Don't Microwave the Hamster

[I originally posted this on Facebook, but enough people seemed interested enough for me to share it in somewhere more visible. At some point I will get around to adding appropriate citations and footnotes to this.]

One of these days I am going to learn to keep my big mouth shut. Today is not that day.

So Tom Napper is a guy I know, and he did the animation for this video about income inequality. I wish I could make things that look like this, and perhaps you should hire him for your assorted graphical needs.

But...

Oh sweet Jesus, listening to this made my eye sockets bleed. For the record, I am in favour of progressive taxation. I'm in favour of redistributive fiscal policy that enables the disadvantaged. I'm in favour of gargantuan social safety nets. We do these things badly, and we should do them better. If watching this video dings a little lefty light in your brain, I am on your side. I want the same outcomes as you do.

That said, this video does some bad things. It puts wrong models in people's heads.

Good models are important. Very few people understand on a fundamental level how a microwave works, so instead they have a model of how it works in their head, involving timers and potatoes and bingy noises and metal spoons we shouldn't leave in there. If people think with a wrong model, at some point that wrong model is going to make them microwave the hamster.

I am going to try and highlight a couple of the wrong models I think this video perpetuates. You are, of course, at liberty to disagree with me, but it's worth mentioning that agreeing with me won't make you a Thatcherite. It won't even necessarily change what you think. But I believe that it will make you a better thinker who is less likely to stick the hamster in the microwave in future.

***

When you were a child, everything in the world probably came from your parents. If you had any siblings, your parents decided how much pocket money you each got at what age. There was a fixed amount of stuff in your household, an authority figure had control of all of it, and that authority figure divided it up as they saw fit. If you felt that division was unfair, you might complain to your mum and dad.

I'll call this the Pocket Money Model. It's highly pervasive, and the video is inviting you to use it. The reasoning goes "there's a fixed amount of wealth in this country, and mum and dad are dividing it up unfairly". In this case, it is a Wrong Model. In the national (and international, and indeed any) economy, not only is there not a fixed amount of wealth, but there's no mum and dad either.

People who like talking about arguments would call this illusory mum-and-dad an "agency fiction". The idea that wealth is being unfairly divided up as a result of the active conscious choice of someone with an agenda, an agent. That agent doesn't exist. There is no individual or coherent consortium of individuals deciding what both Brian and Brenda should get paid. That is determined, to a greater or lesser degree, by the spending and working habits of every single person in the world. If you care about wealth inequality, it's important to have this in your mental model, not least because you can focus your energy on things other than going "but muuuuuuum, that's unfair!"

(Even if you disagree in this case, I urge you to hold onto the idea of agency fictions. Many seemingly-organised things, both beneficial and harmful, are the result of the interplay of lots of different uncoordinated factors under nobody's control, but people insist on trying to paint a human face on them. It gives them someone to insult or discredit or swing their ideological fists at. But in cases such as wealth inequality, there isn't an actual person on the other side. So next time you hear someone ascribing personal characteristics to a complex social problem, you know what to call it.)

The lack of mum-and-dad has some important consequences. When the video speculates what the UK would be like if our incomes were distributed similarly to Scandinavia or the Netherlands, well...that's very nice, but it's not like we can go to mum-and-dad and renegotiate. Those countries may very well have interesting and beneficial policies that contribute to this state of affairs, and it's worth looking at this and whether we should adopt similar policies in this country, but we can't just do it. Rather than thinking of this as an easy problem that specific people are too stupid to fix, it's much more accurate to think of it as a fantastically difficult problem that no-one is smart enough to solve.

***

The second part of the Pocket Money Model that's worth questioning is the "fixed amount of wealth" assumption. This is best captured in the video with the line "higher incomes for some means lower incomes for others". I would like to examine this sentence and its implications.

There are a few interpretations of this sentence, but I think the one it's trying to get at is something along the lines of "one person's gain necessarily has to be another person's loss". This is sometimes termed the Zero Sum Fallacy. It's called that because it's a fallacy. It's fallacious. It's wrong. Wrong, wrong, wrong.

