In this essay, I will offer a theory of slow progress based on the maxim, “It is often easier to fail conventionally than to succeed unconventionally.” My claim will be that in health care, education, and construction/infrastructure, the consuming public is more receptive to conventional failure than unconventional success. This is less the case in other realms, so progress is faster in those realms. We are willing to try ride-sharing apps or airbnb, but no middle-class parent wants to tell their peers that their kids are not going to an established college.
In the Zuckerberg-Cowen-Collison conversation, Zuckerberg repeatedly asks why costs are high in health care, education, and rent.
So you were talking a minute ago about the explosion in costs in healthcare. And right now, I think one of the defining aspects of the moment that we’re in is a lot of the basic costs of living for a lot of people have just increased a lot. . .things that matter so much like healthcare, education, rent–those things have generally just increased, right? And the normal dynamics that you’d be hoping would play out aren’t. And to some degree, for the quality of life for a lot of people, the increases in those costs may even be dwarfing all the other advances in everything else
1. As I was listening, I was frustrated, because I wanted to point to my essay What Gets Expensive, and Why?. There I include the Baumol effect, but note my critical comments on the attempt by Alex Tabarrok to put it all on the Baumol effect.
2. Patrick notes that our ability to do large construction projects has declined over the past 70 years or so.
it’s very clear that our productivity has fallen off a cliff and for reasons that we can be pretty sure are not that it’s getting intrinsically harder. And so, for example, when New York decided to build the subway in 1900…4.7 years later, they opened 23 subway stations, and in 2019 dollars, they spent just over a billion dollars doing so. … When New York decided to build the Second Avenue subway in the year 2000, 17 years later they opened three stations and they spent $4 1/2 billion doing so. And so our productivity in subway construction has, at least in New York, decreased by a factor of 40. … California, you have high speed rail where… when France decided to build the TGV, its high speed rail, it opened the first line after five years. California started pursuing high speed rail 11 years ago. They forecast–we forecast–being finished in 2033. So we project a 25-year project, but of course, that’s a projection. It’ll probably end up being much longer
3. I already gave away my instinct on this when I wrote,
my inclination is to focus on broader cultural values. The enemies of progress are fear of novelty and envy of success. My thinking is that when those enemies hold sway, progress will be slow. When those enemies are weak, progress will be rapid.
I agree with Tyler that there is a lack of will. In the case of infrastructure projects or housing development, we now have a culture of conventional failure. Look at how hard it has been for Google to try to find a city that will allow it to experiment with a city of the future. Cities are only willing to approve politically correct development–bicycle lanes, as opposed to dedicated lanes for self-driving cars.
4. Patrick says,
empirically the entry costs of forming a new university are really high, but that’s not because there’s a kind of formal toll you have to pay. It’s not like zoning where there are deliberate, specific legal restrictions that prohibit you from doing so. But just as a practical matter sociologically, institutionally, accreditation dynamics, who knows, it’s apparently almost impossibly difficult to create a successful new university today.
Again, that is because we prefer conventional failure to unconventional success. I recently was hosted by a family in Texas. The oldest daughter was in the midst of applying to college. I wanted to scream “No! Don’t do it!” I do not believe that she is ready to go to college. I think she would be much better off just working at a low-paying job for a year or two and living on her own. I believe that is true for the vast majority of high school seniors these days.
Patrick is in the business of making it easier to start a company. Suppose he were in the business of making it easier to start a university. From the standpoint of technology, that seems like a very plausible business. Tools exist to deliver education in different ways. Look at Tyler’s and Alex’s MRU. The barriers are mostly cultural. Nobody wants to be the parent whose child succeeds unconventionally by taking a nontraditional approach to higher education.
I also want to scream “No!” when I see wealthy donors giving money to universities. The top schools have these enormous endowments already, which act like moats protecting them from competition. Don’t help them fill their moats! Instead, put that money into higher education start-ups. But if you give to your alma mater or to create a research institute at an established university, you can enjoy conventional failure. That seems to be more appealing to philanthropists than unconventional success.
Tyler and Patrick offer some provocative views about the way that success in research tends to come from less conventional institutional processes. But people stick with the conventional. For example, Tyler says
So I think in general, big questions are under-studied– the tenure system, I think, increasingly is broken. A lot of academics do work pretty hard, but that so much of your audience is a narrowly defined set of peers who write you reference and tenure letters–I think we need to change. And the incentive for academics to integrate with practitioners and learn from them and actually try doing things–we need more of that. I’ve often suggested for graduate school, instead of taking a class, everyone should be sent to a not-so-highincome village for two weeks. They can do whatever they want. Just go for two weeks, think about things. No one wants to do this. No one wants to experiment with it.
And I would add, require internships for economists. You can learn a lot while working in business.
