Lion of the Blogosphere

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Four types of human capital

with 58 comments

Human capital is what enables a person to make money in our capitalist economy.

Human capital can be divided into four categories:

(1) Biological capital
(2) Knowledge capital
(3) Track record capital
(4) Social capital

Biological capital includes your innate biological characteristics such as intelligence, sex, age, and health. Biological capital is the only one of the four types of capital which decreases with age. Not only does intelligence decrease with age (after it peaks in your twenties), but your entire body eventually wears out and dies.

Knowledge capital is everything you’ve learned. Most practical learning which leads to higher income occurs on the job and not through formal education (as evidenced by the relatively low wages paid to college graduates with no real-world experience). So in order to acquire knowledge capital, you need someone to hire you, and that requires track record capital and social capital (see below).

Track record capital is your track record of accomplishments, including your education (credential capital). It’s correlated with your knowledge capital and biological capital, but it’s far from a perfect correlation.

Social capital is your acquired social influence. It’s who you know.
The former two types of capital, biological capital and knowledge capital, are positive-sum capital. This capital adds to the world’s economy.

The latter two types of capital, track record capital and social capital, are zero-sum capital. This capital enables you to transfer wealth from other people to yourself, but it doesn’t create value.

If someone earns a massively huge salary (a CEO for example), it’s probably because he possesses a great amount of zero-sum capital.

* * *

The above post is something I wrote in the past, slightly edited.

* * *

Peterike wrote in a comment:

A big part of biological capital are things like aggressiveness and ambition. I’m a pretty smart guy — despite all evidence on this blog — but my aggression level is very small and my ambition even less. I’ve done ok financially, but could have done a lot better had I had more aggression and drive. Basically, I’m a lazy person who prefers my leisure pursuits over spending the extra hours and energy needed to push up the corporate ladder.

There are also things like ethics and morality that can stand in your way. Having a cutthroat attitude surely helps, and is virtually required if you want to reach into the C-level suite in corporate America. Also, things like loyalty — which is to say, the lack of it. Were I the CEO of a vast corporation, I would never outsource any work or hire H-1Bs because it’s disloyal to my nation and my people. I would share profits with the workforce rather than spending billions on stock buybacks. And of course that’s why I would never make it to be a CEO, or last more than a week if somehow I got there.

So personality traits are a very important part of the biological profile you are given. Intelligence is required for success (outside of sports/entertainment), but not nearly enough.

Inheritable personality factors is something I overlooked.

There are positive-sum personality factors like conscientiousness and not being lazy (which are related).

And there are zero-sum personality factors like extroversion or the right amount of psychopathy which are good for making money in America but don’t benefit society as a whole.

Ambition could be a good thing or a bad thing from a zero-sum vs positive-sum perspective. Ambition is probably correlated with extroversion.

Written by Lion of the Blogosphere

September 11, 2017 at 9:49 am

Posted in Economics

Red-pilled economists

Just discovered the forum. It reminds me of the xoxohth forum, but for economists instead of law students, and with less anti-Semitism (but the latter didn’t exist at the xoxohth forum back 10+ years ago).

This means there’s hope for the future.

I learned about it from the NY Times article, which naturally is extremely disapproving.

Written by Lion of the Blogosphere

August 20, 2017 at 8:04 pm

Posted in Economics

Decaying infrastructure and “cost disease”

If you read a lot of news articles, then surely you’ve read about the problem of decaying infrastructure. For example, there’s this article at the New Yorker.

From the crumbling bridges of California to the overflowing sewage drains of Houston and the rusting railroad tracks in the Northeast Corridor, decaying infrastructure is all around us, and the consequences are so familiar that we barely notice them—like urban traffic congestion, slow-moving trains, and flights that are often disrupted, thanks to an outdated air-traffic-control system. The costs are significant, once you reckon wasted time, lost productivity, poor public-health outcomes, and increased carbon emissions.

While the author of that article blames “politics” and “complacency,” he completely ignores the real culprit, which is cost disease (as I blogged about yesterday).

It seems to me that what’s really going on is that civil engineering projects are ten times as expensive (in real inflation-adjusted dollars) compared to the 1930s. Therefore, infrastructure that was built a long time ago, and is now nearing its end of life, is ten times as expensive to replace than what it originally cost to build, because of cost disease. This means that either we can’t afford to repair/replace our infrastructure, or we can only afford it by making sacrifices in the form of significantly higher taxes and/or significantly reduced government spending on other desirable things.