I would like to reiterate that you don't have to think banking bosses deserve all their earnings in order to see the wrongness of this. You just have to agree that by working together, people can achieve more mutually positive outcomes than by working against each other.

Six decades ago, South Korea was a decimated war zone. Today it's one of the fastest-growing economies. Even if you don't care how fast its economy is growing, look at photos of 1960s South Korea and compare them to contemporary South Korea. 2014 South Korea is an infinitely preferable place to be than 1960s South Korea. The people are healthier, more highly-educated, and substantially less likely to die in armed conflict. They have a staggering selection of capabilities and options available to them. This is what wealth is. Contemporary South Koreans are wealthier than their 1960s counterparts, and if you said you'd rather live in 1960s South Korea than 2014 South Korea, I would say you are either lying or there's something wrong with you.

They didn't take this wealth from anyone. They generated it. Conditions came about that allowed people in South Korea to cooperate and work productively and make stuff that they could trade for other stuff that made their country a nicer place to be. If you challenge this position, I challenge you to exhibit who South Korea took their wealth from. Who is poorer because South Korea is richer?

(As an interesting aside, there were an estimated 231 million people alive in 1 AD, with an estimated world average GDP per capita of $467 in 1990 US dollars. That's a Gross World Product of $108 billion. Current GWP is somewhere in the region of $50 trillion. Who did we take that from?)

This was described as a Zero Sum Fallacy because it assumes all events are zero-sum; that one person's gain has to be someone else's loss. This can be the case (when someone steals your phone, that's a zero-sum event: their gain and your loss sum to zero), but we also have positive-sum and negative-sum events. If you go and have a picnic with your friends, that's a positive-sum event, because you all get more out of it than you would if you'd individually sat in the park on your own. Global armed conflict is typically extremely negative-sum; we'd all be better off if we had the option of not entering into them.

(Since I am appealing to a left-leaning audience with this little essay, it's worth pointing out that when people complain about immigrants coming over here and taking our jobs, they are making the same type of error. This is generally termed the lump-of-labour fallacy: the idea that there are a fixed amount of jobs in the country, and some foreigner is taking a job that could be occupied by a native. This argument is false for similar reasons to the one in the video. Also it's sort of horrible, and while it's not exactly racist, it's powered by using the same sort of horrible mental circuitry racism uses. I invite you to consider why it's better for a stranger born on one side of a border to hold a job than it is for a stranger born on the other side of that border.)

I think it's important to internalise, to properly feel it in your bones, that one person's gain does not have to be another person's loss. The only alternative seems to involve resenting other people's gains as theft. I would rather live in a world where people realise that cooperation makes their lives better than one in which people think the only way they can better their lives is by taking stuff from someone else.

***

One last quibble with the video. Let's look at Brian. The banking sector has some pretty messed-up incentive structures. These played a significant role in the 2007 recession. We have very good reason to believe that certain parts of the banking sector are doing socially-undesirable things that can cause big problems. As such, we might imagine that Brian the Banker with his enormous salary does not generate as much wealth as his salary suggests.

Now let's look at Brenda. She's a nurse. I wouldn't want to be a nurse. Not just because it involves various icky and emotionally-draining activities, but because the care sector is a mess. Care is expensive and as a society we have no idea how to pay for it. Care also doesn't get cheaper while iPhones and broadband and plane travel get cheaper, because it doesn't benefit from economies of scale in the same way as manufacturing or information services or transport. The problem is also only going to get worse as the population ages. As a result, nurses do highly-skilled work we think of as very important, but they get paid pretty badly for it, especially in the public sector. We would be quite right to imagine that Brenda does a lot more good work than her salary suggests.

You know what these two examples have in common? They're highly atypical examples of what they're supposed to represent. The majority of one-percenters (or even nought-point-one-percenters) aren't the boss of the largest bank in Britain. (In the UK you can currently join the 1% club with an income of significantly less than £200,000 a year, incidentally). The median earner isn't in a high-skill, perversely-underpaid public-funded career.

