Is Tyler Cowen right to be stubbornly attached to economic growth?

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Tyler Cowen just published Stubborn Attachments in e-book form.

With the book, you get deep exposure to Tyler’s mental model of the world.

As someone who attempts to collect mental models for subsequent application, I came away smarter for having read it.

Below I’ll try and restate Tyler’s main practical arguments (skipping over some of the philosophy) and then end with some questions and concerns.

Tyler’s Primary Thesis: Sustainable Economic Growth Should Guide Our Policy Making

Tyler argues that sustainable economic growth should guide much of our policy making because, over centuries, the gains from economic growth dwarf the gains of just about all other considerations.

He defines sustainable economic growth as gains in “wealth plus,” which “includes traditional measures of economic value, as would be found in gdp statistics, but also measures of leisure time, household production, and environmental amenities, as summed up in a relevant measure of wealth.”

Over let’s say a 5,000 years, consider two possibilities:

No economic growth: We stay the same. Poverty is all around us. People are starving. Billions of people barely get by. Life is hard for so many people.

Modest economic growth: We grow at 2% a year. In 5,000 years, future humans (assuming no population explosion) are crazy wealthy, have access to amazing technology, and even the poorest humans view the richest people of today as paupers. No one is losing sleep trying to make ends meet. Every person has every material need taken care of, plus the wealth to pursue their passions and interests.

In other words, the difference between poverty as we know it and each of us feeling like Bill Gates was materially poor is determined by one thing: sustainable economic growth.

So when we’re making policy decisions we should keep our eye on the prize: sustainable economic growth is what will allow us to flourish.

Of course, in order for you to accept this argument you have to be ok with two assumptions: future lives matter a lot (so we should focus on pro-growth policies that benefit future people), and, increased wealth leads to increased well-being (Tyler runs through the research).

While both of these assumptions are contentious, I believe both to be correct.

Other Considerations: Individual Rights, the Environment, and Social Stability 

Tyler’s provides guardrails and depth to the concept of sustainable economic growth.

First, Tyler argues that we shouldn’t harm individuals to achieve economic growth; i.e., no mass murder even if it helps us squeak out an additional point of growth.

Second, he argues that we shouldn’t destroy the planet in order to achieve economic growth; i.e., what’s the point of focusing on the future benefits of economic growth if there’s no place to live.

Third, he argues that societal stability is an important part of sustainable growth. So policies that might not seem purely connected to growth (such as welfare state) should be considered as part of an effort to maintain the continuity of our civilization.

All of these seem correct to me, though as I’ll argue at the end, I wonder if this last point (societal continuity) is actually what we should be most focused on.

Major Shifts in How We Think and Feel: Redistribute for Growth Only 

Perhaps the biggest practical implication of Tyler’s thesis is that, according to him, “we should redistribute only up to the point which maximizes the rate of sustainable economic growth.”

In other words, we should only give a starving person food if this can be tied to maximizing the rate of sustainable economic growth, not because we feel that the starving person deserves something to eat.

While this rationale logically follows from his assumptions, this line of thinking departs greatly from current values. Most of us justify the welfare state in terms of our care for living and breathing humans, not for future humans.

Tyler’s argument for redistribution is a monumental shift from our current moral calculus.

That being said, it’s possible the our current lack of opportunity is reducing sustainable economic growth, so for now Tyler’s thesis may actually call for an increase in certain types of charity and transfers.

But I predict that most people will find his logic emotionally unappealing.

Anti-Fragility > Sustainable Economic Growth 

As much as I appreciated Tyler’s argument, I think I disagree, though I’m not sure both because I’m still grappling with the text.

Ultimately I believe that “anti-fragility,” rather than “sustainable economic growth” should be the language we use to guide our policy decisions, and I think, though I’m not sure, that this puts me at odds with Tyler.

Consider this hypothetical: would you rather have rather have a million years of infinitesimal  economic decline (.0000000000000000000000000000000000000000000001% a year) and then human extinction or a thousand years of 5% economic growth and then human extinction.

I think almost everyone (including Tyler?) would choose the former.

While economic growth will likely make our society less fragile, this is not inevitable, and we need to incorporate this understanding in choosing guiding principles.

This thought experiment points to the idea that it’s actually the sustainability of a healthy society, and not the sustainability of economic growth, that we desire.

Most of us would accept small amounts of negative economic growth for hundreds of thousands of years of additional existence.

Similarly, I don’t think most of us would take high economic growth and a population explosion that had most people living at substance levels, even if this led to a sustainable society with high amounts of leisure.

