Category: Economics

The Long-Term Effects of California’s 2004 Paid Family Leave Act on Women’s Careers

It is not obviously a winner policy, at least not from the point of view of boosting women’s labor market opportunities.  In fact it seems to harm them:

This paper uses IRS tax data to evaluate the short- and long-term effects of California’s 2004 Paid Family Leave Act (PFLA) on women’s careers. Our research design exploits the increased availability of paid leave for women giving birth in the third quarter of 2004 (just after PFLA was implemented). These mothers were 18 percentage points more likely to use paid leave but otherwise identical to multiple comparison groups in pre-birth demographic, marital, and work characteristics. We find little evidence that PFLA increased women’s employment, wage earnings, or attachment to employers. For new mothers, taking up PFLA reduced employment by 7 percent and lowered annual wages by 8 percent six to ten years after giving birth. Overall, PFLA tended to reduce the number of children born and, by decreasing mothers’ time at work, increase time spent with children.

That is from a new NBER working paper by Martha J. Bailey, Tanya S. Byker, Elena Patel, and Shanthi Ramnath.  And are you wondering why the number of children falls as a response?  Because the mother ends up staying home with them?  Or do mothers invest more in child quality, thereby lower quantity, as in a Becker model?  In any case a good question.

The economics of California power blackouts

Once again there is a risk of fire so they are turning off the power in many parts of dry and windy northern California, for 2.7 million people.  From The New York Times:

“When you turn the lights out on 3 million people because you have to keep the power lines safe then there’s no reason you should be allowed to continue,” Mr. Court said.

Michael Lewis, PG&E’s senior vice president of electric operations, said the issue was safety.

“We would only take this decision for one reason — to help reduce catastrophic wildfire risk to our customers and communities,” Mr. Lewis said in a statement.

PG&E filed for bankruptcy in January after amassing tens of billions of dollars in liability related to two dozen wildfires in recent years. As speculation grew that its equipment might be the cause of the Kincade Fire, its stock price plummeted about 30 percent on Friday to $5.08, a small fraction of its 52-week high of $49.42.

I would think the market expectation is that if PG&E is allowed to continue, as is likely to be the case, that it slowly will claw its way back to profitability, given that this is a highly regulated sector with barriers to entry.  So the company is afraid of losing its expected remaining profit from further liability, and thus it plays it safe with power, too safe because they don’t suffer so much from the power blackouts.  Sadly, the retail customers do not have many other options.

One solution would be to remove the liability the company faces from the fires, or alternatively you could add a liability option of set of fines from power cuts (call them “breach of contract”).  Both changes would introduce greater symmetry into the liability equation, but of course the former would eliminate the incentives for fire safety and fire reduction and the latter might bankrupt the company or create unenforceable or undefinable legal obligations.  Still, it hardly seems the current arrangement can be first best.

How about raising rates?  And then spending more on capital improvements?  (do read the tweets behind that link):

And in those proceedings, there is an independent division of the CPUC (the ‘Office of Ratepayer Advocates’) that has typically argued against maintenance and safety expenditures, so that rates can be kept low

How about raising rates a lot?  But maybe it is too late for that.

Another option, which I do not feel I have enough information to assess, is to have the state government buy out the power company.  That is not usually a good idea but in this case there is at least a chance it could lead to superior incentives.  The resulting company would then be geared toward pleasing voters, hardly an ideal arrangement but possibly better than the current incentives toward excess safety and massive power cuts with no real chance of consumer backlash.  With government ownership, how would the state internalize the liability risk?  How much would state borrowing rates rise?

Have you seen good proposals for improving the incentives in this rather disastrous matter?

A theory of narrow thinking

I develop an approach, which I term narrow thinking, to break the decision-maker’s ability to perfectly coordinate her multiple decisions. For a narrow thinker, different decisions are based on different, non-nested, information. The narrow thinker then makes each decision with an imperfect understanding of the others. Formally, it is as if the decision-maker is a collection of multiple selves playing an incomplete-information game. The friction effectively attenuates the degree of interaction across decisions and can translate into either over- or under-reaction depending on the environment. Narrow thinking leads to a violation of the fungibility principle and a smooth model of mental accounting. Narrow thinking also reconciles other seemingly disparate phenomena in a unified framework, such as excess smoothness to taste shocks, the small wage elasticity of daily labor supply, and the label effect. Finally, I study an endogenous narrow thinking problem: the decision maker chooses optimally what information each decision is based upon, subject to a cognitive constraint.

That is the abstract of a new paper from Chen Lian, who is on the job market this year from MIT.  (That is not his job market paper but it does have a revise and resubmit from Review of Economic Studies.)

More Sex is Safer Sex

I had forgotten that Steven Landsburg’s More Sex is Safer Sex (link to the 1997 NYTimes version, book here) was inspired by a paper by new Nobelist Michael Kremer. Here’s the recap:

You’ve read elsewhere about the sin of promiscuity. Let me tell you about the sin of self-restraint.

