“Vested interests are universal”

Every once in a while, we experience moments of clarity. I experienced one while listening to this EconTalk podcast.

In it, Terry Moe discusses the special case where the power of vested interests in the New Orleans school district was wiped out after Hurricane Katrina and the effects that had on the re-emergence of the public school system there. It was a very interesting episode and well worth a listen.

The moment of clarity is here, with Moe speaking:

Let me just take a step back and say: Vested interests are universal. Every institution in every policy area generates vested interests. And these are interests of people who get the services of those institutions but also who get the jobs that those institutions generate or the business contracts that those institutions generate. And, this is true in agriculture; it’s true in defense; it’s true in the environment–you name it. And it’s not just true in this country: it’s true in every country; and it’s been true throughout time. This is a universal thing. All institutions generate vested interests, and those vested interests have a stake in protecting their institutions from change because those institutions are the source of their benefits. And in many cases, those benefits, like jobs and profits, have absolutely nothing to do with whether the institutions are performing well.

And so these vested interests, which have a stake in investing in political power, will use their political power in order to stop reforms even when the institutions are performing very badly. And that is the problem that all societies face, and that our society faces, in trying to have a healthy democracy in which our institutions actually work. When we have institutions that are failing, the vested interests will still protect them and make it virtually impossible for us to reform them.

This is true in state, federal and local government, U.S. Soccer, business, non-profits, school districts, universities, unions, tenure and so on.

All these things can be good.

But, a question rarely asked is what happens when they aren’t performing well?

What brings about change that might improve performance?

Do those changes threaten vested interests benefiting from the current system?

In my opinion, competition is a more preferable option to limiting the power of vested interests than natural disasters. It acts is the same manner on vested interests without all the collateral death and destruction.

“Markets solve the same problem for different people in a different way”

(This is my first non-soccer post in awhile, but it will factor into a future post about soccer.)

The title is from Rory Sutherland on this Econtalk podcast (emphasis added):

…one of the things that annoys me about economics is that it likes markets for the wrong reason. Which is, that it likes free markets because they’re notionally efficient, whereas I like markets because they’re inventive. And, the two narratives–you know, it’s a perfectly–you can understand why free market people leapt on this idea of efficiency through competition. In fact, competition seems to be deeply wasteful if you look at it in a short time horizon. What’s magical about markets, of course, is that they solve problems through a process of kind of market-tested innovation.

Trial and error. But it’s a bit more than that too, because I think one of the extraordinary things markets do–which, I think this is one of the reasons I’m uncomfortable about economics trying to model itself on Newtonian physics–is quite often what markets find is more than one solution to the same problem. And I think if you approach business problems with the mentality of someone who is trying to make it look like physics, then one of the dangers is that you’re always trying to optimize something or find the single overarching solution that works for the average. And in many cases, I think markets and business do something much more ingenious than that. They solve the same problem for different people in a different way.

I’ve been trying to find words for this for a long time, but kept falling back on the not-so-compelling “competition is good because trial-and-error and solutions aren’t so obvious” yada.

His last sentence sums up what I’ve been trying to articulate.

Markets and businesses solve the same problem for different people in a different way.

That’s good. That gives more of us what we want.

What I like about McDonald’s, you may not like, and you might prefer Chipotle instead.

We both get more of what works best for us, instead of having to settle for what works for the average of us, which might not even represent real people.

For example, let’s say I’m age 50 and you are 30. Our average age is 40. Someone might solve a problem for a 40 year old, since that’s average.

But, in our small sample of two, a 40 year old doesn’t even exist. So, their solution isn’t good for either of us.

“Rethinking Economics”

I enjoyed this EconTalk podcast with guest Maeve Cohen, about rethinking economics.

I also think there is much room to improve economics education.

Maybe there could a little less emphasis on how to calculate GDP and more discussion on the implications of a ‘incentives matter,’ for example.

A good Thanksgiving podcast & book

I highly recommend listening to this week’s EconTalk podcast with guest A.J. Jacobs.

He and host, Russ Roberts, discuss Jacobs’ new book, Thanks a Thousand: A Gratitude Journey.

The book is about Jacobs’ experiences in attempting to thank all the folks who make his morning cup of coffee possible.

He starts at his favorite coffee shop and works back to thank the folks who deliver the coffee to the store, roast it, keep the store pest free, grow the coffee and even the folks that create the safe drinking water that makes up over 98% of his morning joe, to name a few.

The book is another take on the economic classic essay, I, Pencil, which explores the amazing coordination among large numbers of people who make something as mundane as pencils.

At the end of the podcast, Jacobs recommends being as creative as possible this Thanksgiving when considering what you are grateful for.