So I would argue:

  • Sustainable economic growth is a sub-goal of anti-fragility; it should not be the primary goal in and of itself.
  • Economic growth should be considered in both societal and per-capita terms.
  • I would maintain Tyler’s support for individual rights.
  • I would make environmental sustainability, like economic growth, a sub-goal of anti-fragility.

In sum: anti-fragility and individual rights do all the work. Everything else follows from these two principles.

Thanks + Do the Work Yourself

All that being said, economic growth is clearly one of the primary ways to make our civilization less fragile, so in this sense I agree with many of the practical implications of Tyler’s worldview.

And Tyler’s mental model will be present in my head next time I’m trying to unpack an efficiency vs. equity argument on a specific policy.

Lastly, I do think that everyone should go through the process Tyler went through; ultimately, each of us should understand the philosophical underpinnings of our policy preferences.

I thank Tyler for his contribution.

How does a MGMT team figure out what their organization does?

On its face – “what does your organization do?” – should be an easy question for a MGMT to answer.

But it’s a hard question that I doubt many MGMT teams could accurately answer.

Three Reasons for “What We Do” Failure 

First and foremost, MGMT often confuse the question “what do we do?” with the question “how will we succeed?”

Second, MGMT teams often can’t say what they do in 1-2 sentences because they have failed to achieve clarity around their core activities.

Third, MGMT teams often can’t articulate the tactics and tasks that employmees execute in the daily carrying out of “what we do.”

My Tactics Failure 

Recently, I was struggling with executing and felt that achieving my goals was at-risk.

I then tried to think of what more I could do to achieve my goals.

I then realized that I wasn’t sure I possessed the full list of tactics I could pull from.

In short, I could not articulate the tactics and tasks of what we do.

Conducting a “What We Do” Audit 

Our team of four is twenty months old. And half our team has been with us for about a year or less.

This January, we achieved clarity on exactly what we do.

But we have not yet achieved clarity on what we do each day.

In hindsight, I think we should have brainstormed a tactics list before we launched our work.

That being said, codifying what we do each day after 20 months of work is not a terrible place to be in, given that you need time under your belt to figure out what you do each day.

To ensure we’re all learning from each other’s tactics – and building out a what we do toolkit – we’re conducting a three step process.

First, we’re going to articulate the major categories of daily work; i.e., “coach CEOs” and “coordinate with other philanthropists.”

Second, we’re going to list out all the tactics that fall within these categories.

Then we’re going to pressure test our categories and tactics, and debate if / why they are things we should be doing.

Building for Effectiveness and Scale

Conducing this “what we do audit” and codifying the tactic toolkit will ideally help with efficacy (each of us is drawing from a great toolkit built with our collective knowledge) and scale (if the team grows new members won’t have to learn solely from modeling and direct experience).

Of course, it’s impossible to codify everything it takes to execute at the highest level. No team is self-aware enough to codify everything, and the work is complicated enough that new situations will require first principles analysis of execution tactics.

But efficacy and innovation are born out of deep knowledge. And codification is a way of increasing knowledge.

How to make strategy less confusing by getting rid of the word strategy

For many years I thought strategy was one thing when in reality it is two things.

I thought strategy was answering the question: (1) how will you achieve your mission?

In reality, strategy is answering two questions: (1) what will you do? and (2) how will you succeed?

I thank Patrick Lencioni for helping me achieve this clarity, as well as our current team for thoughtfully working through both of these questions when initially I had only worked through the first.

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For example: a non-profit’s mission might be to increase economic opportunity for low-income families.

This non-profit might then say that their strategy is to operate charter schools, raise money for post-secondary scholarships, and partner with local employers for job placements.

In this answer, the organization is answering the question: what will we do?

Alternatively, the non-profit might not mention the above and instead say that their strategy is to form incredibly deep partnerships with their families, develop the best teacher coaching program in the country, and use data analysis to find great college and career matches for their students.

In this answer, the organization is answering the question: how will we succeed?

Because “strategy” has evolved in to too broad of a concept, either answer might be deemed acceptable.

But it’s vial that an organization answers both questions.

As a leader, you need to be very clear about what is that your organization will do to achieve your mission.

As a leader, you also need to be very clear about how your organization will out-perform other organizations that are doing the exact same thing.

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Most often, I see leaders in the non-profit sector make the same mistake I made: they have only thought hard about what they will do.

Too often, leaders don’t spend enough time answering the question: how will we outperform everyone is who doing the exact same thing?

Rational compassion is a competitive advantage

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Paul Bloom recently wrote a book called Against Empathy.

The thesis of the book is: rational compassion > empathy.

In other words: empathy (caring how someone feels at the moment) is poor guide for moral decision making when compared to rational compassion (which is more utilitarian in nature).

