Destiny of the “Hockey Stick” Economic Growth

By Alper D. Karakas

Technology is running and running quickly, but it does not seem to be giving as big of a boost as past inventions. Is the digital revolution not as revolutionary as its predecessor…?

You don’t need to be in Silicon Valley to hear all the buzz about where technology can take us. The supposed glory of artificial intelligence and its potential uses are ubiquitous: whether it’s tech company adverts on television, articles in newspapers, or geeky word of mouth. In fact, the growth of this innovation is said to be the next revolution for humanity, surpassing the agricultural revolution and the industrial revolution. Today, our world is experiencing the technological revolution. The amount of new technology being introduced to consumers and workers is growing at an increasingly fast pace which should translate to global production growth.

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Lately, however, the world growth rate has slowed. Although there has been an increase in technological progress and globalization, data on global production does not corroborate the expected improvements. For example, as seen from the graph above, the US GDP growth rate has been decreasing since the second world war—even during the 21 century. According to economist Robert Gordon, America’s decreasing GDP growth per person is a result of three occurring events. Firstly, hours of labor per person have been decreasing due to higher education requirements for jobs, and the baby-boomer generation finds itself in the retirement stage of the life cycle. Secondly, higher education’s price inflation has been too high, and thus new members of the labor force are paying back debt instead of increasing GDP. Lastly, economic inequality, which is also a global issue, caused most growth to only be experienced by the top percent. When the majority does not experience the benefits of increased production it is regressive to the economy. While the industrial revolution demonstrated substantial exponential growth, the growth from technology does not seem to be as beneficial as it has been made out to be.

Consider the toilet versus the iPhone. This is the anecdotal example that provides an explanation for the disparity between world GDP growth during the two revolutions. When the iPhone was first introduced, it changed the mobile phone market due to its innovative features and superior functionality. Although the technology is impressive, the marginal benefit of the iPhone’s invention does not compare to that of a toilet. Yes, the technology behind a toilet is quite simple, but its marginal benefit is huge in terms of sanitation, pollution, and convenience. The iPhone did improve the mobile phone experience, but would you really rather live without toilets than have a basic cell phone? The point is, during the industrial revolution, many of the inventions completely turned peoples’ lives around. They were able to live much more smoothly and cleanly. Now, however, new inventions are technologically impressive, but they don’t improve our lives as much since many of the inconveniences we face were solved already. Yes, the new stuff is cool, but maybe it’s not as helpful. Maybe now there aren’t as many major inconveniences in our lives that need fixing.

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Lastly, this second graph shows the “hockey stick” GDP growth curve. For the past 1700-1800 years, global production has been a flat line, but the industrial revolution in the 19th century spiked the growth rate up for the last 200-300 years. In the grand scheme of time, the past couple centuries seem like an anomaly, giving the line a “hockey stick” look. It begs the question: which part of the line seems “normal”? Arguably, returning to minimal production growth—which seems to be the trend based on the first graph—can be expected. GDP per person growth falling down to a fraction seems like it is coming back to its natural state after a shock that started in the 1750s.

On the other hand, if you go back to Silicon Valley, where there is the highest concentration of engineers working toward artificial intelligence and big data projects, they’ll say you ain’t seen nothing yet. Of course, data is data. Are world production rates growing as if there is currently a revolution? No. But, economist Erik Brynjolfsson notes that GDP calculations miss $300 billion from free goods and services that come from new technologies since many of them are free or cheaper services and GDP measures through prices.

In more depth, Erik Brynjolfsson claims that lower production is not because technological improvements are less significant than industrial ones, rather it is because we are competing with technology rather than working with it. He states the world economy’s productivity has been growing at rates mirroring the industrial revolution. To differentiate, productivity is output per unit of effort while production is output in general. Therefore, since production growth has been decreasing but productivity is increasing, people have been putting in less effort which decreases output. Brynjolfsson states that this duality is rooted in humans competing with technology rather than using it. Technology has been putting people out of jobs, so they’ve had no opportunity to make efforts towards embracing the wave of new advancements. Although productivity has increased due to technology, units of effort have decreased due to technology; therefore, the key to unlocking technology’s potential is to work with it.

The key to the argument is that people can adopt technology for their efforts to maximize efficiency. An economist can try to manipulate and analyze data by hand, but they will never do it as efficiently as a computer could. However, if the economist uses a computer, nothing will beat the efficiency and quality of the combined effort. For example, after the massive Californian wildfire outbreaks in 2017, there have been many efforts to aid disaster response with predictive algorithms. Through satellite images and meteorology maps, these software can notify where a fire is starting and where there is a high probability of a fire starting. Disaster responders can use these digital tools to combat devastation wildfires more beneficially and efficiently.

Furthermore, the development of AI technology continues to grow extensively, and later it will be connected to aspects of human life that will cause great progress in people’s livelihood, such as medicine and energy. The innovations that are currently on the market are advanced, but they are minute relative to their potential. Social media allows us to interact more and big data allows marketers to advertise more intelligently, however, these advances may still not be as marginally comparable as those of toilets with regards to human productivity and ease of life. AI engineers will soon connect its capabilities to mediums which greatly benefit our lives, and thus allow for another revolution. We just have to wait because we ain’t seen nothing yet.

References

  1. Bhatia, Anshu, et al. “Mobile Phones Over Toilets : Technology Over Hygiene.” AetosEye, 17 Nov. 2017, blog.safetykart.com/mobile-phones-over-toilets/.
  2. Brynjolfsson, Erik. “The Key to Growth? Race with the Machines.” TED, http://www.ted.com/talks/erik_brynjolfsson_the_key_to_growth_race_em_with_em_the_machines.
  3. Gordon, Robert. “The Death of Innovation, the End of Growth.” TED, http://www.ted.com/talks/robert_gordon_the_death_of_innovation_the_end_of_growth.
  4. “Has the Ideas Machine Broken down?” The Economist, The Economist Newspaper, 12 Jan. 2013, http://www.economist.com/briefing/2013/01/12/has-the-ideas-machine-broken-down.
  5. Roser, Max. “Economic Growth.” Our World in Data, 24 Nov. 2013, ourworldindata.org/economic-growth.
  6. Snow, Jackie. “Future Wildfires Will Be Fought with Algorithms.” Fast Company, Fast Company, 26 Nov. 2018, http://www.fastcompany.com/90269483/how-ai-software-could-help-fight-future-wildfires.
  7. “The Digital Industrial Revolution.” NPR, NPR, 21 Apr. 2017, http://www.npr.org/programs/ted-radio-hour/522858434/the-digital-industrial-revolution.
  8. “United States GDP Growth Rate.” United States GDP Growth Rate | 2019 | Data | Chart | Calendar | Forecast, Trading Economics, tradingeconomics.com/united-states/gdp-growth.

Oren Cass’ Antidote for the Populist Rage

By: Ethan Lamb

Oren Cass advocates for changing the underlying conditions so that the market can achieve more auspicious outcomes for working families.

In an earlier piece, I wrote about the growing populist force, evidenced by Tucker Carlson’s monologue, that attributes many societal troubles to market forces. My conclusion followed like this: Instead of seeking to curb the free-market, government officials should focus on cultivating conditions that are likely to generate more auspicious outcomes through the free-market. Consistent with this notion, former Domestic Policy Director for Mitt Romney’s presidential campaign and current Senior Fellow at the Manhattan Institute, Oren Cass, writes a fascinating policy-intensive book called the Once and Future Worker. Senator Marco Rubio contends that The Once and Future Worker “offers much-needed clarity for how to make the American dream possible for many.” The author of the NYT bestseller Hillbilly Elegy, J.D. Vance, who is often used as a reference for describing the struggles (manufacturing jobs leaving, opioid crisis, etc) in the Rust Belt ,  calls it “among the most important [he’s] ever read.”  The central premise of this book is a push towards the goal of “productive pluralism,” in which policy goals should be constructed around a healthy labor market and an emphasis on work, rather than merely GDP growth. In other words, Cass contends that there are benefits existent in dignified work and community that cannot be captured by the metric of GDP growth. Dissimilar to Tucker Carlson, Cass acknowledges how GDP growth and productivity gains are necessary for a flourishing society—- he just posits that they are not sufficient.  Many of the failures, Cass contends, are the results of misguided regulatory policies and approaches to contemporary issues. This article will primarily deal with explicating his proposals on environmental regulation and higher education. That being said, with a variety of other policy areas discussed, this book is well worth the read in its entirety.

Cass makes the case for manufacturing without subscribing to the protectionist philosophy. He illustrates how it is not entirely the fault of the free-market in constricting employment in this industry. Rather, it’s a pervasive regulatory apparatus that is artificially shifting the demand for labor to industries free of regulation.

With regard to how environmental regulation impacts the labor market, Cass points to the EPA tightening air quality requirements from 75 parts per billion (pbb) to 65-70 ppb in 2014. While seemingly trivial, such a radical change creates “nonattainment zones,” which are areas that do not meet the updated standards. These cities include Atlanta, Baltimore, and St. Louis. Cass advocates for an increase in justifying regulations, in which the benefits of the regulation would have to equal or exceed the cost. This calculation, he points out, would have to account for the cost of unemployment for individuals in this region, among other things. Moreover, current permits allow existing plants to circumvent updated regulations, while mandating new plants to abide by the new standards. Cass notes how “large businesses benefit from barriers to entry that keep newer and smaller firms out, giving them an incentive to advocate regulation that hurts them but hurts their competitors more.” Given these distorted incentives, Case advocates for holding all plants to the same standards. He goes on, “This reform would be the economic equivalent of removing a dam. The current discrimination against new investments holds back a reservoir of capital that would surge forward were it not for the costs and restrictions now imposed.

Furthermore, Cass urges reform on the National Environmental Policy Act (NEPA). NEPA, instituted in 1970, requires the federal government to conduct reviews, including an Environmental Impact Statement (EIS), which can result in thousands of pages and five years before completion. According to Cass, “a completed EIS then provides an invitation for environmental groups to launch lawsuits over the quality of the EIS, occupying years more, even if no legal basis exists for objecting to the project itself.” Such prolonged spectacles predictably stifle infrastructure projects and deter future investments from taking place. Cass proposes adopting a “streamlined review process,” similar to Canada and Germany, that “guarantee short, fixed timelines for review and preclude further litigation once a decision has been made.” Cass points to the conspicuous incongruity in the oil and gas production that has taken place in private land, as opposed to public land.

