I am increasingly convinced that any universal requirement for something that isn't useful in and of itself, for something that might or might not be valuable based on How the Facts Turn Out, will always prove to be a terrible idea.

Which is to say, programs like Social Security are incredibly popular everywhere, amongst basically everyone - they're one of the few political things that aren't subject to rabid partisan warfare, right now - but everyone also seems really unhappy about the kind of debt-laden high-tax big-public-budget austere-in-other-sectors economy that such programs require.

The general takeaway seems to be "the people aren't rational, and they'll need to develop coherent preferences if they want anything to change."

And, OK, sure, the people aren't rational and don't have coherent preferences, that's always a safe assertion.

But I think there's a deeper tension at play. I think there's a chthonic undercurrent of disagreement about the extent to which economic thinking does or doesn't accurately represent the world. Or, to be both simpler and more precise, about how much work is bullshit.

The Fat Hypothesis

@slatestarscratchpad did a round up of responses to his Vibecession pos that led to two main conclusions AFAICT:

We are really talking about two phenomenon.  a.One is around 2022, American public sentiment started not tracking with economic indicators like it used to, in a way that pointed to larger than expected caring about not only inflation, but also absolute price level. This has had a pretty damaging impact on both Biden’s and Trump 2’s approval. b. Beginning much closer to 2008, the developed world has had a widespread malaise about opportunity and the future, even while their country’s living standards are the highest they have ever been. (We’re going to talk about this one, because it is more interesting.)

Less emphasized, but one commenter mentioned having to apply to 500 jobs to get one offer, and how that has likely had a negative psychological impact.

I felt that point 2 was pretty important, and was disappointed Scott’s response was only “I hadn’t considered that.” I realize it would be hard to measure, but if you are asking why a phenomenon started, and someone offers an answer that doesn’t have obvious falsities, maybe it deserves to get taken a little more substantively.

However, a cultural seachange based on just the process of applying to stuff, sounds like a pretty weak cause. So I’m generalizing it to a larger theory, that we’ll call the Fat Hypothesis.

One reason I like this hypothesis, is that it is a phenomenon we can all easily agree has been going on well before this particularly argument. Here is Peter Thiel discussing it in his book, Zero to One, back in 2014.

The problem with a competitive business goes beyond lack of profits. Imagine you’re running one of those restaurants in Mountain View. You’re not that different from dozens of your competitors, so you’ve got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees only minimum wage. And you’ll need to squeeze out every efficiency: That is why small restaurants put Grandma to work at the register and make the kids wash dishes in the back. A monopoly like Google is different. Since it doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world. Google’s motto—”Don’t be evil”—is in part a branding ploy, but it is also characteristic of a kind of business that is successful enough to take ethics seriously without jeopardizing its own existence. 

To Thiel, the lesson is don’t be in a commodity, where anyone can compete with you, and thus will drive profits to zero, and eventually make you be the most penny-pinching version your company can be. As Jeff Bezos said in a similar context, “Your margin is my opportunity.” Any attempt to make a profit is the door your next competitor will come in through.

Instead, Thiel says becoming a monopoly is the only way to have stable profits, and therefore to have choices about how you operate - ethically, aestheticly, personally - rather than just the cheapest, most short-term methods.

Ignoring the business-hype speak, we have a really simple and interesting assumption: there is a tradeoff between efficiency and “fat” - the surplus that you can use to express your values, such as paying staff well, working less, choosing what jobs to take, good healthcare plans, etc.

Why do people so often consider the 50’s and 60’s the heyday of the industrial workforce in the US? A good leftist will say “because we had unions that negotiated good deals for their members”, which is true by *why* were those unions able to negotiate fat deals in the first place? Because for a couple decades after WW2 the US was the only country able to provide certain industry capacities, and so our car companies etc made so much profits they could afford to spread it around. Some for shareholders, some for unions, some for the government etc. There was fat.

