The Real Social Dilemma

The Social Dilemma is a newly available documentary on Netflix about the peril of social networks. 

The documentary does a decent job of introducing some of the ways social networks (Facebook, Twitter, Pinterest, etc.) are negatively impacting society. If this is your entry point to the topic, you could do worse.

But if you’re looking for really thorough analysis of what is going wrong or for possible solutions, then this documentary will leave you wanting more. Here are four specific topics–three small and one large–where The Social Dilemma fell short.

AI Isn’t That Impressive

I published a piece in June on Why I’m an AI Skeptic and a lot of what I wrote then applies here. Terms like “big data” and “machine learning” are overhyped, and non-experts don’t realize that these tools are only at their most impressive in a narrow range of circumstances. In most real-world cases, the results are dramatically less impressive. 

The reason this matters is that a lot of the oomph of The Social Dilemma comes from scaring people, and AI just isn’t actually that scary. 

Randall Munroe’s What If article is technically about a robot apocalypse, but the gist of it applies to AI as well.

I don’t fault the documentary for not going too deep into the details of machine learning. Without a background in statistics and computer science, it’s hard to get into the details. That’s fair. 

I do fault them for sensationalism, however. At one point Tristan Harris (one of the interviewees) makes a really interesting point that we shouldn’t be worried about when AI surpasses human strengths, but when it surpasses human weaknesses. We haven’t reached the point where AI is better than a human at the things humans are good at–creative thinking, language, etc. But we’ve already long since passed the point where AI is better than humans at things humans are bad at, such as memorizing and crunching huge data sets. If AI is deployed in ways that leverage human weaknesses, like our cognitive biases, then we should already be concerned. So far this is reasonable, or at least interesting.

But then his next slide (they’re showing a clip of a presentation he was giving) says something like: “Checkmate humanity.”

I don’t know if the sensationalism is in Tristan’s presentation or The Real Dilemma’s editing, but either way I had to roll my eyes.

All Inventions Manipulate Us

At another point, Tristan tries to illustrate how social media is fundamentally unlike other human inventions by contrasting it with a bicycle. “No one got upset when bicycles showed up,” he says. “No one said…. we’ve just ruined society. Bicycles are affecting society, they’re pulling people away from their kids. They’re ruining the fabric of democracy.”

Of course, this isn’t really true. Journalists have always sought sensationalism and fear as a way to sell their papers, and–as this humorous video shows–there was all kinds of panic around the introduction of bicycles.

Tristan’s real point, however, is that bicycles were were a passive invention. They don’t actively badger you to get you to go on bike rides. They just sit there, benignly waiting for you to decide to use them or not. In this view, you can divide human inventions into everything before social media (inanimate objects that obediently do our bidding) and after social media (animate objects that manipulate us into doing their bidding).

That dichotomy doesn’t hold up. 

First of all, every successful human invention changes behavior individually and collectively. If you own a bicycle, then the route you take to work may very well change. In a way, the bike does tell you where to go. 

To make this point more strongly, try to imagine what 21st century America would look like if the car had never been invented. No interstate highway system, no suburbs or strip malls, no car culture. For better and for worse, the mere existence of a tool like the car transformed who we are both individually and collectively. All inventions have cultural consequences like that, to a greater or less degree.

Second, social media is far from the first invention that explicitly sets out to manipulate people. If you believe the argumentative theory, then language and even rationality itself evolved primarily as ways for our primate ancestors to manipulate each other. It’s literally what we evolved to do, and we’ve never stopped.

Propaganda, disinformation campaigns, and psy-ops are one obvious category of examples with roots stretching back into prehistory. But, to bring things closer to social networks, all ad-supported broadcast media have basically the same business model: manipulate people to captivate their attention so that you can sell them ads. That’s how radio and TV got their commercial start: with the exact same mission statement as GMail, Google search, or Facebook. 

So much for the idea that you can divide human inventions into before and after social media. It turns out that all inventions influence the choices we make and plenty of them do so by design.

That’s not to say that nothing has changed, of course. The biggest difference between social networks and broadcast media is that your social networking feed is individualized

With mass media, companies had to either pick and choose their audience in broad strokes (Saturday morning for kids, prime time for families, late night for adults only) or try to address two audiences at once (inside jokes for the adults in animated family movies marketed to children). With social media, it’s kind of like you have a radio station or a TV studio that is geared just towards you.

Thus, social media does present some new challenges, but we’re talking about advancements and refinements to humanity’s oldest game–manipulating other humans–rather than some new and unprecedented development with no precursor or context. 

