Minimum wages in a monopsony

A well-known result in microeconomics is that a monopsony in a labor market produces a deadweight loss (assuming it does not wage-discriminate), leading to the counterintuitive result that some binding minimum wage levels might increase both employment and wages. 

A graph illustrating the welfare costs of a monopsony.
The deadweight loss of a monopsony. CC BY 2.5 (, SilverStar at English Wikipedia.

(I promise we won’t be talking about this graph at all. It’s just for the aesthetic.)

When initially learning economics, I found it hard to grasp this concept intuitively. I recently consulted Perloff (2020), Varian (2014), Landsburg (2013), and other textbooks searching for an answer that explained this without mathematics or graphs and didn’t find anything – so I thought I would try to articulate my understanding of this. I’m not sure this explanation is correct: it’s just my attempt at roughly translating the math to English, and I would appreciate if anyone could correct me on inaccuracies. 

A monopsonist is a single consumer of a good or service, often in a market with many suppliers. In a labor market, that is a single employer, with many workers willing to supply their labor. 

In a competitive market (i.e., many employers and prospective employees), standard economic theory suggests that imposing a binding minimum wage would decrease employment, because firms would lay off workers to compensate for the increased cost of labor. The empirical research is mixed on this question (and indeed, on the question of whether labor markets are competitive or monopsonistic/oligopsonistic). Here’s a good post on this subject by Trevor Chow.

A monopsonistic market – as you may have guessed – is more complicated. So let’s (re)build a model. I’ll outline some assumptions first. This is a single labor market – for example, a labor market in a particular type of worker (someone who does the same job). The employer pays every employee of this type the same wage. This seems reasonable – since workers do not have an incentive to accurately report their reservation wage (the lowest wage at which they are willing to work), a monopsonist does not have a metric by which to wage-discriminate. Furthermore, there are tangible barriers on many blue-collar employers from wage discriminating – including unions, legislation, fear of backlash, common labor contracts, and so on.

Back to a competitive labor market for a moment. In a competitive labor market, with many employers competing for workers and many employees competing for jobs, the wage in the market will end up (1) being the same and (2) equalling the marginal revenue product of labor (MRPL, which is the marginal increase in revenue from hiring an additional worker). (1) is true because if one employer pays a higher wage, every other employer will lose out on workers and be forced to raise their wages. If one employer pays a lower wage, they will either lose access to their workers (forcing it to raise its wage) or operate at a higher profit than others (forcing others to lower their wage). In the end, wages will normalize to be about the same. This is the Law of One Price. (2) is true because an employer is making a loss if the wage is significantly above the MRPL, while if the wage is significantly below the MRPL, the worker will find an alternative job (since there are many employers competing). 

This isn’t true in a monopsonistic labor market. If workers have no (or few) alternatives, then an employer will pay a wage less than the MRPL – because they can. This is a simple syllogism: the profit-maximizing wage for a firm with no competition is less than the profit-maximizing wage for a firm that does compete for workers, and we’ve established that the profit-maximizing wage is the MRPL for a firm that does compete. Now, remember: the MRPL is how much the firm values the worker (approximately) – it is how much a marginal worker would bring in. But a firm has chosen a profit-maximizing wage less than how much it values a marginal worker. That suggests that there are workers willing to work for a wage just incrementally below their additional revenue product, but who are not willing to work at the monopsonistic employer’s current wage. The monopsonist has a choice. Either they raise wages for everybody (since wages have to be the same, per our assumptions) to get these people to work, or they don’t hire some workers (hiring whom would give them a surplus) because it would mean raising the costs of keeping everyone else. Hence, many monopsonists would choose not to hire these workers.

This is a deadweight loss. There is a trade to be made that, on its own, would benefit both parties – the workers would get a job a bit above their reservation wage and employers would hire people a bit below how much they value their work. However, the implication it has for the wages of other employees (whom a monopsonistic employer can afford to pay below the MRPL) means the employer doesn’t maximize a profit when it hires everyone willing to work at below the employer’s value for a worker. 

You can now see how a minimum wage set at the MRPL would likely increase employment for such a monopsonist. If the government sets a binding minimum wage at the MRPL for each worker, then a monopsonist would have to pay all its existing workers the MRPL. That means hiring these new workers does not mean raising everyone else’s wage – so the monopsonist makes the decision on whether to hire a new worker solely on whether the wage they’re willing to accept is less than the value they offer the monopsonist. Since there are some workers who meet this condition who were not hired earlier, they are hired now.

