Spectator Sports, Pornography, and Why Society Works

While watching football on the weekend (GO RIDERS!)I found myself getting pretty intense, even though I was watching the game by myself. I haven’t actually felt like that since I quit playing competitive sports. Why am I so worked up? What’s going on? I started trying to come up with other things which elicit a physical reaction even though you aren’t even remotely involved and are unlikely to be involved any time soon. After a little thought and a smart ass comment by a student I realized pornography works pretty much the same way.

What makes these two things so interesting? The fact that we get wrapped up in watching them as if we were actually doing it ourselves. Some would say that this indicates a great flaw in our current society. We’re constantly indulging base pleasures and not doing important things.

I’d argue the exact opposite. The fact that we have a physical response to something we see other people doing says something pretty amazing about human beings. It says we have the ability to project ourselves into different situations and feel what other people feel - in short it says we have empathy. Think about it. We choose to empathize with a sports team and feel some of the highs and lows of competition. We watch physical intimacy between other people and feel aroused ourselves.

Empathy is what makes society possible. The fact that we can feel what someone else feels serves as a check on our greed and selfishness. Without empathy, we’d have to work a lot harder to get people to pay attention to those among us who need help. We’d also have to spend a lot more time and energy on controlling people’s behaviour to limit the damage we could do to each other. In fact, without empathy it’s unlikely that we would have been able to achieve anything like the standard of living we have now. Without empathy life truly would be “nasty, brutish, and short”.

Spectator sports and pornography are not base, low brow, or pathetic. They are examples of empathy in action. They are realizations of exactly what it is that makes us truly human – the ability to feel what others feel. It isn’t a football stadium or an adult theater, it’s a shrine to empathy.

The Canadian Mint: Coining Extra Business

Recently the Canadian Mint has been producing what seems like an extraordinary number of “collectible” circulation coins. This summer it was the Saskatchewan Roughrider looney and more recently a Remembrance Day quarter and many, many others. It’s getting rarer and rarer to get a quarter with a caribou on it as change.

Of course this gets me thinking, why go through all the cost and effort of designing, producing, and advertising these coins? I suspect, but haven’t been able to track down, that the Mint is receiving money from Canadian Heritage or some other government department for such coins. But I think there might be something else a little more subtle going on here as well.

Let’s start by a little review of some basic monetary theory. The idea is the relationship between the monetary base and the money supply. According to basic theory the relationship is

Money Supply = ((1+Currency Drain)/(Reserve Ratio + Currency Drain)) times Money Base.

Currency drain is technically money that doesn’t get deposited in banks for whatever reason. For our purposes here, this means people are hanging on to it because it looks pretty. The reserve ratio is the ratio of deposits that commercial banks keep on hand in case you want to take some money out your account.

As people choose to hold onto more cash, the money supply shrinks. When the money supply shrinks, we tend to see really low inflation or even deflation. Given that the Bank of Canada has an inflation target of 2%. It has two ways to react to an increase in the amount of cash people want to hang on to. One way to respond is to reduce the overnight rate in an effort to get banks to reduce their reserve ratio. Another solution would be to increase the monetary base by printing or minting more money. Both of these will lead to an offsetting increase in money supply.

Let’s focus on the second option, as it actually relates to the Mint. By minting “collectible” coins, the Mint encourages (if not forces) the Bank of Canada to increase the monetary base. Of course when the monetary base is increased what is needed? More currency produced by the Mint. In short by producing successful “collectibles” the Mint creates more business for itself. Not a bad deal for them, eh?

Now give me back my lucky Riders looney.

Purveyors of Unhappiness

It’s been election time south of the border again and that’s got me thinking about how parties go about trying to elected. I should be absolutely clear here – I don’t like political parties of any stripe. I have a hard time with any thing that encourages a group of people to stop thinking and just follow.

One of the things that I’ve noticed in Canada and the U.S. is the tone of the parties not in power. The tone has been the pretty similar, regardless of which group from whatever side of the political spectrum was in power or opposition. This got me to thinking. Is there something about how democracy works that creates some interesting incentives.

Let’s consider a basic voter who is going to making their voting decision based on who they believe will end up making them better off. Generally the party in power is going to try and convince people that things are pretty good and getting better – all pretty straight forward.

Things get really interesting when we start to look at the strategies available to the parties in opposition. One strategy would be acknowledging the achievements of the current government and then arguing that even more could be achieved under the party currently in opposition. Basically, this strategy amounts to saying things are pretty good but they could have been even better. Not very exciting.

The other possible strategy is not to acknowledge the successes of the incumbent and argue not just that things could have been better, but that things are currently bad. In order for political power to change hands a large number of voters have to be convinced that they are unhappy. Mad as hell and not going to take it any more (a la tea party) is best. What makes this really interesting is that we know that people respond more to potential loses than gains. This might be why the Republicans have managed to do so well this time around and the democrats before them.