Consumerism is the Real Dilemma

The most interesting subject in the documentary, to me at least, was Jaron Lanier. When everyone else was repeating that cliché about “you’re the product, not the customer” he took it a step or two farther. It’s not that you are the product. It’s not even that your attention is the product. What’s really being sold by social media companies, Lanier pointed out, is the ability to incrementally manipulate human behavior.

This is an important point, but it raises a much bigger issue that the documentary never touched. 

This is the amount of money spent in the US on advertising as a percent of GDP over the last century:

Source: Wikipedia

It’s interesting to note that we spent a lot more (relative to the size of our economy) on advertising in the 1920s and 1930s than we do today. What do you think companies were buying for their advertising dollars in 1930 if not “the ability to incrementally manipulate human behavior”?

Because if advertising doesn’t manipulate human behavior then why spend the money? If you can’t manipulate human behavior with a billboard or a movie trailer or a radio spot, then nobody would ever spend money on any of those things.

This is the crux of my disagreement with The Social Dilemma. The poison isn’t social media. The poison is advertising. The danger of social media is just that (within the current business model) it’s a dramatically more effective method of delivering the poison.

Let me stipulate that advertising is not an unalloyed evil. There’s nothing intrinsically wrong with showing people a new product or service and trying to persuade them to pay you for it. The fundamental premise of a market economy is that voluntary exchange is mutually beneficial. It leaves both people better off. 

And you can’t have voluntary exchange without people knowing what’s available. Thus, advertising is necessary to human commerce and is a part of an ecosystem flourishing, mutually beneficial exchanges and healthy competition. You could not have modern society without advertising of some degree and type. 

That doesn’t mean the amount of advertising–or the kind of advertising–that we accept in our society is healthy. As with  basically everything, the difference between poison and medicine is found in the details of dosage and usage. 

There was a time, not too long ago, when the Second Industrial Revolution led to such dramatically increased levels of production that economists seriously theorized about ever shorter work weeks with more and more time spent pursuing art and leisure with our friends and families. Soon, we’d spend only ten hours a week working, and the rest developing our human potential.

And yet in the time since then, we’ve seen productivity skyrocket (we can make more and more stuff with the same amount of time) while hours worked have also remained roughly steady. The simplest reason for this? We’re addicted to consumption. Instead of holding production basically constant (and working fewer and fewer hours), we’ve tried to maximize consumption by keeping as busy as possible. This addiction to consumption, not necessarily having but to acquiring stuff, manifests in some really weird cultural anomalies that–if we witnessed them from an alien perspective–probably strike us as dysfunctional or even pathological.

I’ll start with a personal example: when I’m feeling a little down I can reliably get a jolt of euphoria from buying something. Doesn’t have to be much. Could be a gadget or a book I’ve wanted on Amazon. Could be just going through the drive-thru. Either way, clicking that button or handing over my credit card to the Chick-Fil-A worker is a tiny infusion of order and control in a life that can seem confusingly chaotic and complex. 

It’s so small that it’s almost subliminal, but every transaction is a flex. The benefit isn’t just the food or book you purchase. It’s the fact that you demonstrated the power of being able to purchase it. 

From a broader cultural perspective, let’s talk about unboxing videos. These are videos–you can find thousands upon thousands of them on YouTube–where someone gets a brand new gizmo and films a kind of ritualized process of unpacking it. 

This is distinct from a product review (a separate and more obviously useful genre). Some unboxing videos have little tidbits of assessment, but that’s beside the point. The emphasis is on the voyeuristic appeal of watching someone undress an expensive, virgin item. 

And yeah, I went with deliberately sexual language in that last sentence because it’s impossible not to see the parallels between brand newness and virginity, or between ornate and sophisticated product packaging and fashionable clothing, or between unboxing an item and unclothing a person. I’m not saying it’s literally sexual, but the parallels are too strong to ignore.

These do not strike me as the hallmarks of a healthy culture, and I haven’t even touched on the vast amounts of waste. Of course there’s the literal waste, both from all that aforementioned packaging and from replacing consumer goods (electronics, clothes, etc.) at an ever-faster pace. There’s also the opportunity cost, however. If you spend three or four or ten times more on a pair of shoes to get the right brand and style than you could on a pair of equally serviceable shoes without the right branding, well… isn’t that waste? You could have spent the money on something else or, better still, saved it or even worked less. 