Cass also addresses how certain misconceptions about higher education have not redounded to the country’s benefit in recent generations. He laments both a watering-down of the high school education system and the “college for all” initiative advanced by politicians. He points to the fact that, despite the doubling of per-person spending in the k-12 education system since 1970, the average National Assessment of Education Scores for both reading and math have not increased. In fact, national SAT scores have actually declined. Moreover, he continues, “in states where almost all high school seniors take the SAT, only about one-third achieve scores that would indicate a likelihood of B minus average at a four year college.

There has been external pressure on school districts to inflate their graduation rates. This, however, has come at the expense of actually educating kids. Cass writes:

In the nation’s capital, the Washington Post headlined with a straight face that the “Entire Senior Class at D.C.’s Ballou High School Applies to College,” even though the school’s graduation rate the prior year had been only 57 percent and few than 5 percent of its students had passed citywide standardized exams. A National Public Radio investigation discovered that half the graduated missed at least three months of senior-year classes and that teachers had faced overwhelming pressure to pass failing students. More than one-quarter of the teaching staff quit during the year.

While specious studies indicate a premium on college attendance, Cass contends that important omitted variables in these studies are intelligence and work ethic. In other words, the causal impact in expected income level is not college itself. Rather, on average, students with these formidable characteristics are inclined to go to college. This means that, perhaps, a restructuring of the education can leverage these students’ expected income, in ways that a bloated college system cannot. College, in large part, is responsible for the distortion of the labor-force and skills-gap that to blame for lagging productivity. When referring to college graduates, Cass states:

Roughly speaking, one-fifth of all students were already off-track and did not join their classmates crossing the stage. Another fifth will move from their senior year to something besides further schooling. The third fifth will enroll in college but fail to complete it. Yet another fifth will complete some form of college but land in jobs that don’t require the degrees they just earned. Despite decades of teacher training, student testing, and standards, as well as school choice and hundreds of billions of dollars in new annual education spending, only a final fifth will successfully navigate the path—high school to college to career—that is our education system’s ideal.

By no way is it compassionate to exhort younger generations to accrue an insurmountable amount of debt for a major that bears no relation to future vocational field. The underwhelming results of the bloated higher education system is underscored by a report Brookings Institution study in which it was found that, “although college attendance rates have risen steadily in the United States for the past two decades, bachelor’s degree attainment has not improved at all.” In fact, Cass points out, the percentage of twenty-five-year-old Americans with at least a bachelor’s degree was lower in 2015 than it was in 1995.

As a solution, Cass advocates for a “tracked system” that, in varying degrees, is practiced throughout most modern counties. Such a system does not preclude from ever achieving an upper-class status. The New York Times notes that “it is not uncommon to find executives in Europe who got their starts in apprenticeships.” Cass suggests that the tracking process would start in ninth or tenth grade and would emphasize “practical skills, offered opportunities to explore different industries, and instilled in students the flexibility to adapt and learn as their careers progress.” By the eleventh grade, the amount of time between classroom learning and vocational training would shift in the direction of vocational training. The Swiss system, which Cass uses an example of success, has roughly two-thirds of students pursue a vocational training route. Germany, which has also constructed a robust apprenticeship system, has a success rate of 80 rate in terms of young adult employment rate after graduation, compared to the United States’ meager 48 percent rate.

Specifically, Cass outlines a model where community colleges would bid to become “program sites,” offering a two year Advanced Manufacturing Technology (AMT) associates degree. Employers would sponsor the students and be able structure the program to best fit their needs. Students would spend two eight-hour days in the classroom and three eight-hour days working and accruing experience. Cass stipulates that with no net increase in education spending, “America could offer every tenth grader additional classroom learning, a subsidized three-year apprenticeship for which he might also be paid, and a savings account with $20,000 to $40,000 awaiting upon completion. It is reiterating Cass’ attention to the labor force and market when discussing such proposals.

The “college for all” initiative advanced by the federal government through subsidies and federal loans programs has generated a large artificial increase in demand for college, thereby eminently increasing the price. In public policy, many of the concerns surrounding the skills gap and lagging productivity growth are simply being ignored and obscured. Many political figures now promulgate a vision where the distinctions between college and high school education are increasingly blurred. By prolonging general education, the marginal cost of forgoing an expeditious path to a stable career far exceeds the marginal benefit of a college education for many people. Cass does a good job avoiding the temptation to pander to the populist outrage and lament the changing demands in the labor market. Rather, his reforms are designed to equip young adults with the requisite skills to join the labor force. Adopting Cass’ vision for education policy would go a long in aligning future generations’ capabilities with available work.

In sum, Oren Cass manages to unite Tucker Carlson’s instinctive apprehension with substantive policy reforms. Populist movements often devolve into resentment politics and counterproductive policies. Tucker, like many other populists, is guilty of throwing the baby out with the bathwater. He sees contemporary problems in society and attributes the cause to market forces. Capitalism has always engendered responses from reactionary movements, and creative destruction has always dispelled such fears. We have reached a uniquely prosperous time in human history and it is always worth protecting the precise mechanism that powered the engine of prosperity. Oren Cass knows this. He advocates for changing the underlying conditions so that the market can achieve more auspicious outcomes for working families. Economic policies alone cannot explain the entirety of the discourage trends in the middle-class. However, reactionary calls to stifle market forces can certainly make them worse.

Works Cited:

Image Source: Cass, O. (n.d.). The Once and Future Worker: A Vision for the Renewal of Work in America – Kindle edition by Oren Cass. Politics & Social Sciences Kindle eBooks @ Amazon.com. Retrieved from https://www.amazon.com/Once-Future-Worker-Renewal-America-ebook/dp/B079617VFZ

Cass, O. (2018). The once and future worker a vision for the renewal of work in America. New York: Encounter Books.

Ode to Professor Alan Krueger

By: Jae Seung Lee

A respected, influential labor economist leaves behind a legacy of influential research

On March 16th, Princeton University professor and former chair of the White House Council of Economic Advisers Alan Krueger died at age 58. He is best known for his work on minimum wage in his 1994 paper, “Minimum Wages and Employment: A Case Study of the Fast-food industry in New Jersey and Pennsylvania.” It challenged the belief of classical labor economists that a higher wage floor led to substantial job loss. Professors Card and Krueger applied the method of natural experiments to study employment effects of statutory wages, which was groundbreaking at the time of the research.

All economics students are required to study statistics and econometrics, which are important tools for empirical research. Students learn how to use statistical programs and analyze data to better understand economic systems. However, it was only about four decades ago when econometrics was under strong criticism due to lack of credibility. In 1983, Edward Leamer published an article, “Let’s Take the Con Out of Econometrics,” that criticized prevalent identification problems in research papers of his time. He warned that improperly controlled experiments can generate huge error in the research. David Forbes Hendry also pointed out some “[selection] methods [of the day] are inherently flawed” in a way that one may even conclude inflation in the United Kingdom can be explained better “by rainfall than by stock of money.”

Then in the 1990s, empirical economists raised the standard of what establishes convincing evidence in econometrics. Alan Krueger was one of the notable economists who took part in, or perhaps rather initiated, this “Credibility Revolution.” During this transition, researchers put more effort to design and use more credible empirical methods, and Krueger’s co-authored paper published in 1994 is a great example of this movement. Krueger was a pioneer in the use of natural experiments. He measured the effect of a minimum wage increase on employment through a strictly controlled experiment. New Jersey and Pennsylvania, adjacent states used in this paper, have resembling economic conditions, and change in New Jersey’s minimum wage allowed the two states to qualify as adequate control and treatment groups. The paper, which is one of the most famous studies to use a difference in difference estimation , re-kindled the debate on minimum wage. Challenging the orthodox supply and demand labor theory gave birth to many theories and models to explain minimum wage, such as the monopsony model.

Apart from his celebrated contribution to labor economics, Krueger is also known for his research in a wide range of topics. He tackled issues related to terrorism, public welfare, education and wage inequality in the context of economics. “Attitudes and Action: Public Opinion and the Occurrence of International Terrorism,” Economic Growth and the Environment and Does Compulsory School Attendance Affect Schooling and Earnings? are just some of his famous works dealing with these topics. His posthumous book, Rockonomics, will show his avid interest in music and his ability to make economic principles more digestible for the general public.

What made Professor Krueger even more distinguished is that he did not stop at solely conducting research, but he looked to apply his findings to better people’s lives. He served as a chief economist at the Department of Labor under President Bill Clinton and chair of the Council of Economic Advisers under President Barack Obama. During his time as an economic advisor, he consulted on public policies dealing with minimum wage legislations and the post-financial-crisis recovery. His “Great Gatsby Curve,” a term introduced in his speech, shows children from low-income families are more likely to stay poor in countries with higher wealth inequality, which resembles the Roaring Twenties’ income disparity. During his time in government, Krueger put his best effort to reduce this gap, thereby increasing intergenerational social mobility in the United States.

As an undergraduate economics student with passion in labor economics, I have read many of professor Krueger’s work for my research. Despite my elementary knowledge of economics, his empirical approach was a great motivation for me to explore this field further. It was with great sadness that I learned that the professor had passed away a earlier this year. My thoughts and prayers are with his family and colleagues. His life was short, but his legacy will be very long.

Work Cited:

Image Source: Bloomberg

  1. Card, D., & Krueger, A. (1993). Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania. doi:10.3386/w4509
  2. Hendry, D. F. (2000). Econometrics alchemy or science?: Essays in econometric methodology. Oxford (Inglaterra) ; Nueva York (Estados Unidos): Oxford University Press.
  3. Leamer, E. E. (1983). Let’s Take the Con Out of Econometrics. The American Economic Review, 73, 31-43.

Modern Monetary Theory

By: Jae Seung Lee

Is Modern Monetary Theory a groundbreaking new economic theory or a false promise?

