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Free Markets Increase Trust Among People

Blog Post | Cost of Living

Free Markets Increase Trust Among People

Repeated transactions among trading parties encourage trustworthiness.

Competition is an essential part of a capitalist economy. It drives businesses to innovate and to provide consumers with cheaper and better products. If businesses fail to innovate, they go under. The market place can be a brutal place – just think of the way in which Netflix disposed of Blockbuster. “Capitalism without failure is like religion without sin,” as the American economist Alan H. Meltzer once put it. “It doesn’t work.”

But capitalism is also one the most cooperative of human endeavors. Goods and services are traded among strangers and across vast distances, guided – to a great degree – by the price mechanism and by the reputation of the trading parties. Repeated transactions among trading parties encourage trustworthiness – a moral side product of capitalism that we do not spend enough time talking about, let alone celebrating.

Competition produces winners and losers. As Amazon expanded, for example, neighborhood bookstores shuttered across the United States. Some people thought that was a great tragedy, for bookstores provided a pleasant way to browse through publications and, sometimes, meet interesting people. Ultimately, however, the convenience of the internet, and superior choices and prices, proved to be more important to the average customer. Amazon and its clientele won, while Barnes & Noble lost.

The losers, who emerge from capitalist competition, appear to confirm a zero-sum bias in the human brain. It is for that reason that many people tend to focus on the closed local book store, rather than revel in the falling prices and increased choice made possible by Amazon. Where did that bias come from?

For most of our existence in the environment of evolutionary adaptiveness (EEA), which is to say tens of thousands of years we spent wandering the planet as hunters and gatherers, the success of one, usually related, group of people came at the expense of another group. When the resources in an area occupied by group A ran out, group A moved onto a territory occupied by group B. Conflict ensued.

Conflict still continues to define the interaction among animals. Humans, in contrast, evolved additional ways of interacting with one another. Permanent settlements were a key part of that process. Strangers who settled next to one another had to learn how to cooperate. In that process, they either acquired a reputation for trustworthiness, or they became social outcasts excluded from a larger economy.

As a result, humanity advanced. So much so that by the time of the Roman Republic, the Latin term civis became a root word for both the city and civilization. Over time, of course, the city-state gave way to the nation-state and the nation-state became a part of a global economy. As human cooperation expanded, so did our economic horizons.

That was, unambiguously, a moral as well as economic phenomenon. People, who might have otherwise hated each other, were brought together in the pursuit of profit. By the 18th century, the extent of human cooperation within the context of the market economy reached levels that even philosophers, such as Voltaire, felt obliged to opine about. As the French philosopher wrote:

Go into the London Stock Exchange – a more respectable place than many a court – and you will see representatives from all nations gathered together for the utility of men. Here Jew, Mohammedan and Christian deal with each other as though they were all of the same faith, and only apply the word infidel to people who go bankrupt. Here the Presbyterian trusts the Anabaptist and the Anglican accepts a promise from the Quaker. On leaving these peaceful and free assemblies some go to the Synagogue and others for a drink, this one goes to be baptized in a great bath in the name of Father, Son and Holy Ghost, that one has his son’s foreskin cut and has some Hebrew words he doesn’t understand mumbled over the child, others go to their church and await the inspiration of God with their hats on, and everybody is happy.

It is noteworthy that many of the scholars who continue to influence those who are sceptical of capitalism are not economists, but biologists and ecologists. They include the Stanford University professor Paul Ehrlich, the doomsayer partially responsible for the over-population panic that started in the 1960s, Garrett Hardin, the exponent of the “tragedy of the commons” theory, and Jared Diamond, the author of such bestsellers as “Guns, Germs, and Steel” and “Collapse.”

Their analyses of human affairs tend to be analogous to the interactions observable among animals. But humans, while remaining a part of the animal kingdom, have evolved mechanisms that allow for billions of cooperative interactions to take place each day. It is time for the economists to steal the biologists’ thunder by putting a renewed emphasis on the cooperative aspect of capitalism.

This first appeared in CapX.

CNBC | Food Production

Chipotle Tests Automation for Burrito Bowls and Salads

“The Hyphen robot will make burrito bowls and salads for digital orders only. The technology moves the bowls underneath the digital make line to dispense the correct ingredients. Simultaneously, an employee can assemble digital orders for other items, such as tacos, quesadillas and burritos, on the digital make line. When the robot is done making an order, it sends the bowl or salad back up to the surface so employees can properly package the order.”