Decaying infrastructure is the natural result of severe cost disease.

If cost disease continues, and the cost of civil engineering projects double again, then we can expect a very dystopian future.

Written by Lion of the Blogosphere

May 31, 2017 at 7:40 pm

Posted in Economics

Cost disease

Greg Pandatshang provided a link to a blog post by Scott Alexander about cost disease. This is the best link I’ve received in a long time, I urge everyone to read the blog post.

This is a topic I’ve touched on many times before, but I didn’t realize it was called “cost disease,” nor did I link so many related examples together.

For example, I’ve previously written about how Governor Chris Christie had to cancel the project to build a new train tunnel under the Hudson River because New Jersey couldn’t afford it. Yet somehow, we were able to afford to build a tunnel in 1908, which was 104 years ago.

I previously pointed out that in 1934, the Empire State Building was completed in only 410 days for a cost of $372.8 million in 2012 dollars (and $24.7 million in 1930s dollars). It cost $3.8 billion to build the Freedom Tower and it took 8 years to complete. The only other building in Manhattan taller than the Empire State Building is 432 Park Avenue, which cost $1.2 billion to build, but only has 15% of the floor space. So when you look at price per square foot, 432 Park Avenue is something like 21 times as expensive.

I believe that declining IQ is one factor that Scott Alexander missed.

I believe that another key factor is value transference, combined with inflation being a lot higher than the reported. What that means is that wages have not actually held steady, as reported by conventional inflation reporting, but perhaps real wages declined by 50%. The value created by workers, which used to go to the workers, is now being transferred to the top 1%.

And then there’s the hypothesis that the United States has moved into a post-scarcity economy, and no one really knows what happens to prices in a post-scarcity economy. Because people spend most of the money they earn, falling prices for things like manufactured goods and food cause the prices of other things to go up, creating the illusion of scarcity where none actually exists.

Written by Lion of the Blogosphere

May 30, 2017 at 6:29 pm

Posted in Economics

I agree with Mark Zuckerberg

He said:

Every generation expands its definition of equality. Now it’s time for our generation to define a new social contract. We should have a society that measures progress not by economic metrics like GDP but by how many of us have a role we find meaningful. We should explore ideas like universal basic income to make sure everyone has a cushion to try new ideas.

Not only have I supported basic income, I’ve also criticized GDP as a measure of everything. In addition to not measuring whether you have a “role you find meaningful” (which is wonderfully broad and can include not only your career but also your family, friends, and involvement in your community), but also it doesn’t measure whether you feel safe in your neighborhood. If all of your money is spent on overpriced rent in Manhattan, GDP doesn’t take that into account.

* * *

Hepp writes: “A woman has a baby and takes care of it, no effect on GDP, she pays someone else to do it and suddenly we have more “economic activity” and therefore a better society somehow.”

Written by Lion of the Blogosphere

May 25, 2017 at 6:44 pm

Posted in Economics

Lion’s four-part system for understanding how the world works

1. HBD (human biodiversity)

There are three legs to HBD;

a. Differences between races. This explains why some races underperform or overperform others in a diverse society, as well as explaining differences between nations.

This would be the least important part of HBD were it not for the fact that current moral thinking makes a huge deal out of racism. Racism is considered to be extremely evil, and different group and individual outcomes caused by HBD are instead blamed on racism.

b. Differences between men and women. Sex discrimination is also defined as evil by today’s moral arbiters, and as with racism, group and individual outcomes caused by HBD are blamed on sexism.

Additionally, because relations between men and women are such an important part of how society is organized, HBD-caused differences between men and women help to understand this part of society.

c. Biological/evolutionary basis for behavior. Our instinctive human behavior evolved to help us have as many grandchildren as possible in a pre-industrial or even pre-agricultural society. As such, they often cause illogical thinking and produce suboptimal results in a modern technological society with a post-scarcity economy.

2. Value transference. Most economists stuck in an eighteenth century mindset (when Adam Smith published The Wealth of Nations) believe that most money is earned because value is created. But in a post-scarcity economy, the majority of work is value transference work, work that doesn’t create any value but just transfers the value created by others.