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     Photo Courtesy of: Wikipedia

Inspired by supply-side economics and the Laffer Curve, the U.S. government under the Reagan administration lowered the marginal tax rate on the highest income earners from 71% to 31%. The Economic Recovery Tax Act of 1981, better known as the “Kemp-Roth Tax Cut,” was designed to increase government revenue through tax cuts, thereby achieving a point where “tax cuts pay for themselves.” However, this policy is still hotly disputed. Reaganomics supporters claim this policy led to economic expansion which eventually paid off while critics argue this actually worsened the government deficits. When George H.W. Bush was running against Ronald Reagan for the Presidential nomination, he even called the idea, “Voodoo Economics.”

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Photo courtesy of: The Barricades

Four decades after the controversial policy, a new heterodox economic theory seems to follow a similar path: Modern Monetary Theory (“MMT”). Fervently supported by progressive congressmen, MMT’s appeal is rapidly gaining momentum. Stephanie Kelton, a professor of Public Policy and Economics at Stony Brook University, has been a vocal supporter of the theory throughout her career, and she also worked as a chief economic advisor for the Bernie Sanders campaign. Along with some post-Keynesian economists like Larry Randall Wray and Warren Mosler, she strongly supports the idea that currency is a simple public monopoly. Kelton has been debating on the validity of MMT with skeptics in academia including Paul Robin Krugman, a nobel laureate and professor of economics at the City University of New York.

The basic idea of MMT is that a government that prints and borrows its own currency, like the U.S. government, cannot default due to its ability to print new dollars. MMTers think the government can regulate the economy more efficiently than banks and financial markets. They believe the government should use fiscal policy to achieve full employment. As opposed to mainstream Keynesian economic theories, MMT encourages printing new money rather than taxing or issuing bonds for government spending. MMT focuses on maintaining the level of spending “at the level that is just compatible with full employment and price stability.”

Representative Alexandria Ocasio-Cortez, a champion of the Green New Deal (“GND”) is very open to the theory as well. MMT supports large government expenditures for stimulus

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Photo Courtesy of: Reuters

packages, and the GND is estimated to cost about 51 trillion dollars, if not more. This massive spending plan has met huge oppositions from those on the other side of the aisle for its unclear source of funding. The fact that Ocasio-Cortez embraces the idea of MMT which states, “the government doesn’t need to balance the budget and that budget surpluses actually hurt the economy” implies how she is planning to pay for her policy proposals.

Numerous economists, who believe government expenditures must be paid through taxes, find this new theory very perplexing. Lawrence Henry Summers, a professor and former president at Harvard University, referred to MMT as a “oversimplified and exaggerated” new idea offered as “the proverbial free lunch.” He claims it is fallacious due to several reasons. First, it assumes that the government can finance its deficits at no cost. Second, creating new money past a certain point can create hyperinflation. Third, it is based on a closed economy which is free of many risks such as capital outflow and exchange rate risk. Most importantly, he thinks the MMT is not qualified to be a theory. “Excessive reliance on inflationary finance” ended up as failure not only in emerging markets but also in developed economies.

Fed leaders also find the new theory dubious. Minneapolis Fed leader Neel Kashkari called it “a political philosophy,” and Fed Chairman Jerome Powell said he has yet to see a satisfying explanation. Just as Krugman and Summers argue, leaders of the Federal Reserve strongly disagree with the idea that “deficits do not matter for countries that can borrow in their own currency.” According to conventional economic theory, rising government borrowing has upward pressure on interest rates as those who buy treasury bonds demand a better return. Kelton claims the opposite: interest rates decrease. She rather criticizes limitations of the conventional IS-LM framework, and writes, “the currency issuer never has to accept market-determined interest rates.”

Given the huge divide between various politicians and members of academia on MMT, the partial agreement of progressives and some financial managers on the theory is very surprising. Paul Allen McCulley, a former chief economist at PIMCO, wrote, using its unconventional approach, he bet successfully that “interest rates would stay low” during the financial crisis. Other chief economists in financial firms such as Goldman Sachs and Nomura also believe there are useful, overlooked insights to be found in MMT. Some money managers credit the theory for their correct prediction of interest rates during the crisis. However, these people do not represent the whole financial sector. BlackRock CEO Laurence Douglas Fink called the MMT “garbage” and asserted his strong belief that “deficits do matter.” He claims deficit spending based on the theory would lead to an unsustainable interest hike just as orthodox economists have noted.

Despite the theory’s rising political stock, its unconventional wisdom that the United States can pay off its debt by printing more dollars has not convinced the majority. Debates on economic models have always been around; for instance, Keynesian economists and Monetarists disagree on how monetary policy works. Through thorough peer review processes, these healthy debates give birth to new, modified ones like the New-Keynesian and Neoclassical economic models. Comprehensive explanation with scientific rigor is required as popularity can sometimes misguide the general public. As politics has become more involved in the conversation, it is easy for people to become attracted to theories with tantalizing prospects. Before we decide which economic model to choose, we should put our best effort to have objective perspective on this issue first.

Works Cited:

Cover Image Source: Shutterstock

  1. Cohen, P. (2019, April 05). Modern Monetary Theory Finds an Embrace in an Unexpected Place: Wall Street. Retrieved from https://www.nytimes.com/2019/04/05/business/economy/mmt-wall-street.html
  2. Derby, M. S. (2019, April 01). Minneapolis Fed Chief Kashkari Says MMT Isn’t An Economic Theory. Retrieved from https://www.wsj.com/articles/minneapolis-fed-chief-kashkari-says-mmt-isnt-an-economic-theory-11554149192
  3. Is modern monetary theory nutty or essential? (2019, March 14). Retrieved from https://www.economist.com/finance-and-economics/2019/03/14/is-modern-monetary-theory-nutty-or-essential
  4. Kelton, S. (2019, March 4). The Clock Runs Down on Mainstream Keynesianism. Retrieved from https://www.bloomberg.com/opinion/articles/2019-03-04/krugman-s-macroeconomics-is-no-match-for-mmt
  5. Lopez, L. (2019, January 10). Wall Street should love the economic theory Alexandria Ocasio-Cortez backs – and that should worry the rest of us. Retrieved from https://www.businessinsider.com/alexandria-ocasio-cortez-wall-street-should-love-mmt-2019-1
  6. Malter, J. (2019, March 02). Bernie Sanders’ 2016 economic advisor Stephanie Kelton on Modern Monetary Theory and the 2020 race. Retrieved from https://www.cnbc.com/2019/03/01/bernie-sanders-economic-advisor-stephanie-kelton-on-mmt-and-2020-race.html
  7. Relman, E. (2019, January 07). Alexandria Ocasio-Cortez says the theory that deficit spending is good for the economy should ‘absolutely’ be part of the conversation. Retrieved from https://www.businessinsider.com/alexandria-ocasio-cortez-ommt-modern-monetary-theory-how-pay-for-policies-2019-1

The Economics of Sleep

By: Christina Gayton

When taking a closer look at sleep, there’s a lot going on underneath the mattress, both on the individual and market level.

With the rise of products such as Purple Mattress, sleep apps such as Pillow, cuddle robots, and sleep-inducing essential oils, the sleep market is booming. Currently, the U.S. sleep industry is valued at approximately $30 to $40 billion and has grown at a whopping  8% annual rate. America is increasingly becoming health conscious and justifiably beginning to recognize a good night’s rest as key to wellbeing.  However, there is much more nuance that can be found in Sleep Market Economics other than the products and revenue being produced. Sleep itself could, in some regards, be recognized as a commodity and expense, all at once.

1 in 3 American adults aren’t getting enough sleep, according to the Centers for Disease Control and Prevention. Although 100 years ago, the average American got 9 hours of sleep, these days, the average joe sleeps only 6.8 hours a night. This level falls just below the National Sleep Foundation’s recommended sleep length of 7 to 9 hours. To ameliorate American’s sleep problems, companies have developed products to help people get to sleep and stay asleep. Essentially, Americans are attempting to buy and sell longer and better sleep as a commodity.

All together, these products raked in $28.6 billion in 2017. The largest sector of the sleep market, by far, is the mattress industry, with a gross income of $16 billion. Other notable sectors include the prescribed sleep drug industry, which brought in $1.4 billion in profits, the non-prescribed sleep drug industry with $576 million in profit, the CPAP device (sleep Apnea therapy) industry with $4.3 billion in profit, and the sleep lab industry also with $4.3 billion in profit. Even sleep-inducing ASMR is proving to be highly lucrative, with some ASMRtists earning hundreds of thousands annually.

The effects of not getting enough sleep are markedly adverse. When the brain is running low on snooze time, cognitive skills, memory, visual perception, and motor skills are all impaired. A sleep deficit has even been shown to have comparable effects to having 10% alcohol blood level. In the long term, the effects are even more dire. Constantly denying  oneself sleep has been linked to obesity, diabetes, heart disease, and depression, among other ailments. Overall, sleeping less than six hours per night has been linked with a 13% increase in mortality rate. The healthcare costs from these sleep-related issues are estimated to be hundreds of billions of dollars per year.

The effects on society are rough too. Approximately $411 billion and 1.2 million work days are lost each year due to lower productivity from inadequate sleep. There are also the healthcare costs from sleep-related accidents, a figure projected to be over $60 billion annually. The overall economic loss far outweighs the current funds being put into the sleep industry by consumers and corporations. If sleep products do in fact help Americans get a better night’s rest, then funneling more funds into developing products and services for this industry would certainly pay for itself in the long run.

When taking a closer look at sleep, there’s a lot going on underneath the mattress, both on the individual and market level. In an age of increasing anxiety and work culture, sleep is becoming more scarce and the negative effects from its absence more prevalent. Profits from the sleep industry show no signs of stopping, and with further innovation and niche market products, high quality sleep may even become a luxury good as well.