This also means a minimum wage set a bit above the MRPL has an ambiguous effect on employment. It has two counteracting effects – one increasing employment and one decreasing it, and which one of these effects dominates depends on how high the minimum wage is set. 

What’s next?

I’ve not been regular with this blog in 2019 at all. Mainly, I’ve been focused on school, debate, college applications, and a grant I recently won to work on sexual violence. However, I wanna be at least somewhat committed to writing on this blog next year – though I’ll have exams most of the time for the first three months, I’ll try to get a few posts in.

Given that, here are some ideas for posts I’ve been toying with, as well as some posts I’m sure will be on here in 2020. Making them public will put additional pressure on me to be committed and can function as part of a New Year Resolution.

What is/are the best policy approach(es) to prostitution? I’ve been working on this literature review for nearly a year now – much of it has been spent reading research. Sexual violence is an issue I care a lot about, and I’ve been awarded a grant by Emergent Ventures to do some independent content creation (“independent research,” you could say) on the issue – and this is the first of hopefully a series of articles on that. I already have about ~40% of a draft, so I’m >95% sure this will be up before September next year.

Note: There will also be other articles on sexual violence published next year – perhaps 2–3 – but I try to make those as rigorous as I can, so am not in a position to list the titles/write paragraphs about them yet. 

A review of the Caplan–Glaeser debate on education. Bryan Caplan and Ed Glaeser are two of my favorite economists – and only recently, I discovered that they had a debate on Professor Caplan’s book, The Case Against Education. Most of my “intellectual” background is in competitive debate – in 2019, I was part of the winning team at the World Schools Debating Championships, and was the #1-ranked individual – so I’m thinking I’ll watch (and flow) the entire debate, judge it, and write up an RFD (“reason for decision”).

My school education in retrospect. A personal post, with some themes related to The Case Against Education – basically, a review of Indian school education as I experienced it, and changes I’d make, particularly to the high school curriculum.

How I self-learned some social science as a high school student. Over the past year or so, and continuing onto next year, I’ve been and will be self-learning a lot of economics and political science – introductory economics, comparative politics, intermediate micro and macro (mathematical), introductory sociology, game theory, public economics, development economics (including growth), statistics and probability, econometrics, calculus, linear algebra, and public choice. I wanna talk about some of the conceptual revelations that took some thinking to get (e.g., the first fundamental theorem of welfare economics), some articles that changed the way I thought about various issues in social science (e.g., Michael Munger’s “A Fable of the OC,” Scott Alexander’s “Meditations on Moloch,” Tyler Cowen’s “Are Intuitions About Minimum Wages and Occupational Licensing Consistent?“, and Scott Sumner’s “Why Is Supply and Demand So Confusing?“), and what I’d change if I did it again.

An unscientific survey on sexual harassment. A long time ago, I conducted a highly unscientific survey on sexual harassment – utterly packed with selection bias, for example. However, just for fun – if anything, as practice for me – I wanna do some data analysis and play with the dataset a bit, and post my (undoubtedly hilarious and frail) attempts publicly.

A literature review on capital punishment and homicides. This one is ambitious – maybe 30% probability it actually happens next year – but I wanna write a literature review of research on the subject of whether capital punishment deters homicides. Why this subject? I was heavily involved in online debate for the period of 2015–early 2017 and one of the topics I encountered most frequently – and have read some research on. The issue is very complicated and, as I remember, a lot of the research doesn’t work with very good data/works with weird instrumental variables that don’t make sense a lot of them (not a majority, just “many,” and I don’t remember very well how many).

There’s also two other ideas I have, but neither is well-developed enough to write a coherent/sensible paragraph about yet:

  • How much of a problem is human-caused climate change, if its importance is measured by expected utility * solvability? How should it be prioritized relative to other considerations by governments – particularly of developing countries? This question is probably too big and I will probably narrow in on something specific if I write this.
  • Does urbanization in developing countries pose a threat to food security? An intuition I’ve sort of had, for a bit, is that large scale urbanization in developing countries could threaten the scale of agricultural production – and thus threaten food security. If this intuition holds any weight, it seems like an important negative externality to consider when thinking about rural–urban migration. (At the same time, a severe problem in developing countries is low labor productivity in agriculture and “disguised unemployment,” which could mean there are too many people in agriculture.) I wanna investigate this question. Disclaimer: I have absolutely no knowledge of this issue and this paragraph may make absolutely no sense/I may be missing something huge or even obvious.