Turning to health care, I think that Zuckerberg over-states the amount of money wasted in futile care in the last six months of life. But I think that the point is correct that we undergo many procedures with high costs and low benefits. I strongly believe that if we took away dollars at the margin from medical procedures and put those dollars into public health measures, the net effect would be positive. But wasting money on medical procedures with high costs and low benefits is a way to fail conventionally.
In short, when it comes to urban construction/civil engineering, education, and health care, we have evolved cultures of conventional failure. Innovation and entrepreneurship are discouraged. The heavy influence of government in these sectors probably serves to reinforce this. But ultimately the political process gives us something like what most people want. As Pogo would put it, we have met the enemy of progress, and he is us.
I would turn this analysis towards the Economics profession. If you browse a few weeks of Tyler Cowen’s blog, Marginal Revolution, you will see citations of an endless stream of strange and useless studies and papers, yet the essential public policy questions posed by Zuckerberg are left largely unanswered.
Anyone who dives in for an hour or so on why American infrastructure costs are so high will not come away believing that innovation and entrepreneurship are the issue. Rank incompetence and politically based decision making are usually the main culprits. Innovation has to happen, but America seems to try it in all the wrong ways. Often new approaches are tried in high stakes projects and result in billions in cost overruns.
Comparing projects across countries leads to a frustrating answer. No one does things or plans things the same way, the data on projects don’t line up, and no seems to have a model for comparing projects in a useful way.
Leading us out of these problems is a task for the Economics and Engineering professions. Where is the focus?
Engineers don’t lead. They follow the money. Especially civil engineers.
Right now, the thing with money being thrown at it is cyber security. Fortunately, it breeds peripheral flows or it would be a huge expensive sink.
Economists know the answers to those questions already, which is why they aren’t studied. Infrastructure and housing is expensive in the US because of bureaucracy and because of regulations that require that to build anything you need to hold tons of public hearings, file a ton of legal paperwork, and that all of that takes years (to decades) for things to get approval to get built.
Housing and infrastructure are expensive because the US public prefers the status quo to the alternative in which small numbers of individuals (both in the public and in government) are able to effectively veto, or substantially change, almost all building projects.
These answers are non-answers. France, Germany and Japan have all the same pressures, yet they perform much better than us. They are ordered, complex societies with significant public accommodation issues and old, dense urban areas and they get it done.
It’s not useful to just blurt out “bureaucracy”. One step at a time, we have to start applying lessons of discipline to that bureaucracy. Building an economic and public policy case for those disciplines is the work that must get done. There is plenty of evidence on how to do it.
Government medical care pays the market price for services rendered. That is a recipe for expanding the services rendered to infinity.
Specifically Truman enshrined third-party-payer insurance as a quasi-government entity in 1948. That is where the cost came from.
If anything, Medicare tends to be more efficient than private peers.
I don’t think its just fear of succeeding unconventional that’s the problem. Its fear of failing unconventionally. I believe that in the long run online education will become the model for post high school education. But in the short run there will be lots of failures until someone hits upon the successful methods. People that invest in the failures will have to explain why they didn’t just give money to the existing Universities.
Yes quite. The loss of social capital (status) from failing unconventionally makes it far too high risk on a personal level. Maybe this is one of the reasons why China can do massive infrastructure projects so quickly, there is no personal status involved, and with control of dissemination of information there can be no knowledge of institutional failure either.
+1 … +10
Bill is right and Arnold is wrong when he says:
“Nobody wants to be the parent whose child succeeds unconventionally by taking a nontraditional approach to higher education.”
Almost all would be happy if their child succeeds unconventionally. However:
Nobody wants to be the parent whose child FAILS unconventionally (or fails conventionally) by taking a nontraditional approach to higher education.
Parents will call themselves failures if they choose “unconventional” and their child fails — it will be the child’s and/or system fault if the child fails conventionally.
Are we talking about parents whose kids are young now, or parents whose kids are already grown up?
As a millennial with young children, I am not sure that millennial parents are going to care so much about the whole college reputation thing. Their experience of student debt and the job market/ workplace during the Great Recession and slow recovery is something that I expect will have left them pretty jaded about college (and about work and politics as well). The millennials were also a generation that grew up with a lot of people with their entire youth oriented around competing for seats at colleges with selective admissions. I suspect that this has also made them jaded about college as well, and not eager to repeat the process of grooming their children for super selective colleges.
However, I don’t have data on this, just intuition. But why kill your self trying to give your kid every advantage when they can always have a perfectly pleasant middle class lifestyle as a PT, or accountant, or a teacher, etc., etc. Granted, maybe this is a viewpoint that is more prevalent in flyover country.
“Innovation and entrepreneurship are discouraged.”
Which means the best minds will avoid those areas. No one with an innovative mind wants to waste their life fighting city hall, or the unions, or the churning “community” activists, or the clickbait media.
Comment of the day.