This rampant consumerism isn’t making us objectively better off or happier. It’s impossible to separate consumerism from status, and status is a zero-sum game. For every winner, there must be a loser. And that means that, as a whole, status-seeking can never make us better off. We’re working ourselves to death to try and win a game that doesn’t improve our world. Why?

Advertising is the proximate cause. Somewhere along the way advertisers realized that instead of trying to persuade people directly that this product would serve some particular need, you could bypass the rational argument and appeal to subconscious desires and fears. Doing this allows for things like “brand loyalty.” It also detaches consumption from need. You can have enough physical objects, but you can you ever have enough contentment, or security, or joy, or peace? 

So car commercials (to take one example) might mention features, but most of the work is done by stoking your desires: for excitement if it’s a sports car, for prestige if it’s a luxury car, or for competence if it’s a pickup truck. Then those desires are associated with the make and model of the car and presto! The car purchase isn’t about the car anymore. It’s about your aspirations as a human being. 

The really sinister side-effect is that when you hand over the cash to buy whatever you’ve been persuaded to buy, what you’re actually hoping for is not a car or ice cream or a video game system. What you’re actually seeking is the fulfillment of a much deeper desire for belonging or safety or peace or contentment. Since no product can actually meet those deeper desires, advertising simultaneously stokes longing and redirects us away from avenues that could potentially fulfill it. We’re all like Dumbledore in the cave, drinking poison that only makes us thristier and thirstier.

One commercial will not have any discernible effect, of course, but life in 21st century America is a life saturated by these messages. 

And if you think it’s bad enough when the products sell you something external, what about all the products that promise to make you better? Skinnier, stronger, tanner, whatever. The whole outrage of fashion models photoshopped past biological possibility is just one corner of the overall edifice of an advertising ecosystem that is calculated to make us hungry and then sell us meals of thin air. 

I developed this theory that advertising fuels consumerism, which sabotages our happiness at an individual and social level, when I was a teenager in the 1990s. There was no social media back then.

So, getting back to The Social Dilemma, the problem isn’t that life was fine and dandy and then social networking came and destroyed everything. The problem is that we already lived in a sick, consumerist society where advertising inflamed desires and directed them away from any hope of fulfillment and then social media made it even worse

After all, everything that social media does has been done before. 

News feeds are tweaked to keep your scrolling endlessly? Radio stations have endlessly fiddled with their formulas for placing advertisements to keep you from changing that dial. TV shows were written around advertising breaks to make sure you waited for the action to continue. (Watch any old episode of Law and Order to see what I mean.) Social media does the same thing, it’s just better at it. (Partially through individualized feeds and AI algorithms, but also through effectively crowd-sourcing the job: every meme you post contributes to keeping your friends and family ensnared.)

Advertisements bypassing objective appeals to quality or function and appeal straight to your personal identity, your hopes, your fears? Again, this is old news. Consider the fact that you immediately picture in your mind different stereotypes for the kind of person who drives a Ford F-150, a Subaru Outback, or a Honda Civic. Old fashioned advertisements were already well on the way of fracturing society into “image tribes” that defined themselves and each other at least in part in terms of their consumption patterns. Social media just doubled down on that trend by allowing increasingly smaller and more homogeneous tribes to find and socialize with each other (and be targeted by advertisers). 

So the biggest thing that was missing from The Social Dilemma was the realization that social isn’t some strange new problem. It’s an old problem made worse. 


The final shortcoming of The Social Dilemma is that there were no solutions offered. This is an odd gap because at least one potential solution is pretty obvious: stop relying on ad supported products and services. If you paid $5 / month for your Facebook account and that was their sole revenue stream (no ads allowed), then a lot of the perverse incentives around manipulating your feed would go away.

Another solution would be stricter privacy controls. As I mentioned above, the biggest differentiator between social media and older, broadcast media is individualization. I’ve read (can’t remember where) about the idea of privacy collectives: groups of consumers could band together, withhold their data from social media groups, and then dole it out in exchange for revenue (why shouldn’t you get paid for the advertisements you watch?) or just refuse to participate at all.

These solutions have drawbacks. It sounds nice to get paid for watching ads (nicer than the alternative, anyway) and to have control over your data, but there are some fundamental economic realities to consider. “Free” services like Facebook and Gmail and YouTube can never actually be free. Someone has to pay for the servers, the electricity, the bandwidth, the developers, and all of that. If advertisers don’t, then consumers will need to. Individuals can opt out and basically free-ride on the rest of us, but if everyone actually did it then the system would collapse. (That’s why I don’t use ad blockers, by the way. It violates the categorical imperative.)