Would appreciate thoughts from anyone!

Life update

Sorry for the lack of posts – that’s mostly due to four things.

First, I’m working, informally, with an organization in Chennai called Tulir that works on reducing violence – particularly sexual violence – against children. They do tremendous work and I’m currently involved in extensively learning about the inclusion of trans students in the Indian schooling system and about the role of social media platforms in encouraging online harassment (and why simply trying to block access to social media as the state is probably counterproductive). You can check out their website here, though I’m told it hasn’t been updated in a bit. And here’s their Wikipedia page.

Second, I was recently selected as part of the fifth cohort for Emergent Ventures grants for prospective work on disseminating information about the prevalence of sexual violence, the harm it does, and effective tools to reduce its incidence. I’ve been involved in extensive planning and reading – about strategies that are good at collecting and disseminating info, and about some specific public policy related to it (with special attention to the research on decriminalized prostitution). Updates will soon follow – along with a new web page, blog, and possibly even a podcast.

Third, high school has been keeping the rest of my time absolutely filled with work.

Fourth, as you may know, I’m involved in competitive formal debate – especially in the parli formats – to a significant degree, and have represented the Indian national debate team at the World Schools Debating Championships since 2017. We trained for over a month and then debated at two intensive tournaments, including the world championships. It ended pretty well for us: the team I was part of won the championship and I was named the top speaker. This surprises some people who haven’t actually been involved in competitive debate, but who I am today is to a substantial degree a function of it – and I would encourage people to try it out. The Indian Schools Debating Society runs much of the high school debate scene in India, and is staffed by dedicated, hardworking, and brilliant people – do check them out.

Hopefully, once things get less hectic and my Emergent Ventures project is actually up and running, I’ll start posting again.

An important empirical finding on #MeToo

A paper by Hart (2019) makes two empirical findings, one about bias against people who come forward as being sexually harassed and the other (more tentative) about the #MeToo movement’s effects on reducing stigma against sexual harassment victims. Here’s the abstract:

Although sexual harassment in the workplace is illegal, it often goes unreported. This study employs causal evidence to evaluate one deterrent to reporting: bias against women known to be sexual harassment targets. I theorize about the form this bias takes and test the argument with a national survey experiment run in five waves from October 2017 to February 2018, where participants were asked to propose employment outcomes for an employee with one of four harassment experiences. Participants were less likely to recommend a woman for promotion if she self-reported sexual harassment relative to otherwise identical women who experienced nonsexual harassment or whose sexual harassment was reported by a coworker. The woman who self-reported sexual harassment experienced normative discrimination: that is, the promotion bias was significantly mediated by perceptions that she was less moral, warm, and socially skilled than the woman whose coworker reported her sexual harassment. These results indicate that women may hesitate to report sexual harassment because they rightly perceive that doing so could cause them to experience bias. Yet they also suggest that bias can be avoided if a bystander reports the harassment. Finally, exploratory analyses suggest that in the wake of #MeToo this bias may be fading.

And here’s the relevant bit about the #MeToo movement:

Although participants reported a lower likelihood of promoting the woman self-reporting sexual harassment in October, November, and December, the magnitude of this penalty decreased with each month, and in January and February participants no longer expressed bias. In addition, although participants did not express a preference for either employee who had experienced sexual harassment in the first months of the study, in the final months they were more willing to promote the employees who had experienced sexual, rather than nonsexual, harassment.

While this analysis cannot pinpoint the cause of the declining bias, the fact that these changes are specific to women who experienced sexual harassment, and particularly the woman who self-reported sexual harassment, suggests that social activism emphasizing the prevalence of sexual harassment may have impacted perceptions of sexual harassment targets. Most study participants were aware of the contemporaneous activism: When asked about the #MeToo movement, two-thirds of participants were familiar with it in November and more than three-quarters were familiar with it in the following three months. Indeed, some participants even suggested that the movement may be reducing stigma associated with sexual harassment.

An important caveat, of course, is that this paper simply identifies a correlation and notes a plausible causal link.

Three fantastic TED talks

MIT economist Esther Duflo talks about the use of social experiments to determine what social policy is effective. This talk is from 2010, but it’s more than worth listening to. I also recommend this New Yorker piece.

