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this is another part of the appeal of permission based systems whether egalitarian or authoritarian if you have to make a high touch human connection with me and get my permission before acting i m more likely to notice changes that are bad in ways i didn t have any prior model of if i m sufficiently cautious or pessimistic i might even be ok with the costs in terms of causing a chilling effect on harmless actions so long as i make sure i m sensitive to new kinds of shenanigans that can t be captured in pre existing rules if i don t know what i want exactly but i expect change is bad i m going to be much more drawn to permssion based systems than if i know exactly what i want or if i expect typical actions to be improvements august 2 2019 srconstantin 3 comments the costs of reliability a question that used to puzzle me is why can people be so much better at doing a thing for fun or to help their friends and family than they are at doing the exact same thing as a job i ve seen it in myself and i ve seen it in others people can be hugely more productive creative intelligent and efficient on just for fun stuff than they are at work maybe it s something around coercion but it happens to people even when they choose their work and have no direct supervisor as when a prolific hobbyist writer suddenly gets writer s block as soon as he goes pro i think it has a very mundane explanation it s always more expensive to have to meet a specific commitment than merely to do something valuable if i feel like writing sometimes and not other times then if writing is my hobby i ll write when i feel like it and my output per hour of writing will be fairly high even within writing if my interests vary and i write about whatever i feel like i can take full advantage of every writing hour by contrast if i ve committed to write a specific piece by a specific deadline i have to do it whether or not i m in the mood for it and that means i ll probably be less efficient spend more time dithering and i ll demand more external compensation in exchange for my inconvenience the stuff i write for fun may be valuable and if you simply divide the value i produce by my hours of labor or the amount i need to be paid i m hugely more efficient in my free time than in my paid time but i can t just trivially up my efficiency in my paid time reliability itself has a cost the costs of reliability are often invisible but they can be very important the cost in time and in office supplies and software tools of tracking and documenting your work so that you can deliver it on time the cost in labor and equipment of quality assurance testing the opportunity cost of creating simpler and less ambitious things so that you can deliver them on time and free of defects reliability becomes more important with scale large organizations have more rules and procedures than small ones and this is rational accordingly they pay more costs in reliability one reason is that the attack surface for errors grows with the number of individuals involved for instance large organizations often have rules against downloading software onto company computers without permission the chance that any one person downloads malicious software that seriously harms the company is small but the chance that at least one person does rises with the number of employees another reason is that coordination becomes more important with more people if a project depends on many people cooperating then you as an individual aren t simply trying to do the best thing but rather the best thing that is also understandable and predictable and capable of achieving buy in from others finally large institutions are more tempting to attackers than small ones since they have more value to capture for instance large companies are more likely to be targeted by lawsuits or public outcry than private individuals so it s strategically correct for them to spend more on defensive measures like legal compliance procedures or professional pr all of these types of defensive or preventative activity reduce efficiency you can do less in a given timeframe with a given budget large institutions even when doing everything right acquire inefficiencies they didn t have when small because they have higher reliability requirements of course there are also economies of scale that increase efficiency there are fixed expenses that only large institutions can afford that make marginal production cheaper there are ways to aggregate many risky components so that the whole is more robust than any one part e g in distributed computation compressed sensing or simply averaging optimal firm size is a balance this framework tells us when we ought to find it possible to get better than default efficiency easily i e without any clever tricks just by accepting different tradeoffs than others do for example 1 people given an open ended mandate to do what they like can be far more efficient than people working to spec at the cost of unpredictable output with no guarantees of getting what you need when you need it see academic research 2 things that come with fewer guarantees of reliable performance can be cheaper in the average use case at the cost of completely letting you down when they occasionally fail see prototype or beta version technology 3 activities within highly cooperative social environments can be more efficient at the cost of not scaling to more adversarial environments where you have to spend more resources on defending against attacks see eternal september 4 having an opportunistic policy of taking whatever opportunities come along for instance hanging out in a public place and chatting with whomever comes along and seems interesting vs scheduling appointments allows you to make use of time that others have to spend doing nothing at the cost of never being able to commit to activities that need time blocked out in advance 5 sharing high fixed cost items like cars can be more efficient than owning at the cost of not having a guarantee that they ll always be available when you need them in general you can get greater efficiency for things you don t absolutely need than for things you do if something is merely nice to have you can handle it if it occasionally fails and your average cost benefit ratio can be very good indeed but this doesn t mean you can easily copy the efficiency of luxuries in the production of necessities this suggests that toys are a good place to look for innovation frivolous optional goods are where we should expect it to be most affordable to experiment all else being equal and we should expect technologies that first succeed in toy domains to expand to important life and death domains later july 20 2019 srconstantin 3 comments book review why are the prices so damn high economist alex tabarrok has recently come out with a short book why are the prices so damn high available in full pdf here since the 1950 s the inflation adjusted cost of physical goods has fallen since the 1950 s and the cost of food has stayed about the same but the cost of education professional services and healthcare has risen dramatically despite those sectors not producing much improvement why the traditional economic explanation for the rising cost of services is the baumol effect some sectors like manufacturing are subject to efficiency improvements over time as technology improves the more we automate the production of goods the cheaper they get other sectors are intrinsically harder