The Value Of Outreach For Group Thinkers

The other day Eric Crampton wrote about how the reaction to a pretty tame economics series on CBC was knee-jerk along the lines of “all economics is right-wing propaganda!”.

He writes about how mainstream economics just tells it like it is – when you do X, you get Y because people respond to incentives and that’s just the way the cookie crumbles.

For non-conformists, we forget how important groupthink is to those who would dismiss economics. For most people all that matters is fitting in. There are also a whole host of environmental factors at play here. New Zealand’s economics education from high school through to university level barely reinforces the basics before moving on.

I have noticed, anecdotally, that those most hostile to economic thinking are:

  • those who have had no interaction with the commercial sector in their entire lives or
  • those who grew up wealthy and feel guilt they feel the need to atone for through being “against the man” or
  • those who are scared of mathematics and would argue 1+1=3 if you believe or feel that’s the answer

For those of us who grew up in a household where your parents run a business and you see the ups and downs of the business cycle at the coalface, there is an acute appreciation for how micro behaviour makes sense.

When you are aware of how things like resource consents delay or cancel investment projects, how the administration costs of employing people create friction in the labour market, why decisions are made at the margin (potential project by potential project) and how credit risk needs to be constantly managed in the face of incentives faced by creditors it isn’t that hard to see how economics explains and helps you understand how the real world works.

This is where I’d like to bring in Arnold Kling’s theory that he wrote about in The Three Languages Of Politics.

His model of political discourse is called the Three-Axes Model. He argues that libertarians, progressives and conservatives “talk past each other” because they are speaking different languages that view the world through completely different lens.

Conservatives emphasise the civilisation-barbarism axis. Libertarians emphasise the freedom-coercion axis. Progressives emphasise the oppressed-oppressor axis.

People who care about different things will demonise different categories of people differently.

Because everyone “picks their sources” depending on which columnists or bloggers reflect their particular worldview, you end up with an ironic situation where economists of different persuasions either ignore or misrepresent mainstream economics to suit their particular narrative. Paul Krugman < Thomas Sowell, for example.

Bringing the dismissal of economics back into the frame, accepting empirically provable concepts that are in conflict with your dominant axis not only threatens your belief system that you have invested in emotionally and socially, if you come around to a different view your view is no longer that of the dominant group.

Many people are weak. They simply do not have the stomach to hold contrarian views that are out of tune with what the dominant group thinks. They are the enablers of populist despots and “mainstream politicians” alike.

This is one of the reasons why words matter as much as the group think about that issue. Try convincing a progressive that the minimum wage oppresses people wanting to negotiate their own wages.

The value of outreach for group thinkers is therefore low because we are asking people to re-examine their worldview. Some people still think the earth is flat.

This is reflected in the median voter theorem, where policies in society will tend towards the preferences of the median voter.

Increasing the level of economic thinking in New Zealand is a pipe dream, sadly.

The dominant political narrative restricts the sources of information many New Zealanders consume when it comes to news and opinion, that’s if they consume anything other than Super 15 and My Kitchen Rules!

The cost of being an informed voter / citizen might be substantially higher than we have thought in the past.

Most people care deeply about what other people think of them. They are obsessed with their in-group status – and political opinions matters a lot in many circles.

Their weaker amygdalas physically panic when they are exposed to differing views.

Think about reading reactions like “I listened to [right wing economist] and my pulse started racing and I had to leave the room!” and wondering “whaaat?”.

As time progresses, I am leaning more and more towards Bryan Caplan’s suggestion to “build a bubble” that insulates you from the world.

Buying A House Is Weird

Economist Shamubeel Eaqub is right, renting is better than buying. It’s weird how obsessed New Zealanders are with real estate. Browsing the real estate section of TradeMe or Open2View must rival consumption of online pornography when you think about the volume of data transferred.

I’m just about to move to a cheaper room. It’s in Thorndon, close to university and further away from the bright lights of Courtenay Place with overpriced bars and nightclubs. I spend thousands of dollars a year on housing and I’m happy with how my side of the trade is working out. In the long-run I will be far better off than whoever owns the property I am renting a room in.

