In general: as I said at the top of the post, this is mostly pretty obvious, so I don’t think most of the content itself will be anything new to the better economists, though perhaps the framing, or the derivation from materialism and control theory rather than rational agency, would be somewhat novel (I don’t actually know). I think a lot of people already have intuitions about this, but spelling them out explicitly allows for more forms of processing to happen on the model, such as formal analysis, and being able to refer to it in conversation. Additionally, a model that can make sense of a variety of phenomena (e.g. biological, economic, and social) has utility for allowing intuitions to be transferred between domains. In any case, I found it useful to write this for my own understanding.
I have a pretty low opinion of the average work in economics, although I think the best work is pretty good. Economics seems pretty ideological, see this comment thread. Therefore, even if I get models from the econ literature, I additionally need to do first-principles derivations of econ concepts (such as the derivation in this post) in order to know which things to pay attention to and to trust.
Moreover, for an idea this obvious, it seems like lots of people (e.g. EAs) don’t take it into account. So perhaps it isn’t actually obvious to most people, or perhaps it is and people are being ideological, in which case well-argued and concise counter-ideology is useful.
Some more specific responses:
But markets for lemons (and asymmetric information in general) are well studied in economics.
What I meant was that a more general theory than simply a theory of markets is needed. And indeed, firms aren’t markets, so economic theories of firms+markets are more general than theories of markets. Additionally, economics doesn’t normally study all the examples I listed (though the field is big enough that maybe you could find analyses of most of these if you looked hard enough), while they are obvious applications of the model in this post.
Baumol’s (who introduced the term) own explanation of cost disease seems pretty good
It really doesn’t explain housing; labor costs for construction work grow at about the rate of inflation, not the rate of increase in house prices (source: ENR construction cost index; unfortunately you have to pay to get the data, I can show a copy to you if you want. Main upshot: a bundle of materials and labor used for construction increased from $375 to $3539 from 1950 to 2000, while home prices increased from $2939 to $199600, where neither of these are inflation adjusted. It makes sense that labor/materials would increase at about inflation rate if inflation is measured using CPI, and indeed CPI increased by about 8x in this time period). I haven’t looked at the paper in detail but it looks like it’s basing things on the ratio of productivity in different sectors, so it seems their model would predict it’s explained by a rise in labor price, which is empirically false.
What do you see as the major new insights of your framework (i.e., beyond what common sense, economic theory, and standard practice would tell you), when applied to running a research lab?
When the research lab plan is spelled out, indeed it looks pretty obvious, but not everyone is going to (a) use the search strategy of looking for environmentally sustainable positive feedback loops with positive externalities, and (b) actually go through all the thinking steps suggested by the checklist (See: The Checklist Manifesto). Furthermore, going through the thinking steps on this plan makes it clearer that this has a decent chance of being a good idea, and suggests further questions to ask to determine viability (e.g. thinking about what the rate of spinoff businesses is, and how profitable they will be). “Standard practice” will give a bunch of advice that is good as well as a bunch of advice that is bad; models are necessary to know which is which, and to get better outcomes than others who are following standard practice.
they are obvious applications of the model in this post.
I worry that the obviousness is misleading, because economies actually are made of more or less rational agents, and as a result have a lot of anti-inductive elements, which are not captured by a control theory based derivation. For example, it fails to suggest that if it’s possible to make abnormal returns by operating a research lab, people would be doing that already and thereby drive the risk-adjusted returns down to a level that’s commensurate with other investments, or that if you manage to figure out how to better operate a research lab, other research labs can copy that and thereby reduce your returns down to a normal level, or new research labs will start up and compete with you.
It really doesn’t explain housing
In that case it’s probably explained by preferences for greater quality and size in housing (explained by the income effect and housing being in part a positional good), plus increased regulation (studied under public choice theory).
I worry that the obviousness is misleading, because economies actually are made of more or less rational agents, and as a result have a lot of anti-inductive elements, which are not captured by a control theory based derivation.
This is a really good point, thanks. This points at some areas of my strategy that aren’t explained in this post (these areas contain things like asymmetric weapons and using decision theories that pass the mirror test).
In that case it’s probably explained by preferences for greater quality and size in housing (explained by the income effect and housing being in part a positional good), plus increased regulation (studied under public choice theory).