to automate so they don t get cheaper over time for instance it takes the same number of musicians the same number of time to play a symphony as it did in 1950 so as a proportion of the average person s paycheck the cost of intrinsically un automatable things like live concerts must rise relative to the cost of automatable things like manufactured goods tabarrok doesn t cover housing in his book but home prices have also been rising since the 1970 s and i ve seen the baumol effect deployed to explain rising housing costs as well land is the one thing they re not making any more of for the most part technological improvements don t increase the quantity of livable land so if technology makes some sectors more efficient and drives costs down land will become relatively more expensive my beef with baumol my preconception coming into the book was that the baumol effect doesn t actually answer the question why are healthcare professional services and education intrinsically hard to make more efficient it s prima facie absurd to say that medicine is just one of those things that technology can t improve the biomedical industry is one of the biggest r d endeavors in the whole economy so why is it obvious that none of that innovation can make medicine cheaper if it s not making medicine cheaper that s an empirical fact that deserves explanation and it s the baumol effect doesn t actually answer the why question the same holds true for the other industries even housing to some degree while it s true that the amount of land on earth is fixed modulo landfill and the amount of space in manhattan is fixed there s also the options of building taller buildings expanding cities and building new cities why is it in principle impossible for the production of housing to become more efficient over time just as the production of other goods does the baumol effect doesn t make sense to me as an explanation because its answer to why are these sectors getting more expensive is in effect because it s obvious that they can t get cheaper it s not administrative bloat it s more service providers a popular explanation for why college and k 12 education have gotten more expensive is bloat the idea that most of the cost is due to increasing numbers of bureaucratic administrators and unnecessary luxury amenities tabarrok points out that this story can t be true in reality the percent of university costs going to administration has stayed relatively constant since 1980 and the percent going to facilities has decreased in the k 12 world the number of administrators is tiny compared to the number of teachers and it s barely budged it s the number of teachers per student that has grown most of the increase in educational costs says tabarrok comes from rising numbers of teachers and college professors and higher wages for those teachers and professors in other words education is getting more inefficient not necessarily in a pejorative sense but in an economic sense we are using more people to achieve similar educational results average test scores are flat this may be fine maybe people get value out of personal teacher attention that doesn t show up in test scores so we re spending more to get a better outcome just one that the narrow metric of standardized test performance doesn t capture likewise in healthcare we have an increasing number of doctors and nurses in the us per capita and relative to median income doctors and nurses are making higher salaries over time whatever improvements we re making in medical technology we re not using them to automate away the need for labor again maybe this is what people want maybe personal attention is intrinsically valuable to people so we re getting more for our money and overall health outcomes like life expectancy have increased modestly since 1950 though i d argue that they re underperforming relative to what s possible but what about housing the argument that the cost of services is rising because we use our increasing prosperity to buy more personal attention from teachers and doctors does not apply directly to the rising cost of housing which is not a service however it may be that the rising cost of housing especially in cities is really about buying proximity to increasingly valuable services good schools live music and so on if the only thing you can t automate away is human contact maybe we re willing to spend more to be around fancier humans but what about immigration you might argue but labor prices don t come down because immigration restrictions keep foreigners out labor intensive industries are getting more expensive because we allow too little immigration the reason why education and medicine are getting expensive is just precisely because those are the sectors where restrictive laws keep the cost of inputs high but like the baumol effect this explanation also begs the question why are healthcare and education relative to other industries the sectors where labor costs are the most important the immigration explanation is also compatible with the baumol effect not a counterargument to it if we just take as a given that it s impossible to make healthcare or education more labor efficient then it can both be true that other things getting cheaper and immigration restrictions keeping wages high contribute to the high cost of healthcare education relative to other things cost increases aren t driven by supply side gatekeeping from tabarrok s point of view rising housing costs education costs and healthcare costs are not really mysterious facts in need of explanation by gatekeeping tactics like monopolies regulation zoning or restrictive licensing nor can they be explained by gatekeeping tactics alone gatekeeping on the supply side increases price and reduces output for instance a monopolist s profit maximizing output is lower than the equilibrium output in a competitive market and increases the monopolist s profit relative to what firms in a competitive market can obtain likewise restrictive licensing laws reduce the supply of doctors and lawyers and raise their wages but we don t see declines in the number of doctors lawyers teachers and professors over time we see clear and steady increases therefore the increased cost of medicine can t be explained by increased restrictions on licensing it s still possible that licensing is artificially restricting the supply of skilled professionals relative to an even higher counterfactual growth rate but this doesn t by itself explain the growth in spending we see demand for professional services is rising prescription only drugs are another good example of regulatory gatekeeping not being enough to explain rising costs the total cost of getting a prescription drug is higher when there s a legal requirement of a doctor visit than when you can just buy the drug over the counter in that sense it s true that regulation increases costs however prescription only requirements have been pretty much fixed for decades not getting more severe while consumption of prescription drugs per capita is rising we re spending more on drugs because there s growing demand for drugs this means that deregulation alone won t change the fact that a growing portion of each person s paycheck is getting spent on medicine if the law reclassifies a drug as over the counter we d expect a one time downward shift in the price of that drug but the slope of the curve of total spending on that drug over time won t get flatter unless dem...
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