The Cost Of Morals

Steve Randy Waldman has a brilliant post up on the way technology--by lowering the cost of pretty much everything--creates a situation where making a better mousetrap is a waste of time because profit is only achieved by those who succeed at rigging the game. 

"Incentives To Produce" are incentives to rig the game

In fact, we should expect the prevalence of rent capture (or worse) as a source of economic profit to increase with technological progress. Why? Because, absent chicanery, technology increases the ease of production and the efficiency of distribution. As Schumpeter pointed out, the source of profit in real-life capitalism is the fact that monopoly power is ubiquitous because of natural barriers to competition. The corner store has a monopoly on the convenience of its neighbors, and so can capture some of the surplus that might otherwise be bid away to customers by competitors. On-demand delivery drones would eliminate that monopoly. Yet the corner store industry might lobby to prevent residential rooftop deliveries, in which case it is no longer exploiting a natural inefficiency but capturing a rent. In business school, students are taught that a successful business has a “moat” that makes it difficult for competitors to bid away ones margins. Technological progress renders moats that derive from nature harder to come by. Instead, successful businesses — and successful people (since under capitalism, a human is just a small business) — must rely increasingly on moats that are created by social and political arrangements.

I want a bigger moat.

I want a bigger moat.

This has totally fascinating implications for how we achieve broadly shared prosperity (or not) that Waldman explores very well.

One, observation Waldman makes, however, caught my eye not for what it says about the future, but rather, how we understand the past. 

Suppose, reasonably I think, that ceteris paribus humans prefer to “be good”. That is, we prefer to do work that is productive and engage in behavior that is ethical. Suppose, also reasonably, that a well ordered society depends upon people sometimes making choices opposed to their material interests on ethical or other grounds. Then it is obvious how inequality might be costly. Instead of talking about “incentives to” (produce, extract rents, whatever), we might describe outcome dispersion as a tax on refraining from mercenary behavior. If the difference between economic winners and losers is modest, people of ordinary virtue might refrain from participating in activities they consider corrupt, might even be willing to “blow the whistle”, because the cost of doing so is outweighed by their preference for behaving well. But as outcome dispersion grows, absenting oneself from or even opposing activities that would be personally remunerative but socially undesirable becomes too costly.

This point captures a thought I've had about slavery.

We sometimes say, you have to judge a man--James Madison, say--based on the morality of his time. What we really should do is imagine that morality is unchanged and that, like ourselves, James Madison was a good person. Now, what would it take for a good person like you or I to own slaves and to not free them in our will? And to think about what it would cost: our livelihood, and the well being of our widow. And to understand that faced with that choice, the cost will be too much, and the good person will do the wrong thing.