And yeah, paying $5/month to Twitter (or whatever) would significantly change the incentives to manipulate your feed, but it wouldn’t actually make them go away. They’d still have every incentive to keep you as highly engaged as possible to make sure you never canceled your subscription and enlisted all your friends to sign up, too. 

Still, it would have been nice if The Social Dilemma had spent some time talking about specific possible solutions.

On the other hand, here’s an uncomfortable truth: there might not be any plausible solutions. Not the kind a Netflix documentary is willing to entertain, anyway.

In the prior section, I said “advertising is the proximate cause” of consumerism (emphasis added this time). I think there is a deeper cause, and advertising–the way it is done today–is only a symptom of that deeper cause.

When you stop trying to persuade people to buy your product directly–by appealing to their reason–and start trying to bypass their reason to appeal to subconscious desires you are effectively dehumanizing them. You are treating them as a thing to be manipulated. As a means to an end. Not as a person. Not as an end in itself. 

That’s the supply side: consumerism is a reflection of our willingness to tolerate treating each other as things. We don’t love others.

On the demand side, the emptier your life is, the more susceptible you become to this kind of advertising. Someone who actually feels belonging in their life on a consistent basis isn’t going to be easily manipulated into buying beer (or whatever) by appealing to that need. Why would they? The need is already being met.

That’s the demand side: consumerism is a reflection of how much meaning is missing from so many of our lives. We don’t love God (or, to be less overtly religious, feel a sense of duty and awe towards transcendent values).

As long as these underlying dysfunctions are in place, we will never successfully detoxify advertising through clever policies and incentives. There’s no conceivable way to reasonably enforce a law that says “advertising that objectifies consumers is illegal,” and any such law would violate the First Amendment in any case. 

The difficult reality is that social media is not intrinsically toxic any more than advertising is intrinsically toxic. What we’re witnessing is our cultural maladies amplified and reflected back through our technologies. They are not the problem. We are.

Therefore, the one and only way to detoxify our advertising and social media is to overthrow consumerism at the root. Not with creative policies or stringent laws and regulations, but with a fundamental change in our cultural values. 

We have the template for just such a revolution. The most innovative inheritance of the Christian tradition is the belief that, as children of God, every human life is individually and intrinsically valuable. An earnest embrace of this principle would make manipulative advertising unthinkable and intolerable. Christianity–like all great religions, but perhaps with particular emphasis–also teaches that a valuable life is found only in the service of others, service that would fill the emptiness in our lives and make us dramatically less susceptible to manipulation in the first place.

This is not an idealistic vision of Utopia. I am not talking about making society perfect. Only making it incrementally better. Consumerism is not binary. The sickness is a spectrum. Every step we could take away from our present state and towards a society more mindful of transcendent ideals (truth, beauty, and the sacred) and more dedicated to the love and service of our neighbors would bring a commensurate reduction in the sickness of manipulative advertising that results in tribalism, animosity, and social breakdown. 

There’s a word for what I’m talking about, and the word is: repentance. Consumerism, the underlying cause of toxic advertising that is the kernel of the destruction wrought by social media, is the cultural incarnation of our pride and selfishness. We can’t jury rig an economic or legal solution to a fundamentally spiritual problem. 

We need to renounce what we’re doing wrong, and learn–individually and collectively–to do better.

What Anti-Poverty Programs Actually Reduce Poverty?

According to the Tax Policy Center,

The earned income tax credit (EITC) provides substantial support to low- and moderate-income working parents, but very little support to workers without qualifying children (often called childless workers). Workers receive a credit equal to a percentage of their earnings up to a maximum credit. Both the credit rate and the maximum credit vary by family size, with larger credits available to families with more children. After the credit reaches its maximum, it remains flat until earnings reach the phaseout point. Thereafter, it declines with each additional dollar of income until no credit is available (figure 1).

By design, the EITC only benefits working families. Families with children receive a much larger credit than workers without qualifying children. (A qualifying child must meet requirements based on relationship, age, residency, and tax filing status.) In 2018, the maximum credit for families with one child is $3,461, while the maximum credit for families with three or more children is $6,431.

…Research shows that the EITC encourages single people and primary earners in married couples to work (Dickert, Houser, and Sholz 1995; Eissa and Liebman 1996; Meyer and Rosenbaum 2000, 2001). The credit, however, appears to have little effect on the number of hours they work once employed. Although the EITC phaseout could cause people to reduce their hours (because credits are lost for each additional dollar of eanings, which is effectively a surtax on earnings in the phaseout range), there is little empirical evidence of this happening (Meyer 2002).