The first explanation would imply that people are willing to pay 6x as much for a 2000-style house than a 1950-style house (ignoring factors like 1950-style houses being scarcer now than they were in 1950), which seems false. A public choice theory framework for regulation assumes that these regulations are generally in people’s interest, whereas they often aren’t (people aren’t very informed about what housing regulations are good, and regulatory capture is a thing); indeed, if people wouldn’t be willing to pay 6x as much for a 2000-style house than a 1950-style house after knowing about these additional regulations, then that indicates that these regulations aren’t in their interest. Perhaps there are one or more good explanations within the field of economics for this phenomenon, but it does not seem like the search strategy you are using to produce economics explanations for this phenomenon is getting good explanations at a very high rate, which indicates that the field of economics is drawing little attention to good explanations for this, or is drawing attention away from the good explanations.
The first explanation would imply that people are willing to pay 6x as much for a 2000-style house than a 1950-style house (ignoring factors like 1950-style houses being scarcer now than they were in 1950), which seems false.
I only intend it to be part of the explanation, and surviving 1950-style houses are probably bigger and higher quality than the average 1950 house (which is what the cost comparison was based on).
A public choice theory framework for regulation assumes that these regulations are generally in people’s interest
I don’t think that’s true. Rent seeking and regulatory capture are major themes in public choice theory. (Wait, by “in people’s interest” do you mean “in someone’s interest” or “in the interest of the general public”? I think public choice theory definitely doesn’t assume the latter, and even the former is debatable in that it predicts a lot of waste which isn’t in anyone’s interest.)
it does not seem like the search strategy you are using to produce economics explanations for this phenomenon is getting good explanations at a very high rate
What is the explanation that your framework generates? I don’t think it was spelled out in the post, or maybe I missed it?
Rent seeking and regulatory capture are major themes in public choice theory.
Oh, I got public choice theory confused with social choice theory, you’re right.
What is the explanation that your framework generates?
So, I’m still confused about this (I plan to investigate this more), but the framework of this post would posit some combination of: processes that produce houses are hard to imitate and have gotten worse over time as knowledge is lost; regulatory capture; coordination being harder as better attacks on existing coordination systems have been developed (e.g. more ways of pretending to work, more bullshit jobs that are considered part of a normal business); some kind of coordination among house-builders. Since there are lots of possible explanations, this isn’t very enlightening on its own, and more investigation is needed.
Upon writing this, it seems like my framework isn’t clearly better at explaining the phenomenon than the field of economics (they both posit that there could be many causes), until further investigation has been done; however, that isn’t the assertion I was originally making, and also it’s kind of a moot point since I previously thought you were arguing that the content of this post was obvious, and responding to that.
In general: as I said at the top of the post, this is mostly pretty obvious, so I don’t think most of the content itself will be anything new to the better economists, though perhaps the framing, or the derivation from materialism and control theory rather than rational agency, would be somewhat novel (I don’t actually know). I think a lot of people already have intuitions about this, but spelling them out explicitly allows for more forms of processing to happen on the model, such as formal analysis, and being able to refer to it in conversation. Additionally, a model that can make sense of a variety of phenomena (e.g. biological, economic, and social) has utility for allowing intuitions to be transferred between domains. In any case, I found it useful to write this for my own understanding.
I have a pretty low opinion of the average work in economics, although I think the best work is pretty good. Economics seems pretty ideological, see this comment thread. Therefore, even if I get models from the econ literature, I additionally need to do first-principles derivations of econ concepts (such as the derivation in this post) in order to know which things to pay attention to and to trust.
Moreover, for an idea this obvious, it seems like lots of people (e.g. EAs) don’t take it into account. So perhaps it isn’t actually obvious to most people, or perhaps it is and people are being ideological, in which case well-argued and concise counter-ideology is useful.
Some more specific responses:
What I meant was that a more general theory than simply a theory of markets is needed. And indeed, firms aren’t markets, so economic theories of firms+markets are more general than theories of markets. Additionally, economics doesn’t normally study all the examples I listed (though the field is big enough that maybe you could find analyses of most of these if you looked hard enough), while they are obvious applications of the model in this post.