Oxford philosopher Will MacAskill on effective altruism and how to judge the world’s most pressing problems. Some similar themes to Professor Duflo’s talk.

Activist Juno Mac, author of Revolting Prostitutes: The Fight for Sex Workers’ Rights—a book I intend to read very soon—goes through five legal approaches for dealing with sex work (full criminalization, partial criminalization, the Swedish model, the Dutch model of legalization, and the New Zealand model of decriminalization) and explains why the latter model is likely superior at protecting the rights and freedoms of sex workers. She also explains the importance of including sex workers in the discussion of which legal approach governments should take.

An unfiltered thought on giving directly

[Content warning: Scrupulosity, discussion of poverty and poverty alleviation, one reference to sexual assault.]

[Epistemic status: I’m really just thinking out loud here, haven’t thought this through at all. Note, also, that this applies only for developing countries. There are entirely different considerations when thinking about developed countries.]

[Updates after main text of the post; my views on this have become much more uncertain, and I was already pretty uncertain.]

Here’s an unfiltered concept/idea (haven’t given it too much thinking).

GiveDirectly is a nonprofit organization—a charity, to be more specific—whose main focus is giving low-income people in Rwanda, Uganda, and Kenya unconditional cash transfers. No strings attached. And they give ~80–90 percent of all money donated to them to low-income people; only about 10–20 percent is spent internally on things like administrative costs. They’re a pretty cool charity for a few reasons. They don’t really have much to prove. Reducing poverty is plausibly a good thing in and of itself. Both in utilitarian terms and in non-utilitarian ones. Furthermore, there’s a lot of evidence backing unconditional cash transfers. Here’s GiveDirectly’s website summarizing the evidence. (You might think there’s a conflict of interest, but actually, there’s a lot of external evidence and GiveDirectly is surprisingly honest about things.) GiveDirectly is well-known in the effective altruist community.

If you live in a developing country—like I do—and you want to donate to an effective charity, it might be a better idea to just give money to someone you know who lives in poverty (so perhaps someone who lives on less than $4 a day). It functionally does the same thing as GiveDirectly—neither places any conditions on giving the money. But there’s a few reasons why giving money to a low-income person in a developing country whom you know could be more effective than donating the equivalent amount of money to GiveDirectly.

First, if you live in a country that’s different than Kenya, Rwanda, or Uganda, then there’s a chance that you have greater obligations to people from your country than people from other countries. Most people are deeply uncertain about which moral values are correct. It’s possible that effective altruism’s utilitarian approach is the correct ethical theory—I happen to be a utilitarian myself. But there’s a good chance I’m wrong. It’s possible that contractualism is correct, it’s possible that virtue ethics are correct, and it’s possible that Kantian deontology is correct. So if there are two actions that seem roughly morally equivalent from the most likely moral theory, but are morally very different from a moral theory that’s less likely but still plausible, we should default to doing the action that’s better according to the less likely moral theory. This is an argument advanced by philosophers who have researched moral uncertainty, such as Will MacAskill and Nick Bostrom (they have slightly different approaches, but both of these apply here). How does this apply in this context? According to utilitarianism, there is no moral difference between helping someone in Uganda, Kenya, or Rwanda and helping someone in your country. According to other ethical theories, you have a greater moral obligation to people who are proximate to you, whether in space or in time. And I haven’t heard of a ethical theory that says you have a greater obligation to people who are far away from you or ethically distant—it seems like a less likely ethical theory, in any case. Therefore, you should default to helping equally poor people who you know.

Second, it often makes you more likely to want to give more money to poverty alleviation in the future. There’s something disconnected about the typical effective altruist approach. The things they’re saying might be technically morally correct, but many people have a moral intuition that it is justified for them to help out in the specific areas that they have a personal connection to—whether it’s an ordinary person helping out someone they know in need or a survivor of sexual assault (like myself) wanting to donate to a charity that specializes in helping other sexual assault survivors. Thus, there’s some non-zero chance that the disconnected effective altruist approach actually discourages charitable donation because you don’t feel as good about giving to charity as you would otherwise. At the same time, completely disregarding the effective altruist approach is unfair to the people who need your money the most. However, giving money to a very poor person who you know has a dual benefit—it meets both the effective altruist standard and the personal connection standard. It makes you feel better about what you’re doing. You can often see the impact happen in front of you. And that makes you more likely, consciously or subconsciously, to do it in the future.