The one group of people that may reduce hours of work in response to the EITC incentives is lower-earning spouses in a married couple (Eissa and Hoynes 2006). On balance, though, the increase in work resulting from the EITC dwarfs the decline in participation among second earners in married couples.

If the EITC were treated like earnings, it would have been the single most effective antipoverty program for working-age people, lifting about 5.8 million people out of poverty, including 3 million children (CBPP 2018).

The EITC is concentrated among the lowest earners, with almost all of the credit going to households in the bottom three quintiles of the income distribution (figure 2). (Each quinitle contains 20 percent of the population, ranked by household income.) Very few households in the fourth quinitle receive an EITC (fewer than 0.5 percent).

Recent evidence supports this view of the EITC. From a brand new article in Contemporary Economic Policy:

First, the evidence suggests that longer-run effects[1]”Our working definition of “longer run” in this study is 10 years” (pg. 2).[/ref] of the EITC are to increase employment and to reduce poverty and public assistance, as long as we rely on national as well as state variation in EITC policy. Second, tighter welfare time limits also appear to reduce poverty and public assistance in the longer run. We also find some evidence that higher minimum wages, in the longer run, may lead to declines in poverty and the share of families on public assistance, whereas higher welfare benefits appear to have adverse longer-run effects, although the evidence on minimum wages and welfare benefits—and especially the evidence on minimum wages—is not robust to using only more recent data, nor to other changes. In our view, the most robust relationships we find are consistent with the EITC having beneficial longer-run impacts in terms of reducing poverty and public assistance, whereas there is essentially no evidence that more generous welfare delivers such longer-run benefits, and some evidence that more generous welfare has adverse longer-run effects on poverty and reliance on public assistance—especially with regard to time limits (pg. 21).

Let’s stick with programs that work.

Do Tariffs Cancel Out the Benefits of Deregulation?

In June, the Council of Economic Advisers released a report on the economic effects of the Trump administration’s deregulation. They estimate “that after 5 to 10 years, this new approach to Federal regulation will have raised real incomes by $3,100 per household per year. Twenty notable Federal deregulatory actions alone will be saving American consumers and businesses about $220 billion per year after they go into full effect. They will increase real (after-inflation) incomes by about 1.3 percent” (pg. 1).

David Henderson (former senior economist in Reagan’s Council of Economic Advisers) writes, “Do the authors make a good case for their estimate? Yes…I wonder, though, what the numbers would look like if they included the negative effects on real income of increased restrictions on immigration and increased restrictions on trade with Iran. (I’m putting aside increased tariffs, which also hurt real U.S. income, because tariffs are generally categorized as taxes, not regulation.)”

But what if we did include the tariffs? A recent policy brief suggests that the current savings from deregulation will actually be cancelled out by the new tariffs. As the table shows below, the savings due to deregulation stack up to $46.5 billion as of June. However, the tariffs imposed between January 2017 and June 2019 rack up to a dead loss of $13.6 billion. By the end of 2019, however, the dead loss will rack up another $32.1 billion. If the currently planned tariffs are put into effect on top of the already existing ones, then we’re looking at a dead loss of up to $121.1 billion.

Maybe if economists start putting clap emojis in their work, people will finally get that tariffs aren’t good for the economy.

The Paradox of Trade Liberalization

From a brand new study in the Journal of International Economics:

Using household survey data for 54 low and middle income countries harmonized with trade and tariff data, this paper offers a quantitative assessment of the income gains and inequality costs of trade liberalization and the potential trade-off between them.

A stylized yet comprehensive model that allows for a rich range of first-order effects on household consumption and income is used to quantify welfare gains or losses for households in different parts of the expenditure distribution. These welfare impacts are subsequently explored by deploying the Atkinson social welfare function that allows us to decompose inequality adjusted gains into aggregate gains and equality (distributional) gains.

Liberalization is estimated to lead to income gains in 45 countries in our study, and to income losses in 9 countries. The developing world as a whole would enjoy gains of about 1.9% of real household expenditures, on average. These income gains are negatively correlated with equality gains, such that liberalization typically entails a trade-off between average incomes and income inequality. In fact, such trade-offs arise in 45 out of 54 countries, and are primarily the result of trade exacerbating income inequality. By contrast, consumption gains tend to be more evenly spread across households.