From CNBC.

The Human Progress Podcast | Ep. 37

Stephen Barrows: The Economic Madness of Malthusianism

The economist Stephen Barrows joins Chelsea Follett to discuss the intellectual history of population economics, the benefits of population growth, and what we can expect from a future of falling fertility.

Blog Post | Air Transport

The Gift of Flying Home for Christmas

The time price of airfares has fallen 38.1 percent in five years.

Airports will be busy again this Christmas. According to Kayak data, domestic flight searches are up 155 percent compared to 2020, though they are still 43 percent lower than in 2019.

Fortunately, we continue to enjoy the gift of decreasing airfares. The Bureau of Labor Statistics reports that since 2016, airfares have decreased in price from an index value of 270.9 to 203.8, or 24.8 percent.

Since we buy things with money but pay for them with time, we prefer to analyze the cost of airfares using time prices. To calculate the time price, we divide the nominal price by the nominal wage. That will give us the number of hours of work required to earn enough money to buy an airplane ticket.

We can calculate the time prices using data from the Bureau of Labor Statistics. They report that the nominal blue-collar hourly wage increased by 21.5 percent from $21.72 in 2016 to $26.40 in 2021.

It took 12.47 hours to earn enough money to buy the average airplane ticket in 2016. Today, it takes just 7.72 hours. That’s a decline of 38.1 percent.

For the same amount of time working, you can get 61.6 percent more airfares today than in 2016. Flying abundance has been growing at a compound annual rate of around 10.7 percent a year. At this rate, we get twice as many flights every 7.22 years.

Excerpt from our forthcoming book, Superabundance.

Blog Post | Scientific Research

The Fastest Learning Curve in History?

Human genome sequencing has become over a million times more abundant since 2003. In the near future, the price may drop another 90 percent from $1,000 to $100.

The Human Genome Project was an international effort to map the entire three-billion-letter human genome. The project launched in 1990 and concluded its work in 2003 – 50 years after James Watson and Francis Crick discovered the double-helix structure of DNA. The U.S. government contributed $3.8 billion toward the project, though the cost of the actual sequencing was lower.

Dr. Eric Green, the director of the National Human Genome Research Institute, recalled that “the first genome cost us about a billion dollars … Now when we sequence a person’s genome, it’s less than $1000, so that’s a million-fold reduction.”

Note that blue-collar worker hourly compensation (wages and benefits) rate increased by 51 percent between 2003 and 2020 (i.e., from $21.54 to $32.54). Consequently, it would have cost that worker 46,425,255 hours of work to earn enough money to buy his or her DNA sequence in 2003, but only 30.73 hours of work to do so in 2020.

The time price of DNA sequencing, in other words, dropped by 99.99993 percent. For the same hours of work required to earn the money to buy one DNA sequence in 2003, a blue-collar worker can get over 1.5 million sequences today. That amounts to over a 150 million percent increase in DNA sequencing abundance.

Now a group of Chinese entrepreneurs at the BGI hope to get the price down to $100 using a robotic arm and a roomful of chemical baths and imaging machines. Rade Drmanac, chief scientific officer of Complete Genomics, a division of BGI, noted that at $100, genetic sequencing could soon be common for every child at birth.

The National Human Genome Research Institute tracks costs associated with DNA sequencing and produced the chart below. Note the logarithmic scale on the vertical (i.e., Y) axis:

Exponential innovation occasionally experiences a double exponent or punctuation as it did in January of 2008 when DNA sequencing transitioned from the Sanger method (i.e., dideoxy chain termination sequencing) to “second generation” or “next-generation” DNA sequencing technologies.

A fall in the cost of DNA sequencing from $1,000,000,000 to $100 over 20 years would imply a compound rate of decline of 6.5 percent a month. (Adjusting for the time price puts the compound rate of decline at 7.13 percent per month.) Moore’s law indicates that prices of computing decline at 2.85 percent a month. So, the cost of DNA sequencing per genome may amount to the fastest price decline in history.

Long live learning curves. The knowledge they create is our true wealth.