This doesn't have to change your mind about any substantive issue. You are welcome to think that we should use greater redistributive taxation than we already do to shift wealth from the top 1% to the bottom 50%, or whatever. I personally am very much on board with this. What I am inviting you to do, when deciding whether this is the case, is to not use Brenda and Brian as your reference classes for who the money goes to and from. They are especially bad examples for doing this with. The most egalitarian society in the world will have underpaid nurses and overpaid bankers, because these are problems baked into nursing and banking. We don't have to like this fact, but we shouldn't try and generally reason with the consequences of this fact.

More broadly, I am inviting you to be skeptical of exotic, extreme and emotionally-charged examples that are used to sway your beliefs, or to reinforce the ones you already have. If you can spot these things in appeals for positions you agree with, you can spot them anywhere.

***

When it comes down to it, I don't really care what you believe (within reason; I do care very much if you believe I should be set on fire and fed to hungry lions that are also on fire. Please don't believe that). However, I would like those beliefs to be arrived at for good reasons, with the finest thinking tools we have at our disposal. I want everyone's map of the world to be made of good models.

I especially want people to not stick their hamster in the microwave. No matter what their model tells them, they probably don't want to do that.

6 Thoughts on “Don't Microwave the Hamster

  1. satt on June 9, 2014 at 1:43 am said:

    Showing up just in time for nobody to actually read this...

    Not that I've watched the video (hey, you said it was eye-bleedingly bad!) but your second & third criticisms (the Zero Sum Fallacy and the non-representative Brian & Brenda) sound fair. I agree that picturing the economy as being moulded by an illusory mum & Dad is an agency fiction, too, but I think there's a risk of pushing too far in the opposite direction here:

    The idea that wealth is being unfairly divided up as a result of the active conscious choice of someone with an agenda, an agent. That agent doesn't exist. There is no individual or coherent consortium of individuals deciding what both Brian and Brenda should get paid. That is determined, to a greater or lesser degree, by the spending and working habits of every single person in the world. If you care about wealth inequality, it's important to have this in your mental model, not least because you can focus your energy on things other than going "but muuuuuuum, that's unfair!"

    Although there aren't just one or two people who decide how wealth & income are distributed for everyone in the country, those distributions are nonetheless greatly influenced by immigration policy, welfare policy, tax rates, our EU membership, and collective bargaining, among other things — and those things are themselves disproportionately influenced by a relatively small tranche of the population (comprising e.g. the Parliament, the Cabinet, lobbyists, pressure groups & think tanks, union leaders, newspaper editors, and high-profile representatives of big firms). This tranche is by no means a unified coalition, and it has fuzzy boundaries so that different people in the tranche might take the lead on different policies, but if we brush aside the outsized power of the people in that group we're making as big a mistake as if we reduce it to one or two omnipotent parental figures.

    Putting it another way, the phrase "to a greater or lesser degree" is doing a great deal of work here; it's too vague to adequately capture the fact that Bob Crow or the TaxPayers' Alliance (for example) have had far more impact on the distribution of income in this country than you & I.

    The lack of mum-and-dad has some important consequences. When the video speculates what the UK would be like if our incomes were distributed similarly to Scandinavia or the Netherlands, well...that's very nice, but it's not like we can go to mum-and-dad and renegotiate. Those countries may very well have interesting and beneficial policies that contribute to this state of affairs, and it's worth looking at this and whether we should adopt similar policies in this country, but we can't just do it. Rather than thinking of this as an easy problem that specific people are too stupid to fix, it's much more accurate to think of it as a fantastically difficult problem that no-one is smart enough to solve.

    I'm not sure I follow the point being made here. There's no literal mum & dad to negotiate with, but people can & do write to MPs, or offer their brainpower to anti-inequality think tanks, or contribute editorials to newspapers about inequality, or join unions & threaten strikes, or...