While trade-offs are prevalent, our findings also suggest that liberalization would be welfare enhancing in the vast majority of countries in our study: in a large part of the developing world, the current structure of tariff protection is inducing sizable welfare losses. Explaining what drives these patterns is beyond the scope of this paper but an interesting avenue for future research (pg. 16).

I’m sure this offers a bit of a conundrum for those who have conflated concerns over inequality with caring for the poor.

Is Religious Faith a Global Force for Good?

Image result for family

According to a new report from the Institute for Family Studies and the Wheatley Institution, religion appears to be a net gain “in 11 countries in the Americas, Europe, and Oceania.” From the executive summary:

When it comes to relationship quality in heterosexual relationships, highly religious couples enjoy higher-quality relationships and more sexual satisfaction, compared to less/mixed religious couples and secular couples. For instance, women in highly religious relationships are about 50% more likely to report that they are strongly satisfied with their sexual relationship than their secular and less religious counterparts. Joint decision-making, however, is more common among men in shared secular relationships and women in highly religious relationships, compared to their peers in less/mixed religious couples.

When it comes to fertility, data from low-fertility countries in the Americas, East Asia, and Europe show that religion’s positive influence on fertility has become stronger in recent decades. Today, people ages 18-49 who attend religious services regularly have 0.27 more children than those who never, or practically never, attend. The report also indicates that marriage plays an important role in explaining religion’s continued positive influence on childbearing because religious men and women are more likely to marry compared to their more secular peers, and the married have more children than the unmarried.

When it comes to domestic violence, religious couples in heterosexual relationships do not have an advantage over secular couples or less/mixed religious couples. Measures of intimate partner violence (IPV)—which includes physical abuse, as well as sexual abuse, emotional abuse, and controlling behaviors—do not differ in a statistically significant way by religiosity. Slightly more than 20% of the men in our sample report perpetuating IPV, and a bit more than 20% of the women in our sample indicate that they have been victims of IPV in their relationship. Our results suggest, then, that religion is not protective against domestic violence for this sample of couples from the Americas, Europe, and Oceania. However, religion is not an increased risk factor for domestic violence in these countries, either.

The relationships between faith, feminism, and family outcomes are complex. The impact of gender ideology on the outcomes covered in this report, for instance, often varies by the religiosity of our respondents. When it comes to relationship quality, we find a J-Curve in overall relationship quality for women, such that women in shared secular, progressive relationships enjoy comparatively high levels of relationship quality, whereas women in the ideological and religious middle report lower levels of relationship quality, as do traditionalist women in secular relationships; but women in highly religious relationships, especially traditionalists, report the highest levels of relationship quality. For domestic violence, we find that progressive women in secular relationships report comparatively low levels of IPV compared to conservative women in less/mixed religious relationships. In sum, the impact of gender ideology on contemporary family life may vary a great deal by whether or not a couple is highly religious, nominally religious, or secular.

There’s also some useful data on family prayer and worldwide family structure, socioeconomic conditions, family satisfaction, and attitudes and norms. Check it out.

Does Trade Promote Economic Growth?

Earlier this year, I did a literature review for class on the effects of trade on poverty. One section in particular focused on the link between trade and growth. A new Peterson Institute working paper by Douglas Irwin performed a similar service and I’m disappointed that I hadn’t come across it in time for my own paper.

So what are his conclusions?

The findings from recent research have been remarkably consistent. For developing countries that are behind the technological frontier and have significant import restrictions, there appears to be a measurable economic payoff from more liberal trade policies. As table 1 reports, a variety of studies using different measures of policy have found that economic growth is roughly 1.0–1.5 percentage points higher than a benchmark after trade reform. Several studies suggest that this gain cumulated to about 10–20 percent higher income after a decade. The effect is heterogeneous across countries, because countries differ in the extent of their reforms and the context in which reform took place (pg. 21).


Glad to know my own research was on point.

What Would the World Look Like Without FDI?

What would happen if foreign direct investment (FDI) simply disappeared? Or, more specifically, what would “a hypothetical world without outward and inward FDI from and to low- and lower-middle-income countries” look like? A brand new study tries to quantify this hypothetical. They find,

On average, the gains from FDI in the poorer countries in the world amount to 7% of world’s trade in 2011, the year of our counterfactual analysis. Second, all countries lose from the counterfactual elimination of FDI in the poorer countries.  Third, the impact is heterogeneous. Poorer countries lose the most, but the impact varies widely even within this group – some lose over 50% and some very little. The impact on countries in the rest of the world is significant as well. Some countries lose a lot (e.g. Luxembourg, Singapore, and Ireland) while others (such as India, Ecuador, and Dominican Republic) lose less. Pakistan and Sri Lanka actually see an increase in their total exports due to the elimination of FDI.