It really doesn’t explain housing; labor costs for construction work grow at about the rate of inflation, not the rate of increase in house prices (source: ENR construction cost index; unfortunately you have to pay to get the data, I can show a copy to you if you want. Main upshot: a bundle of materials and labor used for construction increased from $375 to $3539 from 1950 to 2000, while home prices increased from $2939 to $199600, where neither of these are inflation adjusted. It makes sense that labor/materials would increase at about inflation rate if inflation is measured using CPI, and indeed CPI increased by about 8x in this time period). I haven’t looked at the paper in detail but it looks like it’s basing things on the ratio of productivity in different sectors, so it seems their model would predict it’s explained by a rise in labor price, which is empirically false.
When the research lab plan is spelled out, indeed it looks pretty obvious, but not everyone is going to (a) use the search strategy of looking for environmentally sustainable positive feedback loops with positive externalities, and (b) actually go through all the thinking steps suggested by the checklist (See: The Checklist Manifesto). Furthermore, going through the thinking steps on this plan makes it clearer that this has a decent chance of being a good idea, and suggests further questions to ask to determine viability (e.g. thinking about what the rate of spinoff businesses is, and how profitable they will be). “Standard practice” will give a bunch of advice that is good as well as a bunch of advice that is bad; models are necessary to know which is which, and to get better outcomes than others who are following standard practice.
I worry that the obviousness is misleading, because economies actually are made of more or less rational agents, and as a result have a lot of anti-inductive elements, which are not captured by a control theory based derivation. For example, it fails to suggest that if it’s possible to make abnormal returns by operating a research lab, people would be doing that already and thereby drive the risk-adjusted returns down to a level that’s commensurate with other investments, or that if you manage to figure out how to better operate a research lab, other research labs can copy that and thereby reduce your returns down to a normal level, or new research labs will start up and compete with you.
In that case it’s probably explained by preferences for greater quality and size in housing (explained by the income effect and housing being in part a positional good), plus increased regulation (studied under public choice theory).
This is a really good point, thanks. This points at some areas of my strategy that aren’t explained in this post (these areas contain things like asymmetric weapons and using decision theories that pass the mirror test).
The first explanation would imply that people are willing to pay 6x as much for a 2000-style house than a 1950-style house (ignoring factors like 1950-style houses being scarcer now than they were in 1950), which seems false. A public choice theory framework for regulation assumes that these regulations are generally in people’s interest, whereas they often aren’t (people aren’t very informed about what housing regulations are good, and regulatory capture is a thing); indeed, if people wouldn’t be willing to pay 6x as much for a 2000-style house than a 1950-style house after knowing about these additional regulations, then that indicates that these regulations aren’t in their interest. Perhaps there are one or more good explanations within the field of economics for this phenomenon, but it does not seem like the search strategy you are using to produce economics explanations for this phenomenon is getting good explanations at a very high rate, which indicates that the field of economics is drawing little attention to good explanations for this, or is drawing attention away from the good explanations.
I only intend it to be part of the explanation, and surviving 1950-style houses are probably bigger and higher quality than the average 1950 house (which is what the cost comparison was based on).
I don’t think that’s true. Rent seeking and regulatory capture are major themes in public choice theory. (Wait, by “in people’s interest” do you mean “in someone’s interest” or “in the interest of the general public”? I think public choice theory definitely doesn’t assume the latter, and even the former is debatable in that it predicts a lot of waste which isn’t in anyone’s interest.)
What is the explanation that your framework generates? I don’t think it was spelled out in the post, or maybe I missed it?
Oh, I got public choice theory confused with social choice theory, you’re right.
So, I’m still confused about this (I plan to investigate this more), but the framework of this post would posit some combination of: processes that produce houses are hard to imitate and have gotten worse over time as knowledge is lost; regulatory capture; coordination being harder as better attacks on existing coordination systems have been developed (e.g. more ways of pretending to work, more bullshit jobs that are considered part of a normal business); some kind of coordination among house-builders. Since there are lots of possible explanations, this isn’t very enlightening on its own, and more investigation is needed.
Upon writing this, it seems like my framework isn’t clearly better at explaining the phenomenon than the field of economics (they both posit that there could be many causes), until further investigation has been done; however, that isn’t the assertion I was originally making, and also it’s kind of a moot point since I previously thought you were arguing that the content of this post was obvious, and responding to that.