The difference is easiest to see when it comes to parenting: an overly empathetic parent might respond to a child’s failure by giving the child a cookie (thereby immediately decreasing the child’s suffering), while a parent utilizing rational compassion might help the child process her emotions (thereby reducing the probability of future instances of suffering).

While the idea is rather intuitive, we’re so hardwired for empathy that practicing rational compassion, especially at work, is very difficult.

Because it’s so hard to practice, and because most people are not good at it, the consistent use of rational compassion can be a competitive advantage for doing good in both the for-profit and non-profit sector.

List of Areas Where Rational Compassion > Empathy at the Work Place

Executing strategies that cause short-term harm for long-term gain: Tough decisions (such as school closures) cause short-term pain to others but can provide significant long-term outcomes. Being guided by rational compassion can help you get through this pain.

Pivoting and cannibalizing: Similarly, at times an organization needs to destroy existing program lines and harm existing beneficiaries of their work in order to pivot to a more productive model which will eventually add move value to more people (think Netflix going from mailbox to streaming). Empathy for existing employees and customers can blind one from the rationally compassionate act of eventually serving more people better.

Performance feedback: Rational compassion will lead you to give very direct and practical feedback so a colleague can improve her performance and achieve her and the organization’s goals. Having empathy for underperformance will lead to the avoidance of direct conversations, which in the short term causes more pain.

Firing people: Too much empathy for an individual who needs to be let go can cause immense harm to the people you are trying to serve. Especially in philanthropic work, firing a relatively privileged person in order to better serve people in extreme need is the rationally compassionate thing to do.

Accepting flaws of ambitious people: Sometimes ambitious people have a lot of flaws, which can lead you to empathize with all the people they are negatively impacting. However, these flawed people can also change the world for the better. Analyzing their actions through a rational compassion lens will help you understand if it’s worth supporting or partnering with people who are flawed but who can help the world become amazingly better. It will also help you avoid working deeply with nice people who are not effective.

The Risk of Rational Compassion 

One of the hardest parts of rational compassion is that it often involves overriding the legitimate short-term needs of others.

In other words: you’re saying you know what’s better for someone than she does.

While this is less of a tension in managerial situations (it’s your job to make feedback, coaching, firing decisions) and for-profit work (the customer will ultimately hold you accountable), in philanthropy (where it’s your job to help others) this can be a deadly sin.

It’s a blurry line between rational compassion and technocratic hubris.

There’s no easy way around this, though research and accountability can help.

In education, test scores, attainment, and parent demand can provide medium term feedback loops to provide a check on incorrect rational compassionate assumptions.

But while there are risks with rational compassion, most of society is so tilted toward empathy (especially in the education sector!) that an increase in the practice of rational compassion would be a welcome turn.

 

My 1st podcast, covering: my story, race, NOLA, mgmt, platforms, philanthropy, etc.

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Ryan Knight was kind enough to interview me on his podcast. He is a great interviewer (and thinker) and you should listen to his podcast.

You can listen to our talk here.

Next time, I will drink more coffee so I talk a little faster. Perhaps you should listen to it at 1.5x speed.

A risk in a podcast is that you say a bunch of things you don’t believe. On that metric, I think I did ok.

Can you throw money at the problem of charter school growth? We might find out.

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President Trump’s federal budget calls for over $150 million in increased spending on charter schools.

Florida’s House of Representatives just passed a “Schools of Hope” bill that would provide $200 million to non-profit charters that opened schools in neighborhoods with high concentrations of “D” and “F” schools (the Senate has note yet voted).

Given that the rate of new school openings has dropped over the past few years, these new funds, if approved, could stimulate the pace of growth of charter schools.

Some reflections:

Will Florida funds increase growth or shift growth?

It’s unclear whether the Florida funds would increase charter growth or simply shift growth away from other states towards Florida.

My guess is that it will increase growth for two reasons: (1) it’s hard to grow across state lines so I doubt out of state operators could absorb the full $200 million and (2) if the for-profit world is any indication, other states will follow Florida’s lead to compete for great charter schools, which ultimately will create a greater pool of growth funds across the country, which should stimulate new entrepreneurs as well as provide funds for operators to grow in their home states.

How much does money incentive growth in the non-profit sector?

For management teams, growth is much less lucrative in the non-profit sector than it is in the for-profit sector. Salaries go up a bit, but not 50-100X, and there is no cashing out of equity.

There may be some status associated with winning big grants and growing, but the lack of financial incentives to individuals is probably a big barrier to successfully throwing money at the problem.

How much does money change the emotional incentives of charter entrepreneurship?

Perhaps money will have a positive causal effect through non-financial channels by changing the emotional incentives of charter entrepreneurship.