    Likewise, it's obviously not as simple as snapping one's fingers to institute, say, a 100% rate of Inheritance Tax above the nil rate band, but it's not clear to me why we couldn't "just do it" if the will existed. (The tax already exists, after all, just at a much lower rate.) While stamping out every last bit of inequality wouldn't be easy, to put it mildly, policies exist to reduce inequality. At the margin, identifying fixes for the problem really isn't fantastically difficult, and the reason the problem's not being ameliorated isn't a lack of smarts but because it doesn't align with the interests and/or ideologies of the people with the most power to bear on the issue.

    As an analogy, anthropogenic global warming in its full complexity is "a fantastically difficult problem", but howling "O, the complexity, O the complexity of it all!" would be an extremely poor excuse for doing nothing about it. At best it'd be analysis paralysis, at worst wilful obstruction.

    • I'll try to elaborate on what I was trying to get at with those points. The "initial endowment" of income distribution is not governed in the sense of being subject to a political authority. The enormous variance in income is not configured anywhere. We can't just copy a set of values from Denmark or the Netherlands and expect the same set of outcomes.

      (I quite like this config values metaphor, actually.)

      There is an implication in the video that we can do this when it talks about Denmark and the Netherlands. The delivery of it is particularly jarring to hear. It's like saying "this patient is exhibiting extreme leukocytosis. If his white blood cell count was the same as the two patients next to him, he wouldn't be exhibiting extreme leukocytosis, and this would make the patient happy". It's simply not a helpful observation. Scrutable policy proposal or GTFO.

      The intent of this piece was to disabuse people of the idea of Rich Uncle Pennybags kneeling on the windpipes of the poor by maintaining an iron grip on the config values of income distribution. I tried to do this by showing there was no Rich Uncle Pennybags and there were no config values. I am fairly sure that the poor do have windpipes, though.

  2. satt on June 9, 2014 at 2:14 am said:

    Remembered something else that confused me, but it's more of a side point.

    Care is expensive and as a society we have no idea how to pay for it. Care also doesn't get cheaper while iPhones and broadband and plane travel get cheaper, because it doesn't benefit from economies of scale in the same way as manufacturing or information services or transport. The problem is also only going to get worse as the population ages. As a result, nurses do highly-skilled work we think of as very important, but they get paid pretty badly for it, especially in the public sector.

    This sounded to me like Baumol's cost disease, but I'd thought the cost disease meant that people in low-productivity, inelastic-demand industries got relatively high wages, because those industries claim a growing share of output, and most of that share has to continue going to labour because labour is those industries' biggest cost. I'm not sure how to square this with nurses' relatively low wages; I'm probably getting something wrong, but I don't know enough to pinpoint what I'm getting wrong.

    • You'll see the pattern of "this costs a lot, but the people doing it are badly paid" in most of the paradigmatic examples of Baumol's cost disease. Professional musicians, for example, are considered very expensive to hire, but we don't think of it as a lucrative career.

      I think characterising care work as "low-productivity, inelastic-demand" is correct but misleading. There's a limit to how far you can model something as inelastic. Heroin is a pretty inelastic-demand good, but if a worldwide poppy blight upped the price per kilo by a factor of a hundred, no-one in the industry is going to celebrate because the end-users will simply be unable to afford it.

      In cases of Baumol's cost disease where it starts to matter in terms of public policy, the services have generally already crossed the threshold at which you wouldn't expect a median-income consumer to pay for them out of their own pocket. In the case of nurses, they don't collectively earn what they're "worth" because we can't collectively afford to pay them that much.

      • satt on June 17, 2014 at 5:45 am said:

        So the cost disease doesn't lead to people earning a lot; that's what I was getting wrong.

        Which pushes my confusion back a step. Why do those industries' workers get low pay even though the industries get relatively big shares of output? Presumably it's exactly because those jobs are labour intensive; although a sector might get a big/growing chunk of output, that chunk's distributed among lots of workers, so individual wages are low. (I guess I might've been able to get to that conclusion a bit quicker via the marginal productivity theory of wages, although I'm doubtful of that theory's robustness.)

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