Works Cited

Image Source: http://www.healthycare365.com/7-strange-facts-insomnia/

Bramley, E. (April 2018). Dream ticket: How Sleep Became a Billion-dollar Business. Retrieved from https://www.theguardian.com/lifeandstyle/2018/apr/17/sleep-billion-dollar-business-tiredness-spooning-robots-cuddle-blankets-luxury

Centers for Disease Control and Prevention. (February 2016). 1 in 3 adults don’t get enough sleep. Retrieved from https://www.cdc.gov/media/releases/2016/p0215-enough-sleep.html

Haynes, S. (November 2016). Lack of Sleep Costs U.S. $411 Billion in Lost Productivity, Study Finds. Retrieved from http://fortune.com/2016/11/30/sleep-productivity-rand-corp-411-billion/

Jones, J. (December, 2013). In U.S., 40% Get Less Than Recommended Amount of Sleep. Retrieved from https://news.gallup.com/poll/166553/less-recommended-amount-sleep.aspx

La Rosa, J. (April 2018). Top 6 Things to know About the $28 Billion Sleep Market. Retrieved from https://blog.marketresearch.com/top-6-things-to-know-about-the-28-billion-sleep-market

National Sleep Foundation. How Much Sleep Do We Really Need? (March 2019). Retrieved from https://www.sleepfoundation.org/excessivesleepiness/content/how-much-sleep-do-we-really-need-0

NHS. (May 2018). Why lack of sleep is bad for your health. Retrieved from https://www.nhs.uk/live-well/sleep-and-tiredness/why-lack-of-sleep-is-bad-for-your-health/

Tuck. (May 2018). The inequality of sleep. Retrieved from https://www.tuck.com/the-inequality-of-sleep/

Tucker Misses the Mark on the Free Market

By: Ethan Lamb

Tucker fails to reconcile his diatribe against the free market with the incontrovertible truth that capitalism has been the most formidable poverty-reducing mechanism the world has ever known.

On January 2nd, popular news anchor Tucker Carlson opened his showTucker Carlson Tonightwith a captivating monologue, capturing the attention of millions. This segment precipitated an intriguing debate among conservative intellectuals about the relationship our government ought to have with the economy and the extent to which this relationship bears responsibility for the contemporary issues plaguing the middle-class, such as the declining marriage rate, life expectancy, and the opioid crisis. Now, Tucker Carlson is not an economist. He is not an expert on public policy, nor does he claim to be. However, he does resonate with the vast swaths of the country who feel that their lives are expendable as a consequence of the initiatives advanced by the elites.

Tucker Carlson accuses the ruling class, which he claims, is largely untroubled with the plight of the middle-class, as the predominant culprit. He stipulates, “they have no skin in this game, and it shows. They can’t solve our problems. They don’t even bother to understand our problems.” Tucker contends that, governed by their self-interests, elites have embraced certain initiatives such as unilateral free trade, unfettered low-skill immigration, and automation. Such policies, according to Tucker, have made prosperity increasingly untenable for the middle-class. These sentiments, distrustful of free markets, are not dissimilar to something you’d hear at a Bernie Sanders rally (Sanders, until recently, lambasted the support of high levels of immigration as a Koch brothers conspiracy). To encapsulate his point, Tucker questions, “The answer used to be obvious. The overriding goal for America is more prosperity, meaning cheaper consumer goods. But is that still true? Does anyone still believe that cheaper iPhones or more Amazon deliveries of plastic garbage from China are going to make us happy? They haven’t so far. A lot of Americans are drowning in stuff. And yet drug addiction and suicide are depopulating large parts of the country. Anyone who thinks the health of a nation can be summed up in GDP is an idiot.” However, this contention presupposes that the degradation of societal pillars is a consequence of a market economy— preserved and protected by the ruling class. As evidence for the growing discontent with the political class, Tucker points to the populist movements arising in Brazil, the Philippines, and all around Europe. He continues, “voters are suddenly backing candidates and ideas that would have been unimaginable just a decade ago. These are not isolated events. What you’re watching is entire populations revolting against leaders who refuse to improve their lives.”

Tucker’s rebuke is not restricted to just one political movement. When referring to libertarians’ deference to market outcomes, he responds that “it’s also disgusting. If you care about America, you ought to oppose the exploitation of Americans, whether it’s happening in the inner city or on Wall Street.” When addressing social conservatives, he asserts, “you’ll hear them say, is that the American family is collapsing. Nothing can be fixed before we fix that. Yet, like the libertarians they claim to oppose, many social conservatives also consider markets sacrosanct. The idea that families are being crushed by market forces seems never to occur to them. They refuse to consider it.” He then proceeds to question the feminist movement’s celebration of female performance in the workplace. He states, “study after study has shown that when men make less than women, women generally don’t want to marry them. Maybe they should want to marry them, but they don’t. Over big populations, this causes a drop in marriage, a spike in out-of-wedlock births, and all the familiar disasters that inevitably follow — more drug and alcohol abuse, higher incarceration rates, fewer families formed in the next generation.”

His ire for the free market is exceedingly clear when he claims that “families are being crushed by market forces” and “any economic system that weakens and destroys families is not worth having.” When listening to this viewpoint, one invariably wonders what policy solutions he might propose. While he does not actually propose any concrete solutions in this monologue, he is known to support government interventionism. He routinely expresses concerns about the impact of automation on the job market. He has pilloried Amazon CEO Jeff Bezos for underpaying his employees. In fact, he even told conservative commentator Ben Shapiro in an interview that he would support a wholesale ban on driverless trucks in order to protect existing jobs. Such sentiments hardly resemble someone who has confidence in the market process.

Granted, there is an element of truth to Tucker’s skepticism. Applying free market principles to destructive substances such as opioids may not be of benefit to society. However, the free market did not create these addictive avenues to exploit. There had to have been an existing demand for such substances. Therefore, the problem may lie deeper than economics.

But first, let’s unpack the merits of Tucker’s claims. On the substance, he is correct in diagnosing troubling indications of a struggling middle-class. For the third year in succession, life expectancy in the United States has actually decreased. According to the CDC, the national suicide rate has uninterruptedly risen 33% since 1999. Furthermore, deaths from drug overdoses have risen steadily each year since 2000, with a conspicuous increase in deaths specifically from opioids. Moreover, in 1979 the average male with a high school degree and a family of four had earnings high enough to double the poverty line threshold. By 2007, his earnings were only high enough to clear the poverty threshold by less than 50%. Such statistics cannot be attributed to reduced government aid. Means-tested government spending has increased from $73 billion, at the time that Lyndon Johnson instituted “The Great Society,” to over $1.1 trillion as of 2015, when adjusted to 2015 dollars. This statistic means that the government is spending an average of $20,000 for every individual that is below the poverty line. In fact, federal outlays currently account for over 20% of GDP, with the overwhelming majority allocated to Medicare, Medicaid, and Social Security. The aforementioned statistics should be disconcerting irrespective of whether Tucker’s ire is correctly placed.

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What’s more confounding is the divergence in family structure between the upper-class and the working-class, paving the way for an increasingly stratified society. Political scientist Charles Murray points out in his book Coming Apartthat, in 1960, the proportion of married couples between the ages of 30-49 was 84% for those considered working-class and 94% for those considered upper-class. However, by 2010, while the marriage rate remained high at 83% for the upper-class, the rate markedly declined to 48% for the working-class. Furthermore, while the percentage of children living with a single, divorced, or separated parent was under 5% for both upper and middle-class households in 1960, the percentage of middle-class households satisfying these criteria has eminently risen to 22% in comparison to just 3% for upper-class households. These are not merely unrelated factoids. These disturbing trends are replicated in a multiplicity of other studies including divorce rate, recorded happiness in marriage, non-marital birth ratio, and participation in the labor force. Such evidence, at the very least, lends credence to the notion that the certain foundations, including family structure and economic performance, that have historically undergirded the welfare of working-class families have started to erode in recent decades.

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This breakdown in family composition has deleterious effects on both present and future generations. In a study conducted by Richard Reeves at the Brookings Institution, children born in the 1980s and 1990s were tracked until 2014. Reeves found that, when juxtaposing children born in the bottom income quintile raised by both parents in the same household with children born in that same quintile raised by a never-married mother, those in the former group stood a much bigger chance (19%) at progressing to the top quintile than those in the latter (5%). Stanford Professor Raj Chetty affirmed this study when he found that the single-parent household variable had the highest causal impact in determining upward economic mobility within a region. In fact, the very institution of marriage itself has been found to have a positive causal impact on earnings. According to a study conducted by W. Bradford Wilcox and Robert I. Lerman of the American Enterprise Institute, a substantial “marriage premium” exists, in which the act of getting married has a causal impact in boosting individual income. Such social science studies affirm the unassailable truth that individual decisions and family structure do impact economic outcomes on the micro level. However, this data does not support Tucker’s most fervent assertions.

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Herein lies the main issue with Tucker’s monologue: He does not actually bother to explain the degradation of family structure in working-class communities. He, rather, forms a non sequitur that posits that because plight is existent in the middle-class, it mustbe the manifestation of free market policies at fault, despite no evidence to substantiate this claim. He pillories the free market and unjustly conflates the free market with the status-quo. This same argument is prominent among left-leaning circles when discussing healthcare, where health outcomes in the United States are compared with single payer-systems abroad in order to demonstrate shortcomings of the free market system– when in reality, the healthcare industry is considered to be the most regulated industry in the country. By identifying free market excesses as the underlying issue, without articulating precisely how, Tucker is able to artfully construct a specious case for government intervention.

Perhaps by design, Tucker fails to reconcile his diatribe against the free market with the incontrovertible truth that the capitalism has been the most formidable poverty-reducing mechanism the world has ever known. The shrinking middle-class paradigm often propagated by both leftwing and rightwing populists ignores the fact that a large part of the middle-class has actually moved upin the economic latter over the past five decades. Economist Mark Perry states:

The 19.6 percentage point increase in the share of high-income US household between 1969 and 2016 (from 8.1% to 27.7%) was a result of: a) an 11.1 percentage point shrinkage in the share of middle-class households (from 53.2% to 42.1%), and b) an 8.5 percentage point shrinkage in the share of low-income households.