What’s the most dysfunctional, important sector in America right now? Well a lot of analysts will tell you it’s construction costs in NYC, other people will tell you its public transit costs, and those are pretty close to the same thing. Why does it cost $2 billion to build a single subway stop in Manhattan, vs you can build a whole kilometer of subway in inner Tokyo for just $250 million? Permits, zoning, and union contracts in NYC mean there’s a whole lot of fat to go around, and everyone involved eats well. Which is why NYC is basically getting zero new public transit, even as congestion pricing has increased the amount of funding it gets. This is the cost of fat.

I don’t think anyone denies the above? Fat and efficiency trade off. This is very repetitive I know, but it’s important here to try to get universal agreement.

Next thing there should be universal agreement on: America has made leaps and bounds in efficiency.

We’ve got mega-chains crushing small businesses with their economies of scale. We’ve got private equity buying up any company that is not maximizing stock price enough and laying off people till it is lean and efficient. We’ve got the internet and automation that allows anyone to know the best available price - for airplane tickets, for gig workers, for index funds - in a moment. 

The great Tech Layoffs of 2023 to 2025 the return of efficiency to a sector that had gone on a wild hiring spree for two decades and never needed to trim down until now. Giants like Walmart and Amazon and Tyson pre-emptively cut costs by putting the screws to their suppliers to subsistence level, even before any competition makes them.

And as a result, our GDP growth has soared ahead of our European peers, cementing our lead as the richest nation of all time. Efficiency is great for growing your economy!

But more efficiency than ever - ceteris parebus - means *less fat than ever.* And as Thiel said, fat is what makes us happy. Fat is the ability to choose to be ethical, to only source from countries that have labor and environmental regulations, to give employees better benefits than the legal minimum, to keep veteran workers around till retirement, to invest in long term research, to pay enough so that one income can raise a family.

A friend likes to say “what do you call a body with no fat? A corpse.”

Which solves the mystery of our apparent paradox. Why are Americans unhappy when our GDP is at its highest ever? Because the efficiency needed to attain that means we actually have no fat. I don’t want to romanticize the mom-and-pop store that was actually a local monopoly, but at this point there’s no choice in what to do with your income. If you aren’t part of the elite, you earn just enough money to get by and no more. Of course people are unhappy!

One of the comments Scott quotes, is about a rural butcher who has a good income and no one to pass onto. Well, that butcher is only staying open until Walmart moves to the area, which will sell beef at half the price he does. Does anyone think a small local business is a stable future? If they were, we would just start one ourselves. But we have and they’re dying like flies.

@balioc points out that an overlooked part of the discussion is how much modern jobs suck. More micromanagement, harder hiring funnels, open offices, no perks and meaner benefits, and social patrolling of having the right attitude at all times. It’s very hard to measure the effect of that, but it’s the same across the board efficiency.

Local newspapers were basically a monopoly on ads that used that profit to pay for reporters. Google and Facebook took all those ads, and now we have no community intelligence function. Of course, a investigative reporter who uncovered corruption in a small town was, economically speaking, fat that added nothing to shareholder value.

I do. I do deny the above. Or at least, I don't think we can take it as just an assertion without much evidence for its truthfulness.

This whole post casts paying workers good pay, providing benefits, etc. as "fat", a sort of frivolity driven mostly by personal morals and feel-goods, one that will be ripped out by the market when push comes to shove. But I think that's a pretty strong statement that requires pretty strong evidence. The sensible null hypothesis would be, I think, much like with many things in life, "you get what you pay for". Paying salaries, benefits, giving holidays, all these aren't fanciful money thrown to the wind, they are an investment in the business, a cold, hard price you must pay to have a skilled and motivated workforce the same way you must invest in equipment to get reliable and efficient machines for your business

You provide the example of NYC vs Tokyo subway construction, but that would suggest that the NYC construction workers, for example, would be treated lightyears ahead of the Tokyo ones due to so much fat floating around in NYC price, while the efficient Tokyo workers would be ground into misery by all the efficiency. But that's not really true? Construction salaries in both places adjusted for PPP sit in the same broad ballpark. Both sides may enjoy union protections. Japanese workers probably have better health insurance than the American one given the world-class suckitude of US health coverage.