As I’ve stated many times before, if you want to understand how and why businesses make a profit, don’t read an economics textbook, read Michael Porter’s book Competitive Strategy (or one of the many derivative books).

The irony of business “competition” is that businesses are competing to get themselves into a position where they have a monopoly and they no longer have to compete.

Value transference is tied to winner-take-all economics, because the natural state of things is for a small number of people and companies to be big winners based on transferring the value created by others to themselves.

3. Relative wants. It’s said that humans have unlimited wants, which is mostly true for the vast majority of people.

There’s an evolutionary basis for this. In pre-industrial times, there were often famines in which those with the least resources died, thus evolution favored the genes of those who desired and accumulated more stuff, which could then be used to barter for food in times of famine.

This is also related to our desire for status. In times of famine, the people with the highest status (the king, the people just below the king in the hierarchy, etc) were never the ones who starved to death.

Today, in the United States, no one starves to death (in fact, poor people have the opposite problem of being too fat) because the United States is a post-scarcity economy. Thus our biologically programmed desire to accumulate stuff and have higher status is a suboptimal leftover from earlier times.

Most economists fail to see or understand relative spending and relative wants.

For example, everyone (OK, not everyone, but a lot of people, especially people with a lot of resources) want a summer home in the Hamptons, but because there is less real estate in the Hamptons than there are people who want to summer there, not everyone can afford to buy a house there. And no amount of economic growth or lower taxes will ever change that. If everyone’s net income increased by 10% because of economic growth or lower taxes, then the price of houses in the Hamptons would increase proportionately, and those who couldn’t afford a house there before still would not be able to afford one.

The local governments in the Hamptons could vastly increase the number of houses by changing zoning laws, but then there would be an influx of middle-class people and it would no longer be exclusive or highly desired by the rich and they’d find some other place (for example, Martha’s Vineyard) where they want to summer but can’t afford to.

4. Religion and groupthink. Many people wrongly equate religion with belief in supernatural beings. Better definitions of religion leave out the supernatural part. Here’s a suggested definition: “A cultural system of beliefs, behaviors, practices, ethics and societal organization that relate humanity to an order of existence.” In pre-scientific times, religious thinking tended towards belief in and worship of supernatural beings, but use of the word “supernatural” is our way of looking down on others. Believers in religion don’t see their beliefs as “supernatural,” they just see the true way that things are (from their perspective).

Religion is obviously a behavior that is programmed into us by evolutionary biology. So just because a large percentage of people in developed nations reject the traditional religions like Christianity (because they just seem too stupid in light of our modern scientific understanding of the world) doesn’t mean they have ceased religious thinking. The religious thinking is just diverted into other beliefs that currently are not classified as “religion” because they don’t involve worship of supernatural beings.

Belief in global warming is an example of a post-supernatural religious belief.

Groupthink is the tendency for people to believe whatever other people believe. It’s why people believe in religion (everyone else believes in it so it must be true!), but explains a lot more than religion. Groupthink is only obvious to outsiders. Insiders, who believe the groupthink, don’t realize it’s groupthink.

There are some rare individuals, like myself, who think a lot more logically than the average person and are highly resistant to groupthink. Although even I once succumbed to believing in libertarian economics, which is definitely a form of religious thinking.

Written by Lion of the Blogosphere

April 1, 2017 at 2:40 pm

Posted in Biology, Economics, Religion

Regulations from an insider perspective

My former employer has a business model very similar to ISPs. Although the product/service my former employer provides isn’t essential to leading a normal life the way that high-speed internet access is essential, nevertheless the company provides a product that is highly desired by millions of people and for which there isn’t a convenient substitute product, hence the company’s monopoly power.

My former employer very much needed government and non-government regulation to keep them honest. Without watchdogs, the motto of senior management was “do anything to make a profit no matter how unethical.”

For example, we would trick people into signing up for our service with a very low-price offer, but we would hide the fact that the low-price offer would expire in a few months and roll into a monthly price that was a lot higher.

When customers called to cancel their service, we would make it very difficult for them, and in some cases the customers’ service didn’t get canceled (which wasn’t the official policy but was a natural result of the internal customer service policy to fire the poor schmucks at the call centers who allow too high of a percentage of customers to cancel).