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When examining the economic trends through a deeper account of human history, the case against free markets simply falls apart. Managing editor of Humanprogress.org Chelsea Follett points out, “In 1820, more than 90 percent of the world population lived on less than $2 a day and more than 80 percent lived on less than $1 a day (adjusted for inflation and differences in purchasing power). By 2015, less than 10 percent of people lived on less than $1.90 a day, the World Bank’s current official definition of extreme poverty.” During this time, the number of people living in abject poverty dropped from 1 billion to 700 million despite the massive population growth. In fact, since just 1970, the amount of people living in extreme poverty has been reduced by more than half. This eminent spike in the standard of living is certainly a narrative-buster and demonstrates how free markets redound to society’s benefit, especially for the poorest among us.

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The inconvenient truth that the emergence of some disturbing trends in the middle-class have coincided with unambiguous growth in economic prosperity is very difficult to address because there is no easy remedy. Economic hardship absolutely does precipitate some of the unfortunate trends like drug abuse and family formation, but I don’t think anyone would characterize the last fifty years as a period of economic turmoil, especially when comparing it to other periods in history. This lends credence to the theory that this increasingly bifurcated society has a lot more to do with culture rather than purely economic reasons. This notion is encapsulated nicely by Political commentator Kevin Williamson:

What evidence is there, if any, that it is our economy that produces the horrors that Vance describes so eloquently? The United States and El Salvador have about the same suicide rate; so do the United States and Finland. So do Belgium and India. So do Japan and Burkina Faso. Desperately poor Yemen has a suicide rate about one-third that of Russia, which is governed by economic nationalists much-admired by some in the American nationalist-populist camp. What should this tell us about the relationship between economic policy at the broad level and social dysfunction?

This may be inconvenient to those seeking political capital, but it is the reality. While there is no easy fix, certain narratives about the top 1% rigging the system through the vehicle of “hyper-capitalism” can actually be counter-productive. This is because such broad-brushed sentiments, without any sufficient evidence, actually rob those living in these imperfect conditions of any agency. By insisting that the elite are subjugating an entire class, rather than promulgating the message that we are living in the most prosperous and just time in human history and that good decisions will generally yield prosperity, we are unjustly disarming people of realizing their potential. Conservative pundit David French acutely makes this point:

Carlson is advancing a form of victim-politics populism that takes a series of tectonic cultural changes — civil rights, women’s rights, a technological revolution as significant as the industrial revolution, the mass-scale loss of religious faith, the sexual revolution, etc. — and turns the negative or challenging aspects of those changes into an angry tale of what theyare doing to you.

In fact, in Creating an Opportunity Societyby Ron Haskins and Isabell Sawhill of the Brookings Institution, it was found that only 2% of adults that finished high school, who  got a full-time job, and waited until marriage to have kids found themselves in poverty. In other words, responsible decisions can still lift people out of poverty.

This argument, however, is not to suggest that government policy is perfect — far from it. However, it is irresponsible and ahistorical to ascribe many of society’s issues to free markets — the most efficacious mechanism for poverty reduction in human history. Rather, the influence of the elites that Tucker Carlson pillories is entirely antithetical to the workings of the free market. Such a relationship between the well-connected in society and the government is often referred to as “cronyism” which seeks to undermine, rather than foster, creative destruction.

Instead of seeking to curb the free market, government officials should focus on cultivating conditions that are likely to generate more auspicious outcomes through the free market. History has shown that embracing the creative destruction that comes with free markets ultimately leads to higher productivity and wages. This displacement does not come without consequences. But it is evident that the plight of the working-class cannot be explained by the economic conditions, nor can it be reversed through economic solutions. The problem, unfortunately, runs much deeper. Tucker Carlson is a talented speaker and has a huge following. With that in mind, his myopic calls to stifle market forces are not only misplaced but can actually exasperate human suffering.

Works Cited:

Image Source:https://www.flickr.com/photos/gageskidmore/45577919995/in/photostream/\

Boskin, M. J., Cochrane, J. H., Cogan, J. F., Shultz, G. P., & Taylor, J. B. (2018, March 27). A debt crisis is on the horizon. Retrieved from https://www.washingtonpost.com/opinions/the-debt-crisis-is-on-our-doorstep/2018/03/27/fd28318c-27d3-11e8-bc72-077aa4dab9ef_story.html?utm_term=.d75d6693ffc6

Charen, M., & Charen, M. (2018, June 26). The Price of Feminism. Retrieved from https://www.nationalreview.com/2018/06/the-price-of-feminism-it-neglects-duty-and-commitment/

Chetty, R., Hendren, N., Kline, P., & Saez, E. (2014). Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States. doi:10.3386/w19843

ClareMalone. (2016, November 16). Americans Don’t Trust Their Institutions Anymore. Retrieved from https://fivethirtyeight.com/features/americans-dont-trust-their-institutions-anymore/

Currie, R. D., & Currie, R. D. (2017, October 25). The Only Way to Rebuild the Marriage Culture. Retrieved from https://www.nationalreview.com/2017/10/marriage-class-divide-culture-economics-working-class-middle-class-upper-class/

Daily Wire. (2018, November 04). Sunday Special Ep 26: Tucker Carlson. Retrieved from https://www.dailywire.com/podcasts/37933/sunday special ep-26 tucker-carlson

Deming, D., & Deming, D. (2017, April 26). Increasing college completion with a federal higher education matching grant. Retrieved from https://www.brookings.edu/research/increasing-college-completion-with-a-federal-higher-education-matching-grant/

Dougherty, B., & Dougherty, M. B. (2019, January 11). Personal Responsibility Is No Substitute for Political Reflection. Retrieved from https://www.nationalreview.com/2019/01/tucker-carlson-monologue-populism-politics-personal-responsibility/

Federal Net Outlays as Percent of Gross Domestic Product. (2019, February 28). Retrieved from https://fred.stlouisfed.org/series/FYONGDA188S

Feldstein, M. (2008). Did Wages Reflect Growth in Productivity? doi:10.3386/w13953Five Graphs that Will Change Your Mind About Poverty. (n.d.). Retrieved from https://humanprogress.org/article.php?p=508

French, D. (2019, January 04). The Right Should Reject Tucker Carlson’s Victimhood Populism. Retrieved from https://www.nationalreview.com/2019/01/the-right-should-reject-tucker-carlsons-victimhood-populism/

Goldberg, J., & Goldberg, J. (2019, January 10). The Free Market Is Not Just a Tool. Retrieved from https://www.nationalreview.com/corner/the-free-market-is-not-just-a-tool/

Haskins, R., & Haskins, R. (2016, July 28). Three Simple Rules Poor Teens Should Follow to Join the Middle Class. Retrieved from https://www.brookings.edu/opinions/three-simple-rules-poor-teens-should-follow-to-join-the-middle-class/

Lerman, R. I., Price, J., & Wilcox, W. B. (2017). Family Structure and Economic Success Across the Life Course. Marriage & Family Review,53(8), 744-758. doi:10.1080/01494929.2017.1316810

Murray, C. (2013). Coming apart: The state of white America, 1960-2010. New York: Crown Forum.

My Two Favorite Graphs From Coming Apart. (2018, April 05). Retrieved from https://www.econlib.org/archives/2012/02/my_two_favorite.html

National Institute on Drug Abuse. (2019, January 29). Overdose Death Rates. Retrieved from https://www.drugabuse.gov/related-topics/trends-statistics/overdose-death-rates

Rector, R. (n.d.). Marriage: America’s Greatest Weapon Against Child Poverty. Retrieved from https://www.heritage.org/poverty-and-inequality/report/marriage-americas-greatest-weapon-against-child-poverty

Shapiro, B., & Shapiro, B. (2019, January 08). America Needs Virtue before Prosperity. Retrieved from https://www.nationalreview.com/2019/01/tucker-carlson-populism-america-needs-virtue-before-prosperity/

Suicide Statistics. (n.d.). Retrieved from https://afsp.org/about-suicide/suicide-statistics/

The Myth of the Great Wages ‘Decoupling’. (n.d.). Retrieved from https://www.hoover.org/research/myth-great-wages-decoupling

Tucker Carlson: Mitt Romney supports the status quo. But for everyone else, it’s infuriating. (n.d.). Retrieved from https://www.foxnews.com/opinion/tucker-carlson-mitt-romney-supports-the-status-quo-but-for-everyone-else-its-infuriating

US Census Bureau. (2018, August 28). Data. Retrieved from https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-income-people.html

Vance, J. D., & Vance, J. D. (2019, January 07). Conservatives Should Heed Tucker Carlson’s Advice. Retrieved from https://www.nationalreview.com/2019/01/tucker-carlson-health-of-nations-markets/

Whalen, J. (2017, December 21). Overdose Deaths Drive Down U.S. Life Expectancy-Again. Retrieved from https://www.wsj.com/articles/overdose-deaths-drive-down-u-s-life-expectancyagain-1513832460

What Is the Male Marriage Premium? (2018, June 20). Retrieved from https://www.econlib.org/archives/2012/02/what_is_the_mar.html

Williamson, K. D., & Williamson, K. D. (2019, January 08). The Non-Debate. Retrieved from https://www.nationalreview.com/2019/01/tucker-carlson-populism-status-games/

Unconventional Ways to Flaunt Wealth through Fashion

Social relations are complex, particularly as increased global productivite democratizes formerly luxury, exclusive goods.

By: Christina Gayton

In The Theory of the Leisure Class, Thorstein Veblen claimed “our apparel is always in evidence and affords an indication of our pecuniary standing to all observers at the first glance.” Historically, the elite would visualize their status through clothing by wearing elaborate garments with rare decorations (i.e. gold, diamonds) and delicate materials that were easy to stain or tear (i.e. white, silk). However, today, resources like gold and silk are much easier to come across and take care of among nearly all economic classes. Thus, dressing with wealth has become more complex in the modern day, and several fashion trends have emerged as a result.

Luxe Normcore

Picture2Luxe Normcore combines simple with high end. By pairing cheap, casual clothes like ripped jeans and t-shirts with luxury items like balenciaga shoes, wealthy individuals are able to make a statement: “Wearing incredibly expensive shoes is no big deal for me.” Designer handbags and other accessories that would normally be reserved for high profile events and paired with elegant attire now is toted alongside sweatpants. Thus, rich people can attempt to convey that luxury is not an effort for them; it’s simply a part of their everyday.