So the nature of how parties in a democratic system compete for power may actually end up making people feel unhappy. Remember, the self proclaimed “happiest place on earth” (Disneyland) isn’t a democracy.

Celebrate Success!

I’m always amazed by how people respond to good news. The UN recently announced an update on its progress toward meeting the Millennium Development Goals (MDG’s). It certainly looks like good news to me. The number of people living in absolute poverty (less than $1.25 a day at PPP) has fallen from 46% in 1990 to 27% in 2005 on UN data. We’re seeing gains in almost all the things that we decided to measure as being important.

We may not meet all the MDG’s in the time horizon initially set out, but we’re gonna get pretty close. This is great news! The level of misery in the world has been dramatically reduced. There should be parties and news flashes and whatnot, but this has been pretty quiet.

There are at least a few reasons why we haven’t heard much about this.

The first place to start is to consider the nature of the media and what sells. Unfortunately good news doesn’t sell the same way as bad news does. Imagine how well a newspaper would sell if the banner headline read “Everything Great as Usual!”. Not going to make you stop and layout the $2 for a paper. Some good news stories do sell papers – the successful rescue of 33 Chilean miners after an incredible amount of time under ground is one obvious exception to the rule. But what would the photo be for less poverty in the world? Would such an abstract story sell papers or ad space? No sales = no headline.

Another reason for a lack of celebration actually caught me by surprise. When this news made its way through academic circles – it’s always a slow news day in academic circles – many people responded by dismissing the results. The main objection was that most of the improvement came from Brazil, India, and China and poverty is still a massive problem in Africa. While it is clearly true that there is still poverty in the world, this attitude isn’t entirely supported by evidence. Yes, some places in Africa haven’t made a lot of improvement, but others are among the highest performers. Gambia, Mali, Senegal, Ethiopia, the Central African Republic and Guinea all make the top 10 in reduction of poverty. Hans Rosling has a great ted talk on the same point. http://www.ted.com/talks/hans_rosling_the_good_news_of_the_decade.html

There may also be an issue about how progress was generally made. We haven’t seen a massive global revolution against capitalism, yet. The progress generally hasn’t been made by wealthy countries interventions or aid or anything of the sort. Most of the gains have been made by economic growth that coincides with increased globalization and trade. Globalization and trade are seen by many active campaigners for the fight against poverty as the enemy. For poverty to be reduced while the enemy succeeds is no success in their eyes, thus no celebration.

Whatever the reason, it is a shame we aren’t celebrating the things that are getting better in the world. There billions of reasons why we should have a celebration. One for every person no longer living in abject poverty.

Cause or Effect?

I was recently at a conference in Cape Breton, NS. “Continental” breakfast was included with the room, so at about 8:00 AM local time I went down to get something to eat. I grabbed a copy of the Halifax Chronicle Herald to read while I swilled a cup of coffee. For those not in the know, the Chronicle Herald claims to be, and is often recognized as, the regional paper of the Maritimes.

I turned to the business section to see if I could track a couple of different developments, particularly with BHP’s bid for Potash Corp of Sask. When I found the business section I just about fell out of my chair. The entire business section was 4 pages - 2 pages front and back. One of those pages was stock listings!

This got me thinking. A regional population of around 2 million people, and yet there are only 4 pages in the business section of the regional paper? What’s going on?

As usual, two different explanations came to mind. Sorry, I am an economist, after all. They can be split between cause and effect. On the effect side, as I’m sure most people reading this blog know, the Maritimes doesn’t have a lot of business to report on. Most is concentrated into a small number of big firms, and the activities of these firms tend to make the front page, not the business section. So the tiny business section is an effect of the overall business climate.

The other possibility is that the attitude of the press and population (I’m assuming the press at some level has a positive correlation with the feelings of the populace) makes for an unhealthy business environment. So a minuscule business section corresponds with a weak business sector.

I’m not sure which is true, likely both. It’s definitely something to think about

Rethinking Redistribution

One of the oft cited purposes of progressive income tax systems, like the Canadian tax system, is to redistribute wealth. Assuming the wealth person doesn’t enjoy giving up their money generally means making value judgements about the relative importance of different people’s happiness. The judgement implicit in the re-distribution is that the wealthy person matters less to us than the poor person. They are made less happy than they were and the poor person is made happier than they were. At this level we can only call this an improvement by saying the happiness of the poor person is more important to us. If the wealthy person received sufficient wellbeing from equality to make this worth their while, wouldn’t they have made the transfer voluntarily?

Personally, I find making these sorts of judgement uncomfortable. What, short of a divine right, would qualify a person for making those kinds of judgements? What is the basis for deciding between people? Doesn’t this on some level dehumanize those paying taxes and somehow “uberhumanize” those receiving government payments? Isn’t such dehumanization the basis for all kinds of evil behaviours?