Third, in some cases, you are in a position to give other people financial advice—whether it’s how to save money or how to spend it effectively. If you can couple your giving money with advice—if the advice is solicited or you know the person well enough to give it, of course—making it even better at reducing poverty or improving the quality of life of people. Economist Chris Blattman notes:

I think of the time that I’ve spent helping people think through what their options are, and reevaluating those opportunities suddenly changes all of their returns to investment. So that kind of advising and mentoring and connection is unusually powerful.

There’s an important caveat here: GiveDirectly produces another good. That good is research. GiveDirectly conducts randomized controlled trials and checks whether its programs are effective. This is really useful because it informs other charities and other policymakers who are designing social policy. However, I suspect that there’s a good chance that it’s a better idea to give money to someone who is at risk who you know personally.

Update 1

A friend points out that this post doesn’t take into account the effects of scale. So, for example, a $100 cash transfer to a single family is more effective than $4 cash transfers to twenty-five different families. For people with limited money to give on a charitable donation, giving the money to GiveDirectly allows resources from different people—often on different ends of the earth—to be pooled together and donated with reasonable scale. However, a lot of this still applies if you donate a fairly large amount, e.g., the difference between  $100 donations to five different people and one $500 donation is smaller than the difference between $50 donations to ten different people and one $500 donation.

Update 2

My debate coach points out a bunch of smart things—that is, advantages that donating to GiveDirectly has that simply giving money to a low-income person you know wouldn’t have—that I didn’t think of:

  • In many contexts, giving money to someone you know could create a sense of obligation on their part, e.g., giving money to a poor employee or janitor could create, on their part, a sense of obligation that they should work a few extra hours overtime, or that they should try and repay you as soon as possible. This would mean the net effect of my proposal could be zero or even negative.
  • There’s another reason why scale is often important: because organizations like GiveDirectly often give money to many people in the same community. This could have an added positive effect—because it could mean the community could work together to do things like set up self-help groups that allow for the pooling together of resources to do things like borrow money from financial institutions, or to set up cooperative societies, or even the setting up of public goods. However, this must be balanced against potential negative externalities of sudden cash injections into communities, such as a possible higher cost of living.

Beef bans likely reduce animal welfare

[Note: Beef bans probably significantly diminish human welfare, because, in some contexts, beef is a cheaper meat than many alternatives, because beef is a key export, and because beef bans are often targeted at particular minority communities, increasing resentment and legitimizing actions such as lynchings. This post, however, is not about human welfare—it looks at the very specific issue of how beef bans impact animal welfare.]

[Update below.]

Many Indian states and cities have implemented bans on the production and sale of beef (but not of other forms of meat), on predominantly religious (and majoritarian) grounds. Poorva Joshipura of the People for the Ethical Treatment of Animals argues in favor of these beef bans in India on the grounds that they advance the welfare of animals.

I disagree. I think beef bans, on net, diminish the welfare of farmed animals.

Why? Because beef is a substitute in consumption for other goods—including pork, goat, and chicken.

Much of Joshipura’s op-ed assumes that, in the presence of a beef ban, people will replace beef with vegan food. On an intuitive level, that seems unlikely. All else being equal, people who lose access to one good try to replace it with a good that’s a close substitute. Other meats are a closer substitute for beef than vegetarian and vegan food. When a beef ban reduces the quantity of beef supplied (assuming no black market formation, it reduces it to zero), the demand for other meats, which are often more common (e.g., chicken), increases, raising the equilibrium quantity.

There is empirical evidence for this as well. Reuters reports that many firms, anticipating bans on beef in Maharashtra, were considering increasing production by 5–8 percent back in 2015. By 2017, that change was far more substantial. According to The Hindu, the equilibrium quantity of chicken rose by 35–40 percent nationally in light of beef bans throughout the country.

On average, this reduces the welfare of animals. (Note that since the policy proposal here is a beef ban, we don’t have to take into account supply elasticities.) Two reasons. First, on a pound-for-pound basis, equal amounts of beef and chicken have vast disparities in terms of the number of animals that suffer and die. This is fairly intuitive. Cattle are larger than chickens. A single beef cow, on average, produces 212 kilograms in edible meat (out of a total weight of 544 kilograms), according to data from the 2017 version of this report. On the other hand, a single chicken raised for meat, on average, produces 1.35 kilograms of edible meat (out of a total weight of 2.5 kilograms). This needs to be adjusted for lifespan, however. Chickens farmed for meat, on average, live 42 days, whereas beef cattle live 395 days. Thus, per kilogram of meat, the number of days of life lost for a chicken is 42 * 0.74 = 31.08 days, whereas for a cow, it’s 395 * 0.0047 = 1.86 days. Since -31.08 < -1.86, ceteris paribus, eating beef is worse (unadjusted for (a) moral weight and (b) quality of life, both of which I’ll get into soon).