I, for one, am thankful for the price system, which enables the coordination among billions of folks and encourages them to make things that improve my life, like pencils and coffee.

Another good bit of advice that Roberts and Jacobs discuss is looking for the good. Russ recalled a bumper sticker, “Wag more. Bark less.”

Jacobs said he finds he has an inner Larry David and inner Mr. Rogers. Larry David looks for things to be annoyed about it. Mr. Rogers looks for things to be happy about and grateful for. He tries to encourage the inner Mr. Rogers more and good things happen.

Economic and political rights first

I just finished readingThe Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor by William Easterly.

Russ Roberts interviewed Easterly in this EconTalk podcast.

I recommend reading the book and listening to the podcast.

Easterly’s key and powerful point is that the economic and political rights of humans in third world countries are often not considered by experts looking to prove out their prescribed solutions for alleviating poverty and often do so by working with the very leaders of those countries who suppress those rights.

Easterly made the excellent observation that Martin Luther King Jr. didn’t seek to alleviate poverty among African-Americans first. He understood that ensuring that they had economic and political rights came first.

The last half of the book provides a nice description of how the incentives work in a free market (or when people have economic and political rights) to be the most effective pill against poverty. Easterly, though, steers away from using terms that carry baggage in today’s political clime, like markets and capitalism, and keeps the focus on the individuals. Instead of calling it capitalism, he refers it to a people trying to solve other people’s problems.

Signals v Causes: Poverty

From the Introduction of the William Easterly’s book, The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor:

The technical problems of the poor (and the absence of technical solutions for those problems) are a symptom of poverty, not a cause of poverty. This book argues that the cause of poverty is the absence of political and economic rights, the absence of a free political and economic system that would find the technical solutions to the poor’s problems. The dictator whom the experts expect will accomplish the technical fixes to the technical problems is not the solution; he is the problem.

Think of technical problems as problems like not having medicine, food or the internet and technical solutions as providing medicine, food and the internet.

I’m looking forward to reading the rest of the book. I heard about it from this EconTalk episode with William Easterly and that discussion is worth a listen.

Feedback Matters in Customer Service

This EconTalk podcast features a panel discussion on the future of work, featuring Andrew McAfee, Megan McArdle and Lee Ohanian.

Host, Russ Roberts, makes a good point about 29 minutes into the podcast. They are discussing how people differ from artificial intelligence. McArdle points out that there is value in charm. McAfee isn’t so sure. He says:

But think of your last 10 service interactions with another human being. How many of them left you with that warm, chamomile tea feeling?

McArdle say most of them. McAfee responds:

Oh, come on, did you walk through a sea of pleasant experiences in the airports on your way here? If so, I want to travel with you. [Or] When you call up Comcast, when you go–

Roberts points out that these are outliers:

You’ve picked the example of the places in America where there is very little competition due to regulation and government monopoly.

Good point. Not all customer service experiences are great, but certainly the ones from the companies that compete for your business are better than those that don’t. Everybody dreads going to the DMV. Most people are okay with heading to McDonald’s.

A very important fact, indeed

I agree with Yuval Levin, from his EconTalk podcast, about a simple point and an important fact:

I think Conservatives today don’t often enough make the simple point: that, when it comes to economics the market system that we are advocating has been the best thing that has ever happened to the poor in human history. And has dramatically reduced extreme poverty around the world and is still doing it right now; has been the way in which the needy and the vulnerable have been lifted up. It’s worked far better than anything else we’ve every tried, far better than anything the Left has tried to do economically. And that should matter. That’s a very important fact.

I hear this point made on occasion in left/right debates by the right. I find it interesting at how quickly it gets swept under the rug by the left. It’s usually with a red herring like, “but capitalism has its problems, too.” What I find interesting is how uninterested the left is in examining this important fact.

It goes back to the Levin quote in the previous post, “…the left takes for granted a thriving economy that just comes in the background…

This very important fact, in fact, was key in dislodging my liberal thinking. Before it was pointed out to me, I too, took the thriving economy for granted.

But, when it was pointed out to me, it was eye opening. Rather than sweeping it under the rug, I went silent and thought, if that’s right, how could I be against it? Isn’t it achieving the very thing that I say I want?

Levin went on to say:

Beyond that, the kind of society we are arguing for is a society that for very solid reasons we believe is grounded in a way of life that helps advance the moral good. A way of life that helps people build the sort of lives they want. That makes government more effective at solving problems that people confront. That gives people the room to build the lives they want and protects them from the worst risks that they might confront in modern life, rather than a society that says: This is the way, and you have to do it. Which, again and again, this is how the Left approaches the life of our society: centralize, consolidate, exercise authority to push people into the right grooves.

I couldn’t help to think of this quote when I read this Wall Street Journal op-ed on the politics around the federal nutrition standards for school cafeterias.

