you are. Think about it, have you ever seen anything promoting “fair trade” with the U.S. or France?

What’s the result? The people producing the good generally make just enough to keep them producing but not much more. With coffee you keep people working small plots using expensive (inefficient) techniques with little or no hope of improving their lot in life beyond what it is now.

Lots of people who promote fair trade argue that it improves the lives of the people actually producing the good compared to the opportunities offered by the heartless multinational corporations. And in general they’re right, in the short run. In the long run the people producing the fair trade good will remain stuck at a low level of absolute and relative income – they can’t change their techniques or increase the size of their operation to capture more of the value of their good – they won’t qualify for fair trade any more. Further they will always be dependent on the good will of those of us in the rich world. So keep buying your “fair” trade goods if you like the idea of making sure there’s somebody in the world less well off in the long run than you are.

But hey, in the long run we’re all dead anyways, right?

The Hurtful Helicopter

I’ve been doing a lot of reading about prospect theory lately. This theory is likely become taught in most microeconomics courses over the next 10 to 20 years (things move slowly in the academy). There are a lot of important details in the theory, but one that sticks out in my mind is the idea of reference points.

The idea is that when considering options (prospects) people compare the possibilities to what they have now. What you have now is a reference point and what you might get is a prospect. It doesn’t take much of a stretch to see that what you expect about something or someone can be a reference point. This is one of the reasons why expectations are so important.

Having established a reference point, the next interesting piece of the theory is that gains are treated very differently from losses. While gains improve your happiness, the effect is moderate. Losses, on the other hand, cause dramatic reductions in happiness. Estimates show a loss as having almost twice the impact of a gain. So gaining $5 bucks, keeping it for a while, and then losing it is worse than never having it at all.

What does this have to do with helicopter parents and happiness? Think about what your average overbearing parent does to a child’s expectations in life. The child has never experienced failure, has been told they are super, special, and just the bestest at everything. These expectations are going to be impossible to meet once you grow up and get out into the world. This means that something that would be a forgone gain (a minor discomfort) for most of us, becomes a crushing loss for the pampered kid. The impact on the happiness of the child will be dramatic. I haven't met a sheltered kid that seemed happy to me, and this might be part of the explanation.

Trying to make your child happy all the time, might just be making them unhappy in the long run.

You Can't Say That

I wonder if anybody else is getting tired of censorship. We’ve just seen two major incidences of censorship in the name of correct thinking; the release of Mark Twain’s Huck Finn and the banning from Canadian air waves of Dire Straits’ Money for Nothing.

The edited release of Huck Finn, is being led by an “academic” in Alabama. Twain’s use of the word “nigger” is to be replaced with the word “slave”, the term injun is also to be removed. The thinking is that schools are more likely to use the book if they can avoid the discomfort of loaded words. Never mind that a discussion of the place of offensive language would benefit all students, we wouldn’t anyone to have to deal with something they found unpleasant.

In a related story, the Canadian Broadcast Standards Council has shown it’s willingness to kowtow to people demanding censorship. After an individual in Newfoundland complained, a Dire Straits song, Money For Nothing, has been pulled from Canadian airwaves; for an ironic use of the word “faggot”.

Have we all gotten so weak that we can’t even tolerate words written years or centuries ago from people we’ve never met and never will meet? Have all the years of self-esteem building failed? Has all the affirmative action been in vain? Are we allowing the frailty of a few to govern what is available to all?

From where I sit our society has not progressed, it has actually reverted into something less robust, weaker, and less healthy. If can’t stand the occasional use of unpleasant words, how are we going to cope with the real challenges of the 21st century?

Monetary Cure?

This comes out of a question I asked when the Parliamentary Budget Office was giving a seminar here. In one set of forecasts, the PBO is projecting that interest rates will remain low for the next several years. Given the lack of inflationary pressures we’re seeing and speed of the recovery south of the border, this makes a lot of sense to me. In a different forecast, they were predicting that Canadian labour productivity wouldn’t be rising very quickly in the foreseeable future. Again, I can believe this.

The problem arises when you put the two together and this was basically the question I asked. What I was initially intrigued by was the apparent contradictory nature of these two predictions. Of course it was the last question and I didn’t get to ask a follow up, so you get to suffer.

Start with the idea behind a monetary stimulus. The whole point of reducing interest rates is to encourage consumers to buy (on finance) durables and firms to engage in more investment spending. This is a pretty textbook story so far. Reduce interest rates, increase consumption and investment, and presto the economy recovers.

Investment in economics isn’t quite the same as what most people think of as investment. When we talk about investment, we’re talking about the purchase of new physical capital not financial capital. We’re talking about the stuff that tends to make people more productive like machinery, computers, and so on. So a monetary stimulus should be followed by a period of increased productivity as new capital comes “online” and increases labour productivity.

The problem with the story so far is that it ignores the excess capacity many measures show in the Canadian economy. If there is a lot of excess capacity in the economy, we aren’t likely to see a lot of investment in new capital. Why buy more capital when you aren’t using what you’ve already got? So, for the monetary stimulus to have any impact on the Canadian economy, all the heavy lifting has to be done by consumers. This is actually what’s happening. Consumer debt is on the rise in Canada and is now reported to be higher than (relative to income)in the U.S. It is possible we’re setting ourselves up for a debt driven bubble in consumer spending.

There’s another catch. Consumer spending generally doesn’t go to stuff made in Canada. Look at almost all your consumer goods, electronics, appliances, etc. Not very much of it is made in Canada. A lot of it is made in places like China or Korea. So a spike in consumer spending doesn’t do a whole lot for the Canadian economy.

So the follow up question remains. Is the monetary stimulus of low interest rates likely to do us any good or is the cure likely to be worse than the disease?