It takes a special kind of person to open a charter school when the local district, the local teacher’s union, and half your friends are telling you charter schools are destroying public education.

But what if the federal government and (eventually) dozens of states were offering large amounts of public dollars for you to open a charter school?

When the President, the Governor, and the Mayor are all asking you to grow – and putting their money up – perhaps this changes your emotional inclinations?

How much does money lower the headaches of growth?

Perhaps incentives should be thought less in terms of accusing gains and instead in avoiding pain.

Ask a charter operator what the biggest headache is for growth and facilities will inevitably be near the top of the list.

To the extent additional funds can be used (or allow other money to be used) for down payments on facilities, these funds might help stimulate growth.

My Guess

I think a state package of (1) multiple state authorized charters and (2) money for buildings would have a positive impact on growth.

Local school board authorization and lack of facility funds are huge headaches for even the most sophisticated charter organizations.

Removing these barriers would be a positive step forward.

However, I do worry that the process of lowering barriers, increasing funds, and scaling great operators will not meet the demands of the political cycle.

As this Politico piece notes, it’s unlikely that the nation’s best operators are going to immediately scale in Florida.

My recommendation to Florida would be to mimic the growth of the federal charter school program: start small, spend the funds prudently, and the increase the amount of funding available as operator capacity to growth increases.

In other words, fight for 25 years of 10% growth, not a 2-3 year moonshot.

The stories we tell and the truths we hide: fairness, mobility, and inequality

Nature just published an article by Paul Bloom, Christina Starmans, and Mark Sheshkin.

Their argument: people care more about fairness than inequality, and policy makers and pundits too often ignore the difference between these two concepts.

In their own words:

Our own argument against a focus on inequality is a psychological one… people don’t care about reducing inequality per se. Rather, people have an aversion toward unfairness, and under certain special circumstances this leads them to reject unequal distributions. In other conditions, including those involving real-world distributions of wealth, it leads them to favour unequal distributions. In the current economic environment in the United States and other wealthy nations, concerns about fairness happen to lead to a preference for reducing the current level of inequality. However, in various other societies across the world and across history (for example, when faced with the communist ideals of the former USSR), concerns about fairness lead to anger about too much equality. To understand these opposite drives, one needs to focus not on whether the system results in a relatively equal or unequal distribution of wealth, but whether it is viewed as fair.

The authors might be right that humans care more about fairness than inequality, but I think people’s reasons for caring about fairness are wrong.

Here’s my current thinking on fairness – the related concept of mobility – and inequality:

Fairness is a fantasy.

I don’t believe that fairness is achievable. We don’t choose our genes, our environment, and we might not even have free will – so how is anything really fair?

Obama’s “you didn’t build this” line remains one of the most philosophically honest statements that a president has uttered since I’ve been following politics.

And an even more honest statement would have been: “you didn’t build you.”

I suppose you could redefine a “fair” society as one where people are able to live out the full potential of their genes and environment, but this hardly captures the totality of what people think about when they say they desire fairness.

In a perfectly fair world there would be little mobility. 

People often use mobility as a measure of fairness. The more rags to riches stories there are, the fairer a society must be. I think this is backwards. In a perfectly fair society, there would little mobility, as genes and environment would drive so much of outcomes. We’d be stagnantly sorted save for random shocks or to the extent that technological change affected what genes and environments were valuable.

The desirability of mobility is predicated on the idea that people justly move up or down a society’s rungs based on their own volition – and this is a fantasy.

 

People should care about inequality!

I’m open to the idea that people don’t care about inequality as much as liberal pundits think they do. But I think people are foolish not to care! When the inputs (genes and environment) are randomly sprinkled across humanity, inequality of outcomes should be a concern for us all, because, in the truest sense of the word, these outcomes are unfair.

Our are fantasies of use?

Perhaps. People desiring fairness as an outcome – and using mobility as a proxy for fairness – may help avoid things like free loading, distrust, and government tyranny. These myths might also increase hard work and entrepreneurship. I grant that these myths have survived many rounds of social evolution, and in this sense should warrant some respect.

But believing these myths comes at a great cost in that we falsely blame people for their bad outcomes and tolerate insanely brutal amounts of inequality to maintain the artifice.

It might just be better to live in a world where we say: “we know the world is terribly unfair and it’s no one’s fault so we are willing to push marginal tax rates and transfers as high as possible until we near the part of the curve where disincentives to work are  greatly hampering economic growth and screwing us all.”

Or perhaps society would function poorly in the face of us all admitting this reality.

I don’t really know.

Either way, our myths of fairness and mobility blind us to the reality the world is unjustly unequal.