 

Statement Pieces with Less Functionality

Picture3Dressing with less functional pieces has been a statement of wealth for centuries; in the 1800s, restricting corsets were the rage among the upper class, and high heels emerged as a hot fashion staple for the privileged in the 1500s. These pieces made manual labor more difficult and inconvenient, which is why they were easily used by wealthy individuals who luckily did not have to physically labor.

Although heels have now become a staple in many wardrobes, statement pieces still subtly demonstrate affluence to demonstrate the superfluous, which can be seen through colorful clothing and distinct patterns. These statement pieces are generally harder to pair than basic colors, like white and black, and thus, may not make as many debuts out of one’s closet. Particularly in expensive cities with small apartments with limited storage, being able to buy and store many statement clothing items demonstrates monetary abundance when compared to the everyday basics NYC black wardrobe.

Countersignaling

Picture4Despite unique clothing being a potential social status signal, dressing down can even be a wealth symbol. This is for three main reasons:

1) The wealthiest people don’t have anything to prove and find it more important to save or invest money than buying high end brands.

According to data from the US Consumer Expenditure Survey, the wealthy (top 1%) are increasingly less likely to spend money on material goods and more inclined to save money or spend on experiences and investments like education, health, and travel. All the while, middle class Americans (around $70,000) are increasing material consumption.

Also notably, health spending is a cross between conspicuous and inconspicuous consumption; although “buying health” cannot be blatantly seen, wealth can afford oneself convenient healthy food, access to nutrition knowledge, supplements, good healthcare, and luxuries like a personal trainer. So, no matter what clothes one is wearing, having clear skin, shiny hair, and a fit body underneath the clothes may be just as important of an indicator of financial wellbeing.

 2) CEOs and other highly ranked officials can flex their power by showing that they can wear whatever they want, even in the office.

This point is the main origin of the term “countersignaling,” which is defined as “the behavior where agents with the highest level of a given property invest less into proving it than individuals with a medium level of the same property.” Essentially, humility and understatement are being used as the ultimate symbol of security in one’s wealth and status, an ascended status compared to the nouveau rich.

3) Rich people are busy with more important matters than spending time on picking outfits.

The average American makes thousands of quick and sometimes difficult decisions in a day. Choosing what to wear is just another task on the list. Barack Obama describes how decision fatigue resulted in his simple wardrobe, saying “You’ll see I wear only grey or blue suits. I’m trying to pare down decisions. I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make.”

High End Brands and Expensive Items

Picture5This point is the most obvious example when displaying wealth through fashion comes to mind: buy brands that are expensive and show them off. High end brands are an excellent example of veblen goods. Veblen goods are goods that defy the normal economic rule of increased price leading to decreased quantity demanded. In the case of veblen goods, increased price creates more desire- possibly because it may indicate scarcity and exclusivity.

So can anything be a social status signal?

From these few examples describing the wealth indicators surrounding dressing up and dressing down, it may seem like anything can signal status. Social relations are complex, particularly as increased global productivity democratizes formerly luxury, exclusive goods. Veblen further described in The Theory of the Leisure Class that once the masses found ways to emulate or achieve the garb of the rich, then the symbol substantially decrease in value. Thus, the upper class will always need to develop new ways of signaling status with their money.

Works Cited

Image Source: https://www.pexels.com/photo/woman-wearing-maroon-velvet-plunge-neck-long-sleeved-dress-while-carrying-several-paper-bags-photography-972995/

Currid-Halkett, Elizabeth. (2017, 14 June). The New Subtle Ways the Rich Signal Their Wealth. Retrieved from http://www.bbc.com/capital/story/20170614-the-new-subtle-wlays-the-rich-signal-their-wealth

The Jet Set. (2018, January 16).  Reasons Why Rich People Dress Simple. Retrieved from http://financeblvd.com/the-jet-set/reasons-rich-people-dress-simple.

Walsh, F. Wealth Inequality in Fashion- The Rise of Luxe-Normcore. Retrieved from http://www.petrieinventory.com/wealth-inequality-in-fashion-the-rise-of-luxenormcore/

 

Food Waste Economics

By: Christina Gayton

The hidden costs of lost calories

Every year, 40 million tons of food are thrown away in the U.S. alone. That’s the equivalent of 182 billion New York bagels, which is approximately enough to feed one billion people. Although day-to-day we may not think much of throwing away half an uneaten lunch, trashed food from Americans accounts for the largest percentage of landfill content- even more than plastic, paper, wood and glass. There are many externalities and costs attached to our food waste. To get a full picture of the economics of America’s trashed food, we need to first explore how and why food is wasted, then analyze the financial and external costs.

HOW FOOD IS WASTED

People waste food at four levels: producer, distributor, seller, and consumer. At these levels, three types of food get discarded: food gone bad, food we think is bad, and food we know is still consumable, but we don’t want.

When genuinely non-consumable food is thrown away, it is usually because of problems in packaging, storage and transportation at the production level, as well as consumers and sellers stocking more than needed. For the average U.S. household, approximately $2200 of food is tossed- roughly a fifth of the goods in every consumer’s shopping cart. Surprisingly, legitimately bad food is the smallest portion of food wasted. On average, 90% of tossed food can still be safely eaten.

The largest category of food trash is food we think is bad, but could actually still be consumed. This inclination comes down to aesthetics and expiration dates. First, aesthetically, producers and sellers are hesitant to deal with misshapen or bruised goods, even if they’re still edible. At the retail level, there is an emphasis on all individual products looking homogenous. So, when an item is considered distorted, such as a two-bodied pear, it won’t make the market shelves. Similarly, people often hesitate to consume food that looks slightly bruised or is past its sell-by date. However, bruises on produce, damaged boxes, and passed sell-by dates often only indicate a decrease in quality, not edibility. Nevertheless, the items are tossed.

Lastly, when we throw away food we know is still good, but we simply don’t want, it is often because the time, resources and money needed to donate the food or transport it to someone who would eat it outweigh the perceived benefits of doing so. For sellers in particular, companies like Walmart recognize that it is more cost-efficient to throw away the good than to spend money on a driver to transport the food to a homeless shelter. Furthermore, individually, why donate the blueberries you never ate if there’s a trashcan five feet from the fridge?

As we’ve noted, there’s a fair amount of food in landfills. Along with the sunk costs of purchasing said food, wasting it creates additional problems. These include resource expenditures, environmental externalities, and social costs.

RESOURCE COST

A substantial amount of money is wasted producing food that is never used. Additionally, one must consider the wasted labor, material resources, time and energy that go into food production. It’s nearly impossible to estimate the potential economic benefits from redirecting these resources, but the situation carries considerable gravity. The Food and Agriculture Organization of the United Nations (FAO) recently estimated annual losses of $1 trillion from resource costs.

ENVIRONMENTAL COSTS

In addition to squandered resources, there is the externality of environmental impact, both from resource overuse- like water scarcity and soil erosion- and from pollution. 95% of food waste goes to landfills, which produce methane, the leading culprit in climate change. The FAO estimates the environmental cost of food waste at $700 billion per year, which was calculated by quantifying carbon, land, and water costs and potential savings, along with the semi-quantifiable cost factor of biodiversity.

SOCIAL COSTS

The lost consumer surplus resulting from our food waste pushes up the price of food. This loss has a relatively greater impact on poorer individuals, as food costs account for a greater percentage of their income. Higher prices and lower quantities of food invariably cause nutritional deficiencies for lower-income people. This, in turn, may result in externalities like higher healthcare costs and lost productivity from individuals weakened by nutritional deficiency and food insecurity. This cost is estimated by the FAO to be approximately $900 billion per year. Adding this to resource and environmental costs, the FAO projects a combined annual cost of $2.6 trillion from America’s food waste.

POLICY

Several countries have implemented policies to combat food waste, such as France, where it is illegal for companies to throw away good food, and Italy, where wise food consumption results in tax breaks. In the U.S., at least ten cities and states have laws intended to curb food waste; for instance, some do so by limiting the amount of organic waste allowed in landfills, while others mandate composting and donating food.

The impact of food waste reduction policies is double-sided: on one hand, it creates savings from avoided unnecessary food purchases. On the other hand, reduced food demand and production leads to job loss, which was the case in Germany, where almost €30 billion was saved, but roughly 600,000 jobs were lost.

With these policies, even more externalities may arise. For instance, with a tax on food trash, consumers may buy less food to avoid waste, thus causing less production of food. This would then lead to higher food prices and less extra food available for donation.

Clearly, the costs surrounding food waste and policy to curb it are complex. Food waste has increased by 204% since 1960, but governments and businesses have been increasingly taking proactive measures to fight it, potentially resulting in a swarth of externalities we have yet to even recognize. Even so, after carefully analyzing the ways in which Americans waste food, as well as the ultimate costs and externalities, we can hopefully begin to illuminate the best possible solutions to this problem.

Works Cited:

Image Source: https://www.express.co.uk/news/uk/702674/British-households-waste-amount-food-every-year

10 Shocking Food Waste Statistics. (2017, April 20). Retrieved from http://www.theswagusa.com/2017/04/20/10-shocking-food-waste-statistics/

Ferdman, R. A. (2014, September 23). Americans throw out more food than plastic, paper, metal, and glass. Retrieved from https://www.washingtonpost.com/news/wonk/wp/2014/09/23/americans-throw-out-more-food-than-plastic-paper-metal-or-glass/?noredirect=on&utm_term=.d4e78660514c

Food Wastage Footprint. (n.d.). Retrieved from http://www.fao.org/nr/sustainability/food-loss-and-waste/en/

Frandsen, J. (2017, May 16). Here’s how states are working to curb food waste. Retrieved from https://www.pbs.org/newshour/nation/heres-states-working-curb-food-waste

Geise, H. (n.d.). Food Waste Blog | Spoiler Alert. Retrieved from http://blog.spoileralert.com/food-waste-bans

The Economic Impact of Reducing Food Waste in Germany, Poland and Spain. (2018). Retrieved from http://ec.europa.eu/environment/integration/research/newsalert/pdf/economic_impact_reducing_food_waste_germany_poland_spain_508na2_en.pdf

 

 

Nordic Countries are Neither Socialist nor Paradise

By: Ethan Lamb

While certain achievements of Nordic countries undeniably demonstrate success, a further examination reveals that the prosperity attained in this region is largely attributable to Nordic culture and free market policies, and has very little to do with socialistic initiatives.

