Disasters and the Drake Equation

The fact that we know of no other civilization in our galaxy gives social scientists a hint of the potential future of human kind. If no other intelligent life form has developed technology advanced enough to reach us, maybe that means we won't either. I believe Carl Sagan suggested - perhaps during the height of the Cold War? - that other life forms, once sufficiently advanced, rub themselves out, though I will propose below that it may also be that they stagnate forever. The Drake Equation takes the number of stars in the Milky Way (or the rate of star formation), multiplies the number by a series of fractions less than one to weed out the ones unsuitable for life, and arrives at an incredibly rough estimate of the number of advanced life forms. The equation's purpose is not actually to estimate any number, but to stimulate discussion on the topic and it seems a widespread opinion that there ought to be at least a few more civilizations in the Milky Way in addition to humanity.

One of those fractions reduces the number of solar systems home to intelligent life to the number of them which go on to develop technology useful for interstellar communication. Maybe there are non-violent explanations - which would still be disastrous - for why this fraction is actually such as to render it extremely unlikely that a civilization should progress far enough to have radio communication or other ways of contacting the stars - not to mention travelling there. One such explanation is found in the potential for laws of social science to cause intelligent civilizations to stagnate forever.

I am not suggesting that this will happen. Nobody knows the future, so I merely point out that it could happen for all we know. There are a number of mechanisms by which stagnation could happen and go on forever. For instance, Joseph Schumpeter predicted socialism to become the norm due to advances in technology and material life. Judging by long-run trends, it could be that the government continues to expand and the resultant increase in incompetent decision-making could kill growth forever.

Alternatively, spending on health care as a share of GDP has grown steadily over the past several decades and health care is subject to Baumol's Cost Disease. A nurse cannot very well increase her productivity without worsening the care provided, but to attract nurses requires payment of competitive wages, which means that a nurse's salary must increase in line with the wages of sectors where productivity does grow. Thus, in this simplified way, if the quantity demanded of health care rises over time, spending on it must rise more than proportionately. Health care is increasingly the government's business and I am not confident that the government will deliver any growth.

Or it could be that voters favour increasingly bad policies the richer they get. For example, the people of developing countries consistently have more positive (i.e. more accurate) views on international trade than do people in rich countries, according to this Pew Research Report from last month. To the extent that public opinion matters to political decisions, any general tendencies here could be dangerous. Similarly, if one goes to the Heritage Foundation's Economic Freedom Website and runs rather a façile regression of the government's share of GDP on purchasing-power-adjusted GDP per capita, one finds a statistically significant positive-but-small relationship. Maybe citizens become more active politically as they get wealthier? Given the (rational) incompetence of the average citizen, this would not be a good development. Since the individual citizen has no incentive to support good policies (being merely one voice amidst millions), individuals can indulge their fallacies and the gross domestic product suffers accordingly.

I don't know, but there appears to be some potential in these trends and explanations. Given that advanced alien civilizations must also have societies and given that several of these suggestions may be general enough to apply even to extraterrestrial life, perhaps part of the reason we receive no signals from other parts of the Milky Way is that these tendencies simply stop them from progressing that far?

The Political Economy of Duckburg - Instalment 1: Scrooge McDuck and His Money

Yes, I do read Donald Duck, but I am still an adult with fully-functioning mental faculties. The lovable Duck turned eighty earlier this summer, so it is perhaps fitting that he and his relatives and fellow Duckburgers get a few blog posts, of which this is the first instalment. When I read Donald Duck, my favourite author is the late Carl Barks, whose universe, centred at Duckburg with fairly consistent relations among the ducks, is generally considered the best depiction of the amusing ducks (the popular cartoon series DuckTales is largely based upon Carl Barks' stories, though several characters, such as Launchpad McQuack, Fenton Crackshell and Bubba, are specific to the TV show). Barks' stories were my favourites as a child, but I find they work on many different levels, and the detailed boxes contain visual jokes one may not notice until the nth reading.

Thus, I feel myself in a good position to describe the political economy of Duckburg according to Duckman Carl Barks. This first instalment of the series is a blog post about some standard themes of price theory and economic organization, as illustrated primarily by the dealings of one Scrooge McDuck, often characterized as a ruthless monopolist who goes to any length to save a farthing. While he certainly has a penchant for the penny, the following will illustrate the superiority of a more nuanced perspective.

For instance, in 'The Money Champ' (Uncle $crooge 27), we initially follow Scrooge strolling down the street casually chatting and joking with people he passes by. The citizens take the liberty of joking with him ("Wanna borrow a buck, Mr McDuck?") and seem very pleased indeed to see and interact with the world's richest duck. These facts indicate to me that, if Scrooge is a monopolist, he is a Schumpeterian monopolist who reaches his enviable position though skilful entrepreneurship and by offering the people what they want at prices low enough to discourage competitors from entry. Time after time, the comics emphasize that Scrooge reached this position by being "tougher than the toughies and sharper than the sharpies" (e.g., in the Classic 'Only a Poor Old Man', Uncle $crooge Four Color 386), and of course Schumpeter ably argued that monopolists must have these traits or they won't succeed. And their success is for the benefit of society, which can enjoy their innovations.

Indeed, Duckburg turns out to be rather a prosperous society. There is a fairly large upper class, and the small underclass consists, essentially, of Donald Duck, the people of Shacktown (as seen in the Christmas story in Donald Duck Four Color 367), Grandma Duck's farmhand Gus Goose, and Goofy, though the latter is not a figure of the Barksian universe. Virtually everyone else is middle class. Even Donald and Gus lead fairly comfortable lives whose every misfortune is due, respectively, to gross incompetence and pathological lethargy.