I completely disagree with the idea that renting is less secure than owning your own home. David Whitburn’s comments that a landlord can just kick you out are completely off the mark for a lawyer. The Residential Tenancies Act and Tenancy Tribunal provide a reasonable level of protection for residential tenants.

When you enter into a rental agreement, you go in with your eyes open. In exchange for lower levels of security and the landlord covering the cost of insurance, rates and mortgage repayments you get a substantial discount on the cost of housing. If you complain about the terms of the deal, shop around for a better one.

A unique feature of the New Zealand rental market is that many landlords are reasonable people. If you have a young family and need access to schools there is no harm in asking for an extra month or two’s notice if the landlord is going to sell up. It’s called “not being a dick” and when housing affordability is a major issue landlords need to be responsive to longer lead times for residential tenants departing.

You don’t need to buy a house before you have a family. If your partner won’t settle down with you before you’ve bought a house, you might want to read about the Relationship Property Act. Multiply the cost of your mortgage over the expected life of your relationship by 0.5 and ask yourself if you’d like to write a cheque to your partner for that amount of money. If not, it might be time to end the relationship.

If you decide to have children and buy a house, you’re not giving them security at all. This sadistic rationalisation must be linked to the poverty of experience many Kiwis have growing up. If Mummy and Daddy didn’t spend $1,100 a fortnight paying off the mortgage on a dingy villa that costs an extra $20,000 in maintenance to keep from falling apart they’d be much happier.

They’d have more money to spend on expensive groceries, overseas trips, luxury goods, private school fees, charitable donations and fine dining. Instead of working on behalf of Australian bankers we’d be working on behalf of our friends, family and neighbours. There would be no need to ship billions of dollars a year in interest payments overseas when it could stay here and create jobs if we merely stopped participating in groupthink.

Parents could even afford for one partner to stay at home with the kids. They wouldn’t need to work a dreary office job that barely covers day care, the cost of work clothes and commuting. This is because tens of thousands of dollars a year wouldn’t need to be earned in the first place because there isn’t a massive mortgage payment to be made. Imagine how much happier children would be if Mum or Dad didn’t abandon them every day to go to work. I’m sure glad my Mum took time out of the workforce with my younger brother and I. Parents with young children are funnily enough a group with the most to gain from renting before a primary school needs to be found.

I can see myself buying a house one day, eventually, potentially, if house prices decrease significantly to around 3 times the median income. But after my experience with debt so far I sure as hell wouldn’t want a rapacious bank involved with where I sleep and retreat from the world. I’ll buy a house when I can pay cash and have as much again left over. With the median house price in Wellington central $472,000 that means I’d want at least $944,000 in liquid assets before buying a house.

If more people thought like me New Zealand would be far better off. You’re bailing out baby boomers who failed to save for retirement when you pay too much for a house. When they all die, the market will be flooded with houses because their impoverished children can’t afford the upkeep or to develop large sections in high demand areas.

If you want to calculate the difference between buying and renting for your own specific situation, the New York Times has a fantastic interactive tool. You’ll need to think clearly about the assumptions being made, but will get a good idea of the size of the tradeoffs you make when you buy a house.

Buying a house is weird because for 99% of people you are betting the farm on the possibility of an out-sized capital gain while exposing yourself to the risk of losing everything. You’ll spend twice what you paid for the house in interest, fees, maintenance, insurance, remodelling, furniture, landscaping and the opportunity cost of all the money you spent on all of the above which would amount to such an enormous sum that you could rent forever on the interest and dividends.

Buying a house is weird. But I’m glad that lots of New Zealanders don’t think so. Renting is a discount on the cost of housing. Landlords are basically subsidising my cost of living. I’m not throwing money away because you have to live somewhere. I hope the difference between the cost of renting and the cost of buying continues. I can prove with maths I’ll be better off, but I’m not concerned about convincing people who buy into the house owning cult.