One response to this line of questioning that is often presented in economics is an appeal to diminishing marginal utility of income. The argument is that the extra happiness generated by another dollar of income falls as a person has more money. Therefore, if we take a dollar away from a person with high income, the loss in happiness is likely to be small. If we give that same dollar to someone with a low income, the happiness gained is likely to be large (or at least larger). The result is an increase in net happiness as the gains exceed the losses. While this ignores all the problems with trying to compare utility between individuals at least it is has the virtue of treating the two human beings involved as equally important.

As far as this goes, it isn’t a bad argument. A fly appears in the ointment when we start to think carefully about how people respond to gains and losses, however. Way back in 1979 two psychology researchers (Kahneman and Tversky) noticed that people reacted differently to hypothetical gains and hypothetical losses, a difference that has been replicated in a variety of economic experiments using real incentives. I’ve seen a difference in my own research. Most estimates estimate the relative cost of a loss to be twice the benefit of a gain. The sensitivity of a subject to a loss of $5 is the same as the sensitivity to a gain of $10.

This puts a slightly different spin on income redistribution. Taking one dollar from someone and giving it to an identical person can actually reduce the simple sum of welfare. In order for redistribution to be welfare improving on the basis of a simple sum of utilities, the marginal benefit of an extra dollar of a tax payer must be less than half the marginal benefit of an extra dollar of someone receiving transfers. While this might be the case, it isn’t a certainty.

We might want to rethink income redistribution – it might actually be welfare reducing

The Fallacy of Relative Poverty

I’ve been spending a lot of time thinking about relative poverty lately. It’s really come to the fore as people continue to want to talk about poverty in Canada. The amazing thing about Canada is that there is virtually no poverty as measured by the UN, that is people living on less than $1.25 (US) a day. About 80% of the world population lives on less than $10 a day (www.globalissues.org). Even those receiving the absolute minimum level of state support in Canada receive more. Nobody in Canada starves to death, in fact one of the biggest health issues associated with poverty in Canada is obesity.

So why is there so much concern about relative poverty? An incredibly cynical view is that there are a remarkably large number of people who benefit from “helping” the poor. There are social workers paid quite healthy incomes to help those receiving social assistance live on 20% of what a social worker earns. One quote I’ve come across and can’t source (sorry folks I tried) is a social worker is someone paid $60,000 a year to tell someone how to live on $12,000 a year. The cynicism arises when we consider that if we stopped believing that the person receiving $12,000 a year needed extra help, that person would be out of a job that pays much better than average. While this likely plays a role in the ongoing debates about relative poverty, I’d like to think it isn’t the main conscious factor.

The general objection to relative poverty is that it is somehow unfair that some people have a lot more than others. Why is it unfair? Why do we care that somebody else has more, or less, than we do? Is it reasonable to care?

In reality I suspect concern over the relative income or wealth of people dates back to the class warfare of Marx and others of that line. But I think it might be useful to take another look at why a reasonable person might care. There are only two reasons I can think of to care how much somebody else (assuming I and they have met the basic needs of life) has.

The first is simple and ugly – envy. Envy is not new; it’s arguably been with humanity since the beginning. It is not a virtue, it’s a vice. Mosst religions prohibit envy, yet some in Canada seem to be making a positive fetish of it. If I’m earning enough to live comfortably and enjoy some reasonable luxuries how does it harm me if you can have more luxuries? I currently make a decent living, but there are people around who get paid a lot more. Does that mean I should enjoy my Friday afternoon beers with my colleagues less, just because we’re having beer & nachos instead of champagne & caviar? Are we all really that petty? Maybe we are, if so, shouldn’t we be trying to reduce our pettiness?

The other reason why people might be concerned with relative poverty is a mistaken belief that we are playing a zero sum game. People think that someone else being rich automatically means that someone must be poor. That is simply false. There is not a fixed sum of wealth available to a population, we can and do create wealth all the time. In fact the absolute number of “rich” people is and has been growing for years. People move from incredibly poor to just poor all the time. Some even go from incredibly poor to incredibly rich (though that is admittedly rare). Some one becoming rich due to a new invention or becoming a rock star doesn’t knock somebody else out of the rich group. My being rich doesn’t mean you can’t be. In fact it often means the opposite.

I know what some of you are thinking – I claim to be an economist, how can I be claiming scarcity isn’t real? The simple answer is that I’m not. We’ve seen over the last 20 or 30 years that increasing trade allows increased specialization, productivity and wealth for all those involved. We aren’t yet anywhere near the amount of trade we could be engaged in. The fact that people in Canada trade raw materials to China in exchange for manufactured goods doesn’t mean that people in Africa have less of either to consume.

I’ll end with a simple thought experiment. Imagine a group of aliens lands in a sparsely inhabited area, let’s say Canada. These aliens somehow manage to raise the incomes of everyone in the country to more than twice what it was before and leaving everyone else in the world with the same real income they had. Do we really believe the world is a worse place as a result? Relative poverty has increased.