This is especially obvious in watching team sports at all levels. Teams would much rather lose conventionally than give themselves a chance to win unconventionally. Even when teams are losing big, they don’t experiment with alternate strategies. They would especially rather limit the margin of victory than change the probability of winning from, say, five to ten percent.
I think with the quant revolution this is probably happening more than is obvious, but coaches and players are typically judged by the ex post outcome rather than the ex ante decision.
I think that you’re straining way too hard to solve the “mystery” of failure. Rising prices and reduced supply in healthcare can be easily and adequately explained by the government enforced cartel granted to the AMA. Rising construction costs can be explained by the many regulatory hoops that must be navigate just to get project approval, various (and often conflicting) building codes, the opportunities for graft that come with politically driven projects, and contractors’ incentives for cost overruns. University tuitions have been driven up by “cheap” student loans and the rising administration costs of dealing with government regulations.
Government intervention is the common denominator. Can you cite any area in which people are “content” with conventional failure that isn’t dominated by government?
This is because the rentiers are winning. This should be no surprise. Low interest rates breed high rents.
What seems incredible to me is that Zuckerberg seems not to understand that he’s one of these rentiers. I say that – when this was brought out in Y Combinator’s “Hacker News”, any such further posting was suppressed by the moderators as “off topic”.
I would say that, given the maturity of internet commerce, regulatory rentiers have been surprisingly successful in solidifying their hold on excess profits maintained only by legal distortions in the classic special interest lobby formula of “concentrated gains, dispersed costs”.
For instance, you can buy used cars on the internet via, e.g., Carvana, but the company recently had a $1K discount deal for Black Friday with an asterisk that residents of several states were not eligible because the used car dealers’ guilds in those states lobbied to make such discounts illegal (with the guilds in all the other states working on implementing the same policy as a high priority).
Or there’s the issue with needing dealers in general, and Tesla still facing lawsuits for trying their “direct from manufacturer” model, but where the law is clear in insisting on the need for dealer middlemen. I’m sure car dealers look at what happened to, say, travel agents, and are willing to do whatever is necessary to politically ensure that doesn’t happen to them too.
Over the last two decades it has become common to talk about the “Silicon Valley Exception” which is really just a euphemism for companies intentionally, knowingly, and consciously breaking these and other laws in the hopes that the authorities will not actually be motivated to enforce the rules, sometimes because those authorities don’t actually like the law but don’t have the political capital to explicitly repeal them, so they just need the excuse of something “new and confusing” to pop up and to do nothing about it which effects a silent, passive, plausibly deniable repeal. That’s been the case with Uber and Lyft vs the taxi system in many cities.
The SVE seems to be drying up, and the few companies that were able to sneak through the briefly open crack can now argue in favor of regulations which will close the door behind them and entrench their market positions.
But consider the real estate agents. Or Alex Tabarrok’s and other recent complaints against Optometry and the uniquely expensive and absurd costs Americans must pay compared to anyone else in the world. Judges are supposed to be empowered to nullify such laws for having no rational basis, and indeed, unless I missed the crisis of blindness everywhere else in the world except the US because of open markets in vision corrective lenses, there is no good objectively rational case to be made.
Nevertheless, the libertarian instinct of “look for the government distortion” is a decent first-order approach to these issues. “We extract execssive prices because politics allows us to” isn’t always the root cause of suspiciously high prices, but it’s where one should start.
Very good essay.
You hit the right note at the end: institutions are actually doing what is expected of them in buttressing the conventional failure. Progressivism is bound by its children.
Saying that the reason for a trend is that we live in a society that evolved to support that trend doesn’t say WHY the trend evolved
Richard Fulmer has the beginning of the answer
when a technology or an economic niche are new the ppl and institutions that thrive on rent extraction are not familiar enough with them for maximal extraction
and public projects are under stronger public scrutiny when first attempted so the usual shenanigans are more difficult
Consider the NYC subway
It’s not that City Hall was less corrupt and more competent back then
it was just that the entire regulatory regime they use today to divert public funds to their own pockets hadn’t had time to develop yet
but as time goes by public attention wanders off and more and more ppl find newer and better ways to extract their pounds of rent so progress slows
I think she would be much better off just working at a low-paying job for a year or two and living on her own. I believe that is true for the vast majority of high school seniors these days.
Why is good for this daughter? What I don’t get about conservatives on college is how much they dislike other children going to college and yet provide little avenue to long term success. Why are trade schools not improving? Why does not private sector get more involved here. How would charity be more effective here. And yes I do wish education and people focused on young people focus more on average people not the really smart ones.
Note, I have two graduating HS seniors and I am having them do a part time retail job and applying to college. (One is in already and the other, high functioning autistic, will Community College for a couple of years.) I do think a retail job is good to learn specific skills in the workforce but also a lesson on earning money.
And what about a bio-reason for tech stagnation, of fewer alpha males:
https://pjmedia.com/news-and-politics/where-have-all-the-alphas-gone/
Less testosterone.