Second, the quality of life of smaller animals such as pigs and chickens are worse than that of cattle raised for beef. Joshipura’s article describes quite vividly the suffering beef cattle go through. It doesn’t match the suffering chickens go through. This paper makes some comparison. Brian Tomasik estimates that a chicken goes through 1.8 times more suffering than a beef cow, on average, even after adjusting for lifespan.  

There are two common objections to this. The first is that cattle have more moral relevance than chickens. This may well be the case, but it doesn’t seem intuitively true that one cow’s life is morally more relevant than 212/1.35 = 157 chickens. The differences in the extent to which these animals can experience suffering aren’t nearly as high. Brian Tomasik is more charitable—and more rigorous—than me, and says that only if you think a cow can experience more than forty times as much suffering as a chicken would the moral weight you assign to a cow relative to a chicken make a difference as far as maximizing animal welfare (measured in utilitarian terms) is concerned.

The second common objection is that beef farming is more environmentally harmful and that environmental harms increase animal suffering. Scott Alexander responds to this:

Some quick calculations: average American eats about 100 kg of meat per year. If that’s entirely beef, then that produces greenhouse gases equal to 8000 lbs CO2 (note unit conversion), which can be offset for $0.40 at carbon offset sites.

If it’s entirely chicken, then that adds up to about 100 chickens per year.

So if one chicken worth of animal suffering seems more than 40 cents worth of bad to you, you should go with beef.

I think it’s at least a bit weird to measure the extent of negative effects of pollution by the amount of money it takes to prevent it rather than the monetary loss it creates, since most people who eat beef aren’t spending money on carbon offset sites—but it does indicate that the environmental harm of beef doesn’t really stack up to the suffering this policy would induce on chickens, especially since chicken farming hurts the environment too.  

Some caveats:

(1) This does not take into account wild animal suffering at all, since the effects of meat consumption on wild animal suffering are deeply unclear.

(2) This analysis needs more rigor because it needs to take into account cross elasticities across beef and chicken—in other words, it needs more evidence on how much chicken production increases due to beef bans, and needs to factor that into the (implicit) animal welfare function I’m using.

(3) This analysis needs to consider non-chicken substitutes, such as pork and goat, but also buffalo meat.

(4) There is insufficient evidence on the extent of suffering the average chicken goes through in comparison to the average beef cow, especially since cattle have to live longer lives, on average.

(5) Further research into how much suffering the environmental impacts of beef would create when compared to the environmental impacts of other meats is necessary.

(6) This also doesn’t take into account negative effects on the cattle themselves. As Lewis Bollard briefly points out in his interview with Rob Wiblin, “[W]hat happens when these slaughter bans get passed at the same time as the Indian dairy industry is rapidly growing is huge numbers of surplus cows that can’t be legally slaughtered [are] either smuggled long distances to be slaughtered or they’re dumped in these sanctuaries where they will slowly die or won’t receive medical treatment.” I’m unclear about whether this outweighs the long-term impact of reduced beef consumption on the welfare of cattle.

(7) Lastly, most beef bans serve as bans on all cattle slaughter. This article doesn’t look at cattle slaughter and suffering in the leather industry, where there is no such substitution effect; but overall bans on cattle slaughter do have a substitution effect, so this doesn’t significantly adversely affect my argument.

However, on the margin, I think the evidence is fairly consistent with the notion that beef bans reduce animal welfare, measured in utilitarian terms, other things being equal.

Note that this should also affect your personal choices, in contexts where beef isn’t banned. Consuming chicken, pork, lamb, goat, farmed fish, or even eggs is likely worse—on a moral level—than consuming beef or wild-caught fish. While the ideal option may be to go vegan or lacto-vegetarian—I’m vegan myself—it would be prudent for people who consume meat to change their eating habits to make it more ethical.