Figure 1 Percentage change in total exports from eliminating outward and inward FDI to and from low- and lower-middle-income countries

There’s more:

On average, the gains from FDI amount to 6% of world’s welfare in 2011. Further, all countries in the world have benefited from FDI, but the effects are very heterogeneous. The directly affected low- and lower-middle-income countries see welfare changes up to over 50% (Morocco and Nigeria), while some of the remaining 68 countries, such as Ecuador, Turkmenistan, and Dominican Republic are hardly affected. A higher country-specific production share of FDI leads to larger welfare losses, all else equal.  Intuitively, a larger importance of FDI in production leads to larger welfare losses when restricting FDI. A larger net log FDI position leads to larger welfare losses. Intuitively, if a country has more inward than outward FDI, restricting FDI will lead to larger welfare losses, as FDI is complementary to other production factors and therefore overall income increases more than FDI payments.

Figure 2 Welfare effects of eliminating outward and inward FDI to and from low- and lower-middle-income countries (%)

The authors conclude, “Overall, the analysis reveals that FDI is indeed an important component of the modern world economic system. The results suggest positive payoffs to policies designed to facilitate FDI, particularly those concerning protection of intellectual property.”

More on Free Trade

From Art Carden over at Forbes:

A new paper forthcoming in the journal American Economic Review: Insights estimates the effect of trade with China on American consumers and shows us what we stand to lose if we don’t end the trade war.

In “Estimating US Consumer Gains from Chinese Imports,” economists Liang Bai of the University of Edinburgh and Sebastian Stumpner of the University of Montreal and the Bank of France study price data from the Nielsen Homescan panel to find that trade with China reduced the prices Americans paid for consumer tradables by 0.19 percentage points per year. You can download a draft of the paper here.

Bai and Stumpner argue that about a third of the consumers’ gain from trade with China comes from greater product variety while the other two-thirds come from lower prices for the goods people were already buying.

Another way to put it is that inflation was lower–prices didn’t rise as rapidly–because of trade with China…The direction of the result won’t surprise economists, who have argued for centuries that international trade helps a country’s citizens by making it possible for them to get more with every hour of their hard-earned labor.

Scott Lincicome of the Cato Institute weighs in as well:

Trade and globalization have provided undeniable economic benefits for the vast majority of American families, businesses, and workers. Most obvious are the consumer gains. Several recent studies have found that freer trade with China, for example, has generated, through increased competition and lower prices, hundreds of billions of dollars in U.S. consumer benefits — benefits that, according to economists Xavier Jaravel and Erick Sager, are the equivalent of giving every American “$260 of extra spending per year for the rest of their lives.” Consumer gains from imports, in general tilted toward the poor and the middle class, are especially tilted toward them when it comes to goods that are made in China and sold at stores like Walmart. The magnitude of such benefits also debunks the well-worn myth that free trade is mainly about cheap T-shirts. Indeed, trade’s consumer surplus is a big reason that Americans today work far fewer hours to own far better essentials than at any prior time in U.S. history.

Then there are trade’s overall benefits for the economy. A 2017 Peterson Institute paper calculated the payoff to the United States from expanded trade between 1950 and 2016 to be $2.1 trillion, increasing U.S. GDP per capita and per household by around $7,000 and $18,000 — with benefits, again, disproportionately accruing to households in the bottom income decile. The U.S. International Trade Commission, moreover, found in 2016 that U.S. bilateral and regional trade agreements such as NAFTA generated small but significant annual increases in GDP, as well as in employment and real wages among highly skilled and less skilled American workers. As the American Enterprise Institute’s Michael Strain has noted, trade-skeptical populists who downplay this impressive macroeconomic boost ignore that, as our current economic moment attests, a small bit of extra GDP growth can mean big things for lower-wage, lower-skill workers in terms of employment and possible government assistance.

Trade and globalization also support American companies and workers, even in manufacturing. The Commerce Department, for example, has estimated that almost 11 million jobs depended on exports of U.S. goods and services in 2016, and foreign direct investment in the United States — the necessary flip side of our oft-maligned trade deficit — supported millions more. Meanwhile, American companies that adapt and thrive in today’s economy most often do so by making use of imports and global supply chains. The San Francisco Fed, for instance, recently estimated that almost half of U.S. imports are intermediate products purchased by American manufacturers to make globally competitive finished goods; the country’s biggest exporters, therefore, are also its biggest importers. Numerous other studies have found that the vast majority of the value of an American company’s assembled-abroad product (such as an iPhone, assembled in China) accrues to the U.S. company, including its workers and shareholders — not to the place of final assembly (despite what a gross bilateral trade balance, which attributes an import’s full cost to its final export source, might say).