Only action by government forced the company to change their ways, to disclose the true service price to customers, and to reform the call centers to make it easier for customers to cancel their service. And the company still doesn’t let people cancel online, which I personally think is unethical. I believe that anything you can sign up for online you should be able to cancel online. In fact, Congress should pass a law which states exactly that, that anything with recurring billing that can be purchased online can also be canceled online. However, I doubt that we will get a consumer-friendly law like that from this Republican Congress.

While it’s true that it a lot of employee manpower was needed to change the company’s policies to comply with these government mandates, it created jobs for people like me. A lot of the work I did had to do with stuff like this. Do you want me to be unemployed? And it’s not like any of this made the company unprofitable. In fact, the stock price has gone up quite a bit during the last year.

Written by Lion of the Blogosphere

March 30, 2017 at 2:29 pm

Posted in Economics

Robert Frank endorses “Medicare for all”

Robert Frank, an economics professor from Cornell whom I respect quite a bit and I have mentioned many times before in my blogs (and he may even be a secret believer in HBD) endorses “Medicare for all” in a New York Times op-ed, and I agree with it.

Written by Lion of the Blogosphere

March 25, 2017 at 10:06 am

You can keep your doctor, or you can keep your iPhone

A leading Republican congressman suggested on Tuesday that lower-income Americans stop buying new iPhones and “invest in their own health care.” The comment by Rep. Jason Chaffetz of Utah came a day after the GOP rolled out a new Obamacare replacement bill that could increase their insurance costs.

The bill also contains a big new financial treat for health insurance companies.

The Republican plan calls for allowing insurers to write off as a business expense the entire amount of their executives’ salaries on their taxes, and not just the first $500,000, as is the case now under the Affordable Care Act.

Even ignoring the outrage of proposing a tax cut for people making more than $500,000/year at the expense of benefits for poor people, this quote demonstrates 19th-century economic thinking. iPhone sales are mostly a value transference business, and to the extent that production of additional iPhones creates jobs, it creates them in China. So if people stopped buying iPhones, it wouldn’t free up any resources in the United States that could then be directed towards healthcare.

* * *

Magnavox says: “the amount of waste in the US health care industry completely dwarfs the amount spent on iphones by all classes”

mikeca says: “Most of the self employed working class people that I know do not have smart phones. They have old flip phones which you can get for almost free with a wireless plan. Even if they were buying a brand new $800 iPhone every year (which they are not), you are not going to get health insurance that covers anything for $800 a year.”

I say: I personally need to have an iPhone if I ever plan on going back to work in digital product management, since how could I manage products for mobile devices if I don’t even use a smartphone?

I also say: Having a phone of some sort is a necessity to be part of our society (although it doesn’t need to be the latest and most expensive iPhone). Most employers expect you to have a phone, for example. Most people who need to save money have just have a cell phone and not a landline. Poor people are more likely to own Androids which are cheaper, so they are already not buying the most expensive phones. There are many cheap-ass Androids for under $100 (although they probably suck compared to iPhone).

A new iPhone SE is $399, and that’s still less expensive than a single month of health insurance for a single person.

* * *

There’s the point of view that the Congressman’s statement was merely a metaphor for poor people foolishly spending their money. Nevertheless, this was obviously a huge gaffe on the part of the Congressman. Way bigger than Mitt Romney’s 47% gaffe. So huge that it jeopardizes the chances that Republicans will have the political support to repeal Obamacare (not saying that I agree with repealing Obamacare).

Written by Lion of the Blogosphere

March 7, 2017 at 1:28 pm

Washington Post admits that immigrants lower wages

You know how the MSM has been telling us for years that immigrants don’t lower wages?

In fact, just three days ago in an article criticizing Trump’s speech to Congress, The Washington Post repeated that immigrants have “little to no negative effects on overall wages and employment of native-born workers in the longer term.”

But today, in an article about the problems of immigrants returning to Mexico after being deported, the Post matter-of-factly states:

More returnees means lower wages for everybody in blue-collar industries such as construction and automobile manufacturing, where competition for jobs is likely to increase, economists say.

Funny how the normal laws of economics work in Mexico (more people competing for jobs means lower wages), but the same laws don’t work in the United States. Because of magic American exceptionalist soil or something?

(The idea for this post came from commenter “Curle,” thank you.)

Written by Lion of the Blogosphere

March 4, 2017 at 12:27 pm

Posted in Economics, Immigration, News

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