Update (May 30, 2019):

I just discovered some further responses to the argument that beef production is worse for the environment. First, methane—the main source of environmental pollution unique to ruminant livestock such as cattle—is a short-lived greenhouse gas. This means that, in the long run, the effects of beef production on the environment significantly reduce. Second, Julian Baggini of The Guardian writes an article criticizing a proposed tax on red meat. There, they explain, “Most industrially produced meat is raised on imported feed made from crops such as soya, heavily dependent on commercial fertilisers and irrigation, often grown on woodland and forest cleared for cultivation. In contrast, properly pasture-reared animals feed on grasslands unsuitable for arable farming, watered by the clouds. These animals don’t depend on fertilisers further down the food chain, they actually provide manure for crops. If we were to tax red meat, many people would switch to more poultry, which is almost always reared on feed, adding to our burden on the planet.” This would apply to a ban on red meat such as beef as well.

Contra Mankiw on political philosophy

Harvard economist Greg Mankiw, someone I greatly respect, wrote an article for The New York Times a few years ago on the political philosophy of economists. The thesis of his piece is two-fold.

First, he says that any economist making a normative judgment—much like any normative judgment made by anyone else—is also assuming a particular political philosophy. Often, they look at what maximizes “social welfare,” measured in utilitarian terms. That’s a value judgment about political philosophy and not an assumption that can be taken for granted.

Second, he offers an alternate political philosophy which he calls a “do-no-harm principle” that is entailed, according to him, by epistemic humility. In his own words:

So, what is the alternative? At the very least, a large dose of humility is in order. When evaluating policies, our elected leaders are wise to seek advice from economists. But if an economist is always confident in his judgments, or if he demonizes those who reach opposite conclusions, you know that he is not to be trusted.

In some ways, economics is like medicine two centuries ago. If you were ill at the beginning of the 19th century, a physician was your best bet, but his knowledge was so rudimentary that his remedies could easily make things worse rather than better. And so it is with economics today. That is why we economists should be sure to apply the principle “first, do no harm.”

This principle suggests that when people have voluntarily agreed upon an economic arrangement to their mutual benefit, that arrangement should be respected. (The main exception is when there are adverse effects on third parties — what economists call “negative externalities.”) As a result, when a policy is complex, hard to evaluate and disruptive of private transactions, there is good reason to be skeptical of it.

He then proceeds to apply this principle to the Affordable Care Act and the minimum wage:

As I see it, the minimum wage and the Affordable Care Act are cases in point. Noble as they are in aspiration, they fail the do-no-harm test. An increase in the minimum wage would disrupt some deals that workers and employers have made voluntarily. The Affordable Care Act has disrupted many insurance arrangements that were acceptable to both the insurance company and the insured; these policies were canceled because they deviated from lawmakers’ notion of the ideal.

I agree with him that anyone making normative judgments is assuming a certain political philosophy. Notice that his “do-no-harm” principle is also a political philosophy—and not one that’s somehow less controversial than utilitarianism. For one, it isn’t prima facie clear to me that people should be allowed to make decisions that hurt themselves. In fact, whether the state should legislate to prevent self harm is a key source of debate among political philosophers.

For another, the fact that a contract exists and was signed by both parties does not necessarily make it truly voluntary. For a truly free choice to exist, I would argue that certain conditions must be met.

First, I think that, for a choice to be truly free, people should be given access to full information. If there’s a significant information asymmetry, then a person is making a choice without knowing what options exist and what the implications of their choice are. That sounds, intuitively to me, like a coerced choice. And there are good reasons to believe that the market for health insurance. In fact, Professor Mankiw made this argument about health insurance himself:

Consumers often don’t know what they need. In most markets, consumers can judge whether they are happy with the products they buy. But when people get sick, they often do not know what they need and sometimes are not in a position to make good decisions. They rely on a physician’s advice, which even with hindsight is hard to evaluate.

And consumers are often unaware of the possibility that they might get sick. In fact, people are empirically really poor at making long-term calculations. Here’s some research to prove it. And here’s a meta-analysis of the literature. And often, information about the likelihood of getting specific illnesses—and the question of whether those illnesses are covered by insurance—exists with insurers but not with consumers. That’s an Econ 101 case of asymmetric information that renders free choice not truly free.

Second, people should have access to many options—or at least, more than a few bad options, at least if this is possible or if government intervention can cause this to occur. If they don’t have options, then them choosing the only option they have available is certainly not ideal—the state should seek to expand the options they have. The labor market is a good example for this. A person chooses to work a low-wage job because that’s the only option they have available—they’d rather a higher wage job. A minimum wage opens this option up to them and doesn’t force them to rely on a $3/hour wage.