The broad debate between free markets and socialism has been gaining relevance in American political discourse. A popular talking point is Nordic countries, which are often considered the exemplar of socialist policies being implemented correctly. While certain achievements of Nordic countries undeniably demonstrate success, a further examination reveals that the prosperity attained in this region is largely attributable to Nordic culture and free market policies, and has very little to do with socialistic initiatives.

An honest analysis of Nordic political systems shows that these countries are not socialist, no matter how the term is defined. In fact, after frequently being extolled by Sen. Bernie Sanders as a paradigm for socialism, Danish Prime Minister Lars Lokke Rasmussen responded, “I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.” Furthermore, the Heritage foundation in partnership with the Wall Street Journal formulates an Index of Economic Freedom, which measures trade freedom, business freedom, investment freedom, and property rights. According to the Index of Economic Freedom, Denmark is the 12th most economically free country in the world, only one spot behind the United States. Contrary to popular belief, the Nordic system can largely be explained as a group of free-market economies with high taxes and expansive welfare states, with certain industries such as healthcare being centralized.

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The impetus for socialism in America is often undergirded by a certain set of circumstances, the most common being health outcomes and income equality. The contention of many self-proclaimed socialists is that if the United States were to become socialist, health outcomes would improve and the distribution of income would be more equal because these outcomes happened in Nordic countries. However, further scrutiny shows that the laudable health outcomes predate the Nordic countries’ move to a more socialist-redistributive political system. In Debunking Utopia, analyst Nima Sanandaji underscores this notion by pointing out that “When Nordic countries had similarly sized public sectors as the United States (1960), Swedes lived 3.2 years longer than Americans, while Norwegians lived 3.8 years longer. Today the difference has shrunk to 2.9 years in Sweden and 2.6 years in Norway.” A similar trend occurred when comparing infant mortality rates. In other words, there is another factor(s) responsible for these impressive statistics. Moreover, according to the OECD Better Life Index, Switzerland, a culturally and economically conservative country, has a higher living standard than all of the Nordic countries.

It should also be noted that the Czech Republic and Slovenia are rated more income-equal than all of the Nordic countries despite having lower and relatively flat taxes. This trend is not necessarily a critique of the political systems in the Nordic countries. It’s merely a suggestion that Nordic policies do not explain the entire story and have a much weaker causal impact than is generally understood. 

To understand the success behind the Nordic countries, it’s important to recognize the unique culture that made such economic growth possible. German sociologist Max Weber noted that “Protestant countries in northern Europe tended to have higher living standards, better academic institutions, and more well-functioning societies than countries in other parts of Europe,” and attributes a large part of that success to a protestant work ethic. Moreover, Swedish Scholar Assar Lindbeck posits the strong work ethic in the Scandinavian culture is due to the “hostile environment of preindustrial Scandinavia,” which required farms to work exceedingly hard to yield a profit. Furthermore, economist Tino Sanandaji explains that “Scandinavia was likely the most egalitarian part of Europe even before the modern era. For example, it was the only major part of Western Europe that never developed full-scale feudalism and never reduced its farmers to serfdom.” Contrary to the prevailing narrative, Scandinavian societies were some of the first societies to embrace free-market principles such as property rights. In fact, even before Adam Smith, a Finnish priest and member of Sweden’s Parliament named Anders Chydenius articulated the necessity of free trade and free markets in fostering economic prosperity.

Such values, including personal responsibility, work ethic, and social trust are uniquely present in the Nordic culture. For example, Nordic countries are at the top of the charts for coffee consumption per person. Finland (12.3 kg), Norway (9.7 kg), Denmark (8.7 kg), and Sweden (7.3%) noticeably surpass the average American’s coffee consumption of 4.2 kg. Perhaps more telling, Nordic countries account for three out of the top four spots in Europe in terms of share of workers “totally committed to their employer.” Sweden (65%), Norway (63%), and Denmark (53%) significantly outrank their southern European counterparts in France (41%), Italy (39%), and Portugal (28%). Moreover, the aforementioned income-equality rankings heavily correspond with high levels of homogeneity. What these can partially display is  that public trust in institutions, social cohesion, and unity are integral characteristics in forming a functional society. The importance of such oft-overlooked metrics and cultural components explains at least some of the disparity in performance levels between Nordic countries and countries that implement Nordic policies. The latter tend to achieve underwhelming results.

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Some of the previously discussed cultural traits become much more apparent when juxtaposing the performance of Nordic Americans with average Americans as well as Nordics in Europe. For instance, the GDP per capita of all Americans ($52,592) is lower than that of Norway ($65,685), and marginally higher than those of Denmark ($45,597), Sweden ($45,067), and Finland ($40,832). However, when looking at the GDP per capita for Danish Americans ($70,925), Swedish Americans ($68,897), Norwegian Americans (67,385), and Finish Americans ($64,774), Nordic Americans conspicuously outperform their relatives in their home country. Further adhering to this phenomenon, the high school graduation rate of Swedish Americans (96.6%), Danish Americans (96.5%), Finnish Americans (96.4%), and Norwegian Americans (96.3%) is markedly higher than those of all Americans (86.3%), and their relatives in Norway (81.7%), Sweden (79.6%), Finland (78%), and (75.1%). Economists Geranda Notten and Chris de Neubourg provide further evidence by pointing out that, while the absolute poverty level is higher in America (11%), the poverty rates in Denmark (6.7%) and Sweden (9.3%) are higher than the poverty rates of Danish Americans (4.1%) and Swedish Americans (5.1%). This like-for-like comparison more closely resembles a fixed-effects modeling econometric analysis and indicates that the success of these Nordic countries could very well be in spite of the policies implemented in these countries.

Historical Outlook

Nordic countries are indisputably some of the most prosperous countries in the world. However, it is important to understand the policies responsible for generating their robust economic growth. As Nima Sanandaji notes in Debunking Utopia, Sweden averaged 2% growth per year from 1870-1936, the highest of any western nation, while pursuing pro-market policies. While the Swedish Social Democratic Party was able to gradually expand the welfare state and raise taxes from 1936-1970, their average growth rate was 2.9%, around the western European average. However, between 1970-1991, Sweden, unlike any other Nordic Country, pursued a quasi-Socialist system, manifesting in the enacted policies such as “employer funds,” in which the private ownership of firms would gradually be transferred to labor union. Sanandaji points out that this trial of socialism coincided with a growth rate of 1.4%, the second lowest in western Europe at the time. In fact, The Economist explains that “In a period from 1870 to 1970 the Nordic countries were among the world’s fastest growing countries, thanks to a series of pro-business reforms such as establishment of banks and the privatization of forests. But in the 1970s and 1980s the undisciplined growth of government caused the reforms to run into the sands.”

After this underwhelming period, Sweden enacted reforms that tightened up their welfare programs and reduced their taxation levels. These reforms increased the growth rate to 1.8%, near the top of western Europe. The strength of the economies in these various time periods are well explained when comparing how Sweden’s employment level responded to the Great Depression with how it responded to the crisis in the 1990s. While both periods brought turmoil, Sweden’s quasi-socialist economy reacted demonstrably worse to the crisis in the 1990s, as the charts below indicate. Moreover, the expansion of the public sector starting in the 1970s significantly stifled growth in the private sector job market. In short, Sweden’s wealth was built from decades of free-market policies, and severely undercut by the growth of the public sector and redistributionism. While the Nordic countries have done much to curtail such pernicious policies, they are still facing the consequences of a rapid expansion of the public sector and increased taxation.

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Taxes

Today, while the Nordic countries have largely worked on reforms including reduced unemployment benefits and lower tax rates, their welfare programs and taxation levels are still significantly larger than that of America. According to Danish researcher Henrik Jacobsen Keven, “The top marginal tax rates are about 60-70 percent in the Scandinavian countries as opposed to only 43% in the United States.” However, these high tax rates are not uniquely imposed on the high-income earners. The Tax Foundation notes, “The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent.” In fact, American tax rates are demonstrably more progressive than in Nordic countries. Such high tax rates have been shown to discourage investment and output. In an extensive economic study conducted by Mathias Trabandt and Harald Uhlig, motivated in part by the Laffer curve model, higher taxes in both Denmark and Sweden actually decrease the revenues from taxes.

Furthermore, the taxation levels in Nordic countries are often underestimated due to hidden taxes. For example, the “employer fee” is effectively a tax on labor. Nima Sanandaji delineates this clearly in an example of a worker in Sweden. He explains, “somebody receives a wage of 10,000 kronor in Sweden, the employer has to pay additionally around 10,000 kronor to the government. Half of this is a tax on labor and the other half is the employer’s fee. On their pay stubs, people see that their official wage is around 15,000 kronor, out of which 5,000 have been paid in taxes. The other 5,000 kronor, which has been paid to the tax authority, is often not even included on the pay stub. Thus, many ordinary citizens think the tax on labor is a third of their income (5,000 kronor out of 15,000) rather than the actual rate of half their income (10,000 kronor out of 20,000).” Such hidden taxes are replete in the Nordic countries and actively deceive their citizens. On average, Swedes believe their average tax rate is close to 40%, when in actuality the number has been found to be much closer to 60%.

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In conclusion, the Nordic countries have not stumbled upon some magic formula to circumvent basic economic principles. When constructing policy, it is important to identify and evaluable intangible factors such as culture. The Nordic countries do not have socialist economies, and it is even worth noting that their expansive public sector and high taxes have been far from perfect. With all of this in mind, Bernie Sanders and the ever-growing Democratic Socialist movement in America ought to demonstrate how their policy proposals would yield successful results instead of blindly citing the Nordic model, which is highly misleading and obscures a much-needed debate.