…My 2017 survey of the academic literature on over a century of U.S. protectionism pre-Trump showed that, with very few exceptions, it imposed immense economic costs on American consumers, workers, and companies (more than $600,000 per year for every U.S. job created) while also failing to open foreign markets or resuscitate protected American firms and workers over the longer term. In case after case, the jobs still disappeared, and the companies either went bankrupt or came back to the government for more help. And it’s happening again: Though American steel consumers are paying much higher prices than their global competitors, U.S. steel-industry stocks lag far behind the S&P 500 index. For these and related reasons, economists of the Left, Right, and center continue to oppose tariffs overwhelmingly (93 percent of a recent IGM Economic Experts Panel of dozens of top economists, to be exact), and they support freer trade and globalization.

Say again: free trade is good.

Are Americans Religiously Literate?

I’ve written a lot of about political knowledge (or the lack of). A recent Pew study tests Americans’ religious knowledge and the results aren’t exactly inspiring. When it comes to Christian or biblical basics, the majority of the population answers correctly. Less so when it comes to Islam, but still a majority.

Most Americans are familiar with key elements of Christianity, terminology of nonbelief, basics of Islam

When you start to move beyond these religions, however, the knowledge drops drastically.

Three-in-ten or fewer Americans know when Jewish Sabbath begins, that Rosh Hashana is the Jewish New Year

One-in-five Americans know Protestantism (not Catholicism) traditionally teaches that salvation comes through faith alone

The next bit reminded me of an incident at church a few years back. During a lesson, the teacher made a comment about how he “never asks about other people’s religion, but they always ask me about mine.” He took this as evidence of the “truthfulness” of Mormonism. I did not hesitate to point out that their curiosity likely had less to do with the Church’s “truthfulness” and more to do with us being a supposedly weird, polygamous cult with a different book. I then noted that learning about other religions improves interfaith dialogue by allowing us to better communicate with those of different faith backgrounds.

As the data below demonstrate, that teacher was not alone: Mormons are some of the most well-versed when it comes to the Bible and Christianity, but some of the least knowledgeable regarding other religions.

Evangelical Protestants get the most questions right about Christianity; Jews are most well-versed in world religions

Overall, it appears that American religious literacy is pretty meh.

The Benefits of Global Technology Diffusion

Relying on a global dataset from the European Patent Office (PATSTAT), researchers were recently able “to trace knowledge flows using cross-patent citations, that is, the extent to which countries cite patents from other innovators as prior knowledge in their own patent applications. A first look at the data (Figure 3) suggests knowledge flows have increased significantly over the last two decades, and China and South Korea (depicted in Figure 3 as ‘other Asia’) have become substantially more integrated in global citations, both as citing and as cited innovators.”

They also find that “the share of technology leaders’ knowledge that diffuses to emerging market economies has increased steadily and significantly over time – and this finding is robust to excluding China from the ‘recipient’ economies (Figure 4). In contrast, the diffusion of knowledge from the G5 to (non-G5) advanced economies has remained flat or even moderated somewhat – albeit from a higher level – since the global financial crisis.”

It turns out

that both emerging market and other advanced economies have been able to capitalise on knowledge flows from the G5 to increase domestic innovation (measured by patenting) – with foreign knowledge playing a relatively larger role than domestic R&D in emerging market economies. These results also apply to productivity, suggesting that knowledge from the G5 has contributed to boosting income levels in other countries. The impact on productivity is economically meaningful, especially for emerging market economies. For instance, between 2004 and 2014, knowledge flows from the technology leaders may have generated, for an average country-sector, about 0.7 percentage point of labour productivity growth per year (Figure 5). This amounts to about 40% of the observed average sectoral productivity growth in this period.

Finally, the researchers’ “results point to a positive empirical relation internationally” between competition and innovation. They conclude,

Globalisation has intensified the international diffusion of technology, which is crucial to share growth potential across countries and boost global growth. The positive impact has been particularly large for emerging market economies, helping increase productivity for them, and supporting income convergence. Our results also suggest that the growing competition from emerging market economies may lead to more innovation, even in advanced economies.