Or for a different counterexample, this is more of an anecdote, but let me retell a story of a family US farm near the southern border. They were growing onions, and those need picking crews. The usual fare around those parts for that is hiring H2 visa workers via a temp agency. This farm, however, has gone out of its way to vertically integrate, and do the hiring themselves with no middlemen. The explicit goal of that was to give those workers better conditions, since the farm can't exactly control how the temp agency runs their employees and if it mistreats them or something. It cost more upfront, certainly - but the end result wasn't some fat that had to be trimmed, it was a competitive advantage. They got a reputation for their good conditions, which meant they could get their choice of picking crews, which meant experienced labourers, and a lot of them would be returning workers (since the work is seasonal that's not a given), and all of that stuff actively helped the business. And then eventually it also meant their workforce didn't get busted for slavery in Operation Blooming Onion, that helped too.

For one, sure let's say everyone is effectively negotiating the best deal they can at all times. In the 50's and 60's, American industry had such large profit margins, that unions could NEGOTIATE better contracts for their workers. Companies could not pretend they were broke and only offer a pittance in union negotiations (which are a legally mandated framework.) Profit margins later declined, so there was less fat for workers to be cut into. No one was leaving money on the table due to the generosity of their heart, necessarily.

Part of the economic revolution in the West in the 70's and 80's, was finding a lot of ways for shareholders to remove paper profits from a company so workers can't bargain for their half, and funneling that money to investors in other ways.

"Barbarians at the Gate" is a fun and entertaining book about the private equity revolution that changed much of this. Check it out! It's certainly not socialist utopianism haahaha.

But two, you seem to be making the claim that at no point has any economic agent (employer or worker) gotten more or less than exactly the market equilibrium point. Do you believe every contract ever made was the best deal both sides could have gotten?

Yes, in the long run, prices and wages tend towards the marking clearing rate. But there's a lot of details and path dependency on the way, and many negotiations end with one side getting a better deal than the other for a variety of reasons - "stickiness" in that previous prices/wages are hard to move without people getting upset, information asymmetry, diverging equilibrium, reputation, monopoly monopsony oligopoly!, and just the random cultural biases or even personal skill at negotiating.

Adam Smith was making a joke when he said it was "the Invisible Hand" setting prices at the most efficient level. Actual people have to do this through actual mechanisms, and the methods to do that change over time.

America pays CEO's much more than other countries pay their CEO's. To steal a CEO from another company you have to pay them slightly more than average, but what all CEO's on average make, is based on the cultural of the capitalist class and what they feel is "normal" for CEO's.

The same is actually true for factory line workers too. At some point America believed a factory worker with no college degree should earn enough to raise a family by himself, and the average salary was one that could do that. Now, America doesn't really believe that, and the average worker earns much less - but still not so little that they starve, because laws provide a minimum wage and we generally believe our employees shouldn't starve. In a completely efficient market, probably more people would have jobs that pay so little that they are still homeless. (I know this already happens, I mean MORE.)

Oh yeah, yesterday I had a puncture on my front right tire after hitting a pothole, had to switch it to the back after we found it compromised the side of the tire, it was fixable, but has the potential later on of catastrophically failing, so it’s better safe than sorry.

I could just buy a new one, but right now I have other priorities, and I also have the spare tire to get me out of trouble worse is to come sooner than expected.

My current car (midsize sedan) has a spare.

On one side, Perfidious Leftism. On the other side, violent and unscrupulous men.

Not confident in what the offramp will be, but I'll propose that either side would be highly benefited if a faction took over that could (1) credibly disavow the excesses of its past and (2) show that it could contain the excesses of the other side's past.

"If there’s one thing we know about Montana and Canada, it’s that we’ve always been friends. For the last several months, our countries have been going through some things. But there’s one thing we know and it’s this—we miss you. While we wish we could make everything okay between us again, we know that things aren’t that simple. But we also know that we can’t continue to sit by and do nothing. Which has led us to this—our Canadian Welcome Pass," the website added.

Eastward? 🤨