Works Cited

Image Source: Nordic economy: The post crisis recovery of Scandinavian economies. (2015, September 25). Retrieved from http://www.newslettereuropean.eu/nordic-economy-post-crisis-recovery-scandinavian-economies/

Image Source: Sanandaji, N. (2016, December 02). Misreading the Nordic Model. Retrieved from https://www.foreignaffairs.com/articles/northern-europe/2016-08-17/misreading-nordic-model

Image Source: Pomerleau, K. (2018, October 16). How Scandinavian Countries Pay for Their Government Spending. Retrieved from https://taxfoundation.org/how-scandinavian-countries-pay-their-government-spending/

Image Source: Sanandaji, N. (2015, August 04). Scandinavian Myths: High Taxes and Big Spending Are Popular | Nima Sanandaji. Retrieved from https://fee.org/articles/scandinavian-myths-high-taxes-and-big-spending-are-popular/

2018 Index of Economic Freedom. (n.d.). Retrieved from https://www.heritage.org/index/

Denmark to Bernie: Stop Dissing Us with That Word. (2017, August 04). Retrieved from https://www.the-american-interest.com/2015/11/02/denmark-to-bernie-stop-dissing-us-with-that-word/

Jackson, K. (-0001, November 30). Denmark Tells Bernie Sanders It’s Had Enough Of His ‘Socialist’ Slurs. Retrieved from https://www.investors.com/politics/commentary/denmark-tells-bernie-sanders-to-stop-calling-it-socialist/

Kleven, H. J. (2014). How Can Scandinavians Tax So Much? Journal of Economic Perspectives,28(4), 77-98. doi:10.1257/jep.28.4.77

Notten, G., & Neubourg, C. D. (2007). Relative or Absolute Poverty in the US and EU? The Battle of the Rates. SSRN Electronic Journal. doi:10.2139/ssrn.1095712

Sanandaji, N. (2015, August 04). Scandinavian Myths: High Taxes and Big Spending Are Popular | Nima Sanandaji. Retrieved from https://fee.org/articles/scandinavian-myths-high-taxes-and-big-spending-are-popular/

Sanandaji, T. (2012). Poverty And Causality. Critical Review,24(1), 51-59. doi:10.1080/08913811.2012.684474

Sawe, B. E. (2018, August 03). The Most Equal Countries in the World. Retrieved from https://www.worldatlas.com/articles/the-most-equal-countries-in-the-world.html

Solving the European Productivity Puzzle. (2018). Intereconomics,53(2), 52-52. doi:10.1007/s10272-018-0720-0

Switzerland. (n.d.). Retrieved from http://www.oecdbetterlifeindex.org/countries/switzerland/

The McKinsey Quarterly: Sweden’s growth paradox. (n.d.). Retrieved from http://courses.wcupa.edu/rbove/eco343/060compecon/Scand/Sweden/060600comeback.htm

The secret of their success. (2013, February 02). Retrieved from https://www.economist.com/special-report/2013/02/02/the-secret-of-their-success

Trabandt, M., & Uhlig, H. (2009). How Far Are We From The Slippery Slope? The Laffer Curve Revisited. doi:10.3386/w15343

What the Left Gets Wrong About Scandinavia. (n.d.). Retrieved from http://fortune.com/2016/01/26/democrat-bernie-sanders-scandinavia-socialism/

Sanandaji, N. (2016). Debunking utopia: Exposing the myth of Nordic socialism. Washington, D.C.: WND Books.

A Growing & Green Economy

By: Alper D. Karakas

Sustainability and economic prosperity make the world spin.

Most companies presently follow a linear economic business model which, in short, extracts natural resources, creates products with them, and then sells said products to consumers. After the consumer maximizes her usage, the product is thrown away as waste and pollutes the environment. In this way, this  economic model continually affects Earth’s environment in a negative fashion. As more and more natural resources near depletion, the amount of toxins from product waste entering the environment increases and sustainability is minimized while pollution is maximized.

A circular economic model, on the other hand, allows companies to supply products and maximize sustainability while minimizing pollution. The simple, yet powerful theory behind such a model revolves around a flow of raw materials in which the end of a product’s life becomes the start of another’s. In a circular economy, a certain product’s materials are either completely reused or go back into the Earth and biodegrade with no negative effect. When disposed, these natural materials function either as new resources for the next product or as replenishments for the environment. In this way, resources remain 100% efficient and products made from them remain environmentally efficient and healthy.

An example of a commonly used but linear resource is plastic. The issue in plastic lies in the consequence of its deconstruction which is not suitable to biodegrade. Plastic’s polymers are synthetic (made with chemicals that are not associated with living systems) and every time plastic gets melted and reconstructed to be recycled, the bonds between the polymers become weaker and weaker. This property does not allow plastic to be 100%  recyclable.

Take for example that most tech products contain non-biodegradable plastic hardware such as ABS plastics or silicone plastics. When they degrade, they emit butadienes, carbon monoxide and hydrogen cyanide into the air and soil and any product waste using them cannot be the source of another product. But if these plastics were to be substituted with a material that does biodegrade, the soil and air would not be polluted and their destruction would enrich the growth of natural resources required to make headphones, or any product with these plastics.

This substitution could be something called mycelium. Mycelium is a cell in fungal organisms, such as mushrooms, which consumes the biological and agricultural waste in its surrounding, makes up root-like fibers that grow underground, and then grows like a network of filaments. This network of branching fibers creates a compact solid which can take on any shape. Depending on the environment that the mycelium grows in and the biological waste that it consumes, mycelium growth can form into a greatly diverse set of materials. Moreover, mycelium-based plastic substitutes can be used for both the hard shell and soft wire exterior in things such as  rubber-like materials,  hard plastic-substitutes, or even leather. With any desired shape and an infinite variety of textures and flexibilities, it is easy to say that mycelium can substitute synthetic polymers and  shows that the circular economic model is environmentally efficient and healthy.

Aside from the environmental benefits, a circular economic model can seriously  affect a nation’s GDP.  Let’s begin with consumption which makes up 70% of America’s GDP. When a firm follows this model, resources are essentially limitless because the disposal of the old product results in the raw foundation of the new product. This way, a firm does not need to extract new resources for every new product it wants to manufacture. To produce the same quantity of the product, the firm’s cost for resources essentially limits to zero, and their main cost is  the assembly of said products. In this way, firms’ earnings will see continued positive growth and extend down to the individual level in terms of wages and salaries, and increase national consumption.

This increase in consumption occurred in South Africa in 2013 when a wood pallet company transitioned their supply chain of timber from being linear to circular. According to a report delivered by the United Nations Environment Programme and the World Economic Forum, positive consequences included improvements in wood waste as well as financial gain. Because this company’s waste became their supply, it was able to sell more wood. With increased revenue and decreased costs, more jobs were created and employees were paid higher salaries. The reports stated that the provincial businesses experienced an increase of around $200,000 in revenues within one year from consumption’s multiplying effect.

Now onto investment. For a firm to become circular, it would first need to inject money into creating physical capital that would allow a firm to have departments that reconstruct used materials and maintain the use of biodegradable resources. Second, firms would need to develop departments to collect old products to use them as resources for the new ones. Lastly, firms would need to hire more workers due to the previously mentioned capital expansions.

The clothing manufacturer H&M, has been attempting to become completely circular in recent years. It invested and  expanded its plant by creating capital to “completely recycle unwanted clothes” by breaking down the old clothes into fabric that can be reused. H&M then launched an advertisement campaign to promote consumers to return old products, highlighting how firms must invest money to develop a solid marketing team.

Finally, a circular economy will incentivize a nation’s government to invest as well via the positive externalities it creates.  A more productive society will translate to more societal knowhow and an increase of production per worker. Therefore, a more productive society will lead to a more robust and healthier economy.  The value of these externalities should be recognized, and a nation’s government should inject money to help firms become circular, thus investing in a better environment, society, and economy. The World Bank expressed its efforts in Brazil and Bangladesh to improve environmental conditions because its benefits are “less pollution, improved quality of life and opportunity, more efficient production.”

So in review, if firms are able to supply products by completely reusing the same materials in a circular fashion, such as a mycelium based plastic substitute or the work H&M has pioneered, then that would be a step in the right direction for the environment and nations’ economies. Environmentally, if the disposal of a product could become the starting point of its production, then the resource efficiency would positively impact sustainability and decrease pollution. To take it one step further, this process is iterative. As more and more firms transition to a circular economic business model, it can inspire other markets of production to do so as well, eventually resulting in a healthy and  sustainable environment and a growing world economy.

Works Cited:

  1. 100% Circular and Renewable Sustainability Report(pp. 32-66, Rep.). (2016). Stockholm: H&M Group.
  2. Dezeen. 2016, April 21. Growing products from fungus could be the start of a biotechnological revolution. Retrieved from https://www.youtube.com/watch?v=oTsBYfKcXUw
  3. George, D. A., Lin, B. C., & Chen, Y. (2015). Environmental Modeling and Software. A Circular Economy Model of Economic Growth,73, 60-63. Retrieved from https://www.sciencedirect.com/science/article/pii/S136481
  4. 5215300050#fig1.
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  7. Lehman, R. G., Varaprath, S., & Frye, C. L. (1994). Fate of silicone degradation products (silanols) in soil. Environmental Toxicology and Chemistry,13(11), 1753-1759. doi:https://doi.org/10.1002/etc.5620131106
  8. Mankiw, N. G. (2017). Principles of Macroeconomics (8th ed., 2017) by N. Gregory Mankiw(8th ed.).
  9. Metal Packaging Europe. (2018). Permanent. Retrieved from http://www.metalpackagingeurope.org/sustainability
  10. Rutkowski, J. V., & Levin, B. C. (1986). Acrylonitrile–butadiene–styrene copolymers (ABS): Pyrolysis and combustion products and their toxicity. Fire and Materials,10(3-4), 93-105. doi:https://doi.org/10.1002/fam.810100303
  11. The World Bank. (2018, April 5). Reducing Pollution. Retrieved from http://www.worldbank.org/en/topic/environment/brief/pollution
  12. U., & W. (2018, January). Shaping the Future of Environment and Natural Resource Security Building Circularity into Economies through Sustainable Procurement. Retrieved from http://www3.weforum.org/docs/Environment_Team/40049_Shaping_Future_Environment_Natural_Resource_Security_report_2018.pdf