Scrooge's love for money is often believed to be a twisted perversion, but given his nephew Donald's general ineptitude, Scrooge is very generous to pay him a few nickels an hour (the exact rate varies in my sources) for sinecures such as making plaintive cries so Scrooge won't have to do it on his own time (e.g., in the wonderful 'Terror of the Beagle Boys, Donald Duck Four Color 356, and in 'All at Sea', Uncle $crooge 31). By my reading, Scrooge sees Donald as someone requiring a bit of tough love, and no-one is better at providing it than Scrooge.

Since Donald Duck is what Tyler Cowen might call a Zero Marginal Product worker, Scrooge's paying him a positive wage is an act of generosity rather than callous exploitation. Indeed, keeping a bin full of money is an even greater, unrecognized, act of generosity, since by taking such copious amounts of cash out of circulation, he raises the purchasing power of the money that remains in circulation by the quantity equation (MV=PT, so when Scrooge halts velocity, money-denominated prices must fall). Such "wastefulness" forces Scrooge to be even more innovative and offer even better products than do his rivals, such as Flintheart Glomgold and John D. Rockerduck.

In conclusion, Scrooge is a widely misunderstood character. An immensely successful Schumpeterian entrepreneur rather than an unscrupulous monopolist who keeps Duckburgers on their knees, his favourite hobby (swimming in his money) requires that he raise the purchasing power of circulating money and on top of that he gives Donald more money than his services are worth. No wonder Scrooge is off to Tralla La (Uncle $crooge 6) when begging letters and charities still won't leave him alone.

Schumpeter's Calculation and the Present State of Things

In his great book Capitalism, Socialism and Democracy, Joseph Schumpeter envisioned further economic growth eliminating "want" (an unfortunate choice of word, since wants are really limitless, but what is meant is destitution or something like that) in just a few decades. The kind of economic growth which would achieve this immense feat would have to be in line with the growth numbers which had been seen during the past century or so up to his writing the 1947 edition of the aforementioned book. On page 67, for instance, Schumpeter notes the availability of modern dentistry to workmen which Louis XIV would not have obtained even if he had spent all his wealth. On page 69, Schumpeter continues:

"Now if the system had another run such as it had in the sixty years preceding 1928 and really reached the $1,300 per head of population, it is easy to see that all of the desiderata that have so far been espoused by any social reformers - practically without exception, including even the greater part of the cranks - either would be fulfilled automatically or could be fulfilled without significant interference with the capitalist process. Ample provision for the unemployed in particular would then be not only a tolerable but a light burden."

The emphasis is in the original. According to the BLS's inflation calculator, $1,300 in 1928 is $17,963.80 in 2014, well below even half of the American GDP per capita. So by the Great Austrian's reckoning, spending on transfer payments should be a very low fraction of GDP, indeed. Yet the welfare state consumes a lot more today than it ever has before. For instance, Charles Murray's Coming Apart cites the figure $1,500,000,000,000 (called a trillion and a half in America; I wonder if numbers have ever got this big in the UK, but Britons would call the figure one and a half billion) spent purely on income transfers in America, and throughout the West, total government spending as a share of GDP is typically around 40 per cent.

 

Now consider the $1.5 billion (or "trillion") figure and relate it to what Schumpeter had to say about eliminating want. It comes to almost $5,000 per American (of whom there are almost 320 million according to the Census Bureau), which is not that much less than one third of the $1,300 per-capita GDP in 1928 that Schumpeter nicely argued would suffice for wants to be eliminated "without significant interference with the capitalist process". But almost a one-third of per-capita GDP being spent on transfers is surely significant interference. Yet there remains poverty, although it is incredibly rare by world standards. What gives?

 

These facts indicate to me that the welfare state is not really about helping poor people. Moreover, there is the suspicion that there are laws in social science which make it incredibly difficult for welfare programmes to fulfil their ostensible purpose. One such candidate is Director's Law, named after University of Chicago Law Professor and Economist Aaron Director. It is not really a "law" as much as a vast and coherent set of empirical findings, for instance that tuition at fancy universities is often subsidized even though college students typically come from fairly affluent families.

 

However, there is some logic to Director's "Law", independent of observation. If a welfare programme is designed to help the poorest decile (say), it is plain that this is paid for mostly by persons far richer that that. The poorest decile is not a very useful group for office-seeking politicians, who must seek the approval of many more people than these in order to gain power (besides, people this poor tend not to vote much). Consequently, the winning proposals will have money shifted from fewer people than 90 per cent of the population, and to more people than just the poorest decile. Programmes specifically directed at the poor will tend to go unfunded.

 

What about expanded programmes? Everyone wants to be a beneficiary of such programmes, so they might easily grow a great deal, but once they have grown enough, the bottom ten per cent may no longer be such a valuable part of whatever coalitions form. Expanded programmes are palpably more attractive to interest groups than are narrower ones, and so those who can organize politically will tend to secure the benefits for themselves. Thus, farmers and other small and non-poor groups appropriate a lot of transfer money by good lobbying. Again, the poor folks lose out.

In addition, the poor may tend to be disadvantaged in utilizing whatever programmes for which they qualify. To get good health care, it helps to be articulate and to already know a bit about the system (for instance, by having friends within it), traits which the poor may well possess, but perhaps not as much as middle-class individuals. Services directed at poor areas may also be at a disadvantage when it comes to attracting talent to provide them. I can imagine good teachers shunning schools in poor areas. Raising the salaries in those schools will attract better talent, but as has been shown, this is politically difficult to do.

Schumpeter's calculations were surely correct and, on merely technical grounds, poverty could be eliminated today even with a much smaller government. It just happens that that is not how politics works.