Now, Mankiw would likely object to this in two ways. First, he could say that both the suppliers and the demanders should have their choices maximized—a minimum wage removes the freedom of employers. The problem with this is that it potentially doesn’t take into account imbalances in power. Minimum wages often exist in industries where the demanders—employers—have substantial market power. Here, trades between workers and employers aren’t as free as they could be, and minimum wages can help make them free in that context. Second, he could say that minimum wages reduce the options available as firms simply reduce the number of workers available. I agree that that’s a possibility—but now that becomes an empirical question, and not one of political philosophy. My point is simply that a “do-no-harm principle” doesn’t necessarily entail the abolition of the minimum wage.     

In short, I don’t think Mankiw’s proposed political philosophy is any more obvious than utilitarianism, and doesn’t necessarily entail opposition to Obamacare or the minimum wage. Economists do use political philosophy in making normative judgments—I think that’s true and is entailed by the definition of a “normative judgment”—and I agree that we need to be more cautious about assuming the truth of utilitarianism. What I disagree with is his proposed alternative, which seems (at least to me)—and I may very well be wrong here—to run into the very same problems he critiques in his op-ed: assuming a debatable political philosophy without much justification.

New data on demonetization

[Epistemic status: I’m more uncertain about the costs and benefits of demonetization than I was in 2016, but I still think it did more harm than good and these data seem to vindicate that.]

In 2016, the Indian government “demonetized” eighty-six percent of its currency notes—₹500 and ₹1,000 banknotes. In other words, it declared them to no longer be legal tender. The logic was two-fold: (1) Reduce tax fraud and tax evasion by being able to more effectively track black money. (2) Move toward a society that was more cash-free and more based on digital transactions, which are easier to track, less vulnerable to theft, and increase the central bank’s control over the money supply.

I have written two articles criticizing this in the past. One, which I wrote for Feminism in India, was suggesting that it had a disproportionate negative short-term impact on women and the LGBTQ+ community. The other, written for my previous blog, was a more generic criticism. My epistemic status, as indicated above, is now more uncertain.

New data from the RBI suggest that the “demonetization gap”—that is, the difference between the amount of cash in circulation prior to demonetization and the amount of cash in circulation now—has shrunk substantially. Here’s JP Koning on Twitter.

This seems to suggest that demonetization has been largely ineffective in achieving outcome (2), at least.

H/T: This was in Marginal Revolution’s links for May 9, 2019.

Right-libertarianism and restorative justice

Many variants of philosophical libertarianism posit an ethical theory that includes the following beliefs.

First, some form of the non-aggression principle, which says that all actions are morally justified except those that cause active harm to the negative rights of other non-consenting individuals. It is justifiable, however, to engage in aggression to correct for a previous violation of someone’s negative rights.

Second, that property rights are important because of moral desert. Many people, like Taylor Swift, Serena Williams, and Jeff Bezos, earned their wealth by creating value for other people—whether through great music, entertaining sports play, or convenient online shopping. Thus, it is morally dubious that, for example, the state has the right to take away a significant chunk of this rightfully earned wealth and redistribute it, even if said redistribution is desirable in utilitarian terms. This includes inheritance, because it represents a choice made by someone who deserves the wealth.

However, I’m not convinced that most wealthy individuals morally deserve their wealth—not because they themselves did anything wrong, but because it often comes from previous violations of property rights. Lots of wealthy families profited out of conditions created by things like colonialism and slavery. The descendants of these families were born into relative social privilege, often, that enabled their current success (to the extent that many of them are successful). They aren’t culpable for colonialism and slavery, or for the wrong actions of their ancestors, to be sure. But the libertarian standard values inheritance—and the people today who would have otherwise inherited this wealth are now often the most unprivileged and disenfranchised.

Thus, it occurs to me that the non-aggression principle would allow for the radical redistribution of private property as it would be correcting a previous violation of the non-aggression principle—it would be morally equivalent to enforcing current property rights, at least in a rough and imperfect way. But this imperfect conclusion, from a libertarian perspective, seems more moral than not engaging in redistribution.

I do not endorse radical redistribution of property, and I’m far closer on the political spectrum to libertarians than to socialists, but it seems that libertarians who believe in the NAP should get their story straight when discussing issues such as taxes and moral desert. I’m sure there are compelling objections to this that I haven’t thought of—but food for thought.