The nutrition mandates from 2010 First Lady bill centralizes nutritional choices for school lunches to “push people into the right grooves.”

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Bottom up links

In this Freakonomics podcast, Steven Levitt discusses his work with companies whose managers resist experimentation to test their beliefs.

In one example, he couldn’t convince a company to stop running newspaper ads in any market to see if that would have an effect on sales. But, they discovered that an intern neglected to buy ads in Pittsburgh one summer. It had no effect on sales. But, the company still buys ads.

In this EconTalk podcast, Yuval Levin made what I expected to be a dull conversation about Edmund Burke and Thomas Paine, very interesting. On this, especially, I agree:

I think that there’s a way in which the Left takes for granted a thriving economy that just comes in the background and the question is how to distribute the goods. We have to make the argument that that thriving economy–which makes possible the thriving life of this society–has to be sustained. And it’s a function of certain attitudes toward law and order, of certain kinds of rules, certain kinds of liberties that have to be defended, both because they are right and because they are good. Conservatives are nowhere near good enough at making that kind of case.

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The Great Participation Trophy Debate

The participation trophy debate was briefly mentioned in the EconTalk podcast linked to in the previous post.

Those for participation trophies think it’s good for self-esteem. Those against say it doesn’t prepare kids to deal with failure.

I have a third view to consider: We put too much emphasis on youth sports.

Why do we care so much about the life lessons of youth sports and not so much about life lessons learned from other childhood endeavors, like playing video games?

Has anyone ever argued that the high trial-and-error failure rate in video games hurts a child’s self-esteem? No. Has anyone argued that winning or losing a video game helps kids deal with failure? No.

Yet, we all instinctively know a simple truth about video games: The more a kid plays them, the better he will get.

Play your kid in her favorite video game and she’ll wipe the floor with you. That’s because she has more trial-and-error experience at it than you.

That experience came with no pressure and no stakes. She didn’t have coaches and parents calling out their every mistake from a sideline. If she lost a game, she just started over, tried a different approach and eventually learned what works.

Yet, we don’t translate that instinct to youth sports. Parents and coaches hope for mastery, without recognizing how little time the child has had to master it, especially in unstructured, low pressure, low stakes ways.

Youth sports in the U.S. use to be viewed by parents more like video games are now. In some countries, they still are. Guys I play soccer with, who came to the U.S. from South America and Europe, tell me they spent a great deal of time playing soccer in their home countries and their parents nagged them to do something more productive, just like how U.S. parents nag their kids to put down the video games.

When I was a kid, the way we learned sports was different than today. It was a lot more like how kids these days learn to play video games — lots of low pressure, low stakes play. Why? Because parents didn’t care as much about sports then.

We had much more unstructured play where we played with family and friends. We played more often with older and younger kids, the older ones taught us the tricks of the trade, then we passed those on to younger kids.

We got creative and made up our own games and rules, a lot of times to help compensate for imbalances of playing with different ages and abilities.

The ratio of time spent in low pressure, low stakes unstructured play to the high pressure, organized play was much higher than today.

I played a lot of driveway basketball, mainly because I got bored watching I Love Lucy reruns. I won no basketball scholarships, nor was I scouted by the NBA and I’m usually the last picked at just about any pickup game.

But, if I went to a country where they don’t grow up playing driveway basketball, the locals may be as amazed with my unconscious fade-away jumpers as I am with the soccer skills my friends from Europe and South America display.

Even when we played organized teams as kids, it wasn’t a major event. Every parent didn’t go to every game. Often, parents took turns carting the kids to the game. We often didn’t have large crowds to witness our losses and we didn’t get ear fulls on the ride home for the mistakes we made in the game. Nor do I remember getting snacks.

And, that was okay. Playing was more for us kids and less about pleasing parents and grandparents. They just wanted us to stay in school and out of trouble. We weren’t worried about college scholarships, going pro or being sports prodigies.

I think that’s the major thing that has changed. Now, sports is more about the parents. I hear a lot of parents humble-brag about their kids playing “competitive” or “travel” sports, as if that means something. It does mean something. It means you are paying a lot more than the previous generation to have your child be mediocre at sports.

If you have a strong stance on the participation trophy debate, it may be a sign that you care about youth sports more than is healthy. Think about why you care more about that than you do your child’s video game or Lego building achievements.

Update: Mike M requested that I add the link to a previous discussion about what college athletes said their parents said to them. Here it is: Signals v causes in youth sports.

Post Note: Zemanta suggested the related article below about i9 Sports. I love this quote from the article:

Youth sports have become adult sports played by kids. Adults have sucked the fun out of youth sports, and our goal is to put fun back to the center.


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