Consider Martin, a charming and generally prudent young man with a limited sexual history, who has been gently flirting with his coworker Joan. As last week’s office party approached, both Joan and Martin silently and separately entertained the prospect that they just might be going home together. Unfortunately, Fate, through its agents at the Centers for Disease Control, intervened. The morning of the party, Martin happened to notice one of those CDC-sponsored subway ads touting the virtues of abstinence. Chastened, he decided to stay home. In Martin’s absence, Joan hooked up with the equally charming but considerably less prudent Maxwell – and Joan got AIDS.

When the cautious Martin withdraws from the mating game, he makes it easier for the reckless Maxwell to prey on the hapless Joan. If those subway ads are more effective against Martin than against Maxwell, they are a threat to Joan’s safety. This is especially so when they displace Calvin Klein ads, which might have put Martin in a more socially beneficent mood.

If the Martins of the world would loosen up a little, we could slow the spread of AIDS. Of course, we wouldn’t want to push this too far: if Martin loosens up too much, he becomes as dangerous as Maxwell. But when sexual conservatives increase their activity by moderate amounts, they do the rest of us a lot of good. Harvard professor Michael Kremer estimates that the spread of AIDS in England could plausibly be retarded if everyone with fewer than about 2.25 partners per year were to take additional partners more frequently.

And here is Kremer’s original paper (with Charles Morcom). Landsburg suggests that a subsidy for condoms would be optimal in this situation. Read the whole thing.

Addendum: I later pointed out that the Kremer model appears to fit what happened in Thailand quite well.

Who’s a Russian Asset?

Mark Zuckerberg was once again pilloried in Congress. How many companies in the Libra association are headed by LGBTQ people? Isn’t it true that Libra is a project of white men? What are you doing for African Americans whose lives you have ruined? Do you discuss white supremacy at your far right dinner parties? And, of course, overlaying all of this was the idea of Russian interference.

Ironically, one of the goals of the Russians was to enhance US grievances and elevate identity politics. Most notably, some of the most successful Black Lives Matter memes and tweets were created by the Russians. As the NYTimes wrote:

“The most prolific I.R.A. efforts on Facebook and Instagram specifically targeted black American communities and appear to have been focused on developing black audiences and recruiting black Americans as assets,” the report says.…The report says that while “other distinct ethnic and religious groups were the focus of one or two Facebook Pages or Instagram accounts, the black community was targeted extensively with dozens.” In some cases, Facebook ads were targeted at users who had shown interest in particular topics, including black history, the Black Panther Party and Malcolm X. The most popular of the Russian Instagram accounts was @blackstagram, with 303,663 followers.

The Internet Research Agency also created a dozen websites disguised as African-American in origin, with names like blackmattersus.com, blacktivist.info, blacktolive.org and blacksoul.us. On YouTube, the largest share of Russian material covered the Black Lives Matter movement and police brutality, with channels called “Don’t Shoot” and “BlackToLive.”

…Of 81 Facebook pages created by the Internet Research Agency in the Senate’s data, 30 targeted African-American audiences, amassing 1.2 million followers.

The fact that Black Lives Matter was promoted by the Russians doesn’t detract from their legitimate goals. Nevertheless, one can imagine the Russians chortling at how successful their attacks have been. Mark Zuckerberg is one of America’s most successful entrepreneurs, the creator of Facebook, a world-dominant firm, a firm that the Russians and Chinese fear and instead of rejoicing in America’s success, America’s political class are seeking to take Facebook and its CEO down through the petty politics of identity.

Who’s a Russian asset?

Nathan Nunn’s recent talk on economic development

Here is one excerpt of many substantive points:

Numerous studies have formally tested for relationships between foreign aid and conflict,using a range of identification strategies to obtain credible causal estimates. Many studies find that foreign aid can increase conflict. Nunn and Qian (2014) find this to be the case for U.S. food aid. Their analysis uses an IV strategy where U.S. wheat production shocks, combined with a country’s tendency to receive wheat aid from the U.S. to obtain exogenous variation in U.S. food aid supply. Crost, Felter and Johnson (2014) use an RD strategy that exploits an eligibility cut-off for a World-Bank-funded development program in the Philippines to estimate the effects of the program on conflict. They find that eligibility to participate in the program is associated with more conflict, which appears to be due to an increase in insurgent attacks against government forces in an attempt to disrupt the program. Dube and Naidu (2015) estimate the effects of military aid in Colombia using a differences-in-differences identification strategy. They find that U.S. military aid leads to an increase in conflict and violence arising due to an increase in attacks by paramilitaries…

While there is evidence that foreign aid can increase conflict, it is not the case that it always leads to conflict. For example, Nunn and Qian (2014) show that among the countries in their sample without a recent history of past conflict, food aid does not increase conflict. In a follow-up study that studies a conditional cash transfer program also in the Philippines, Crost, Felter and Johnson(2016) find that this aid package actually decreased conflict. Trisko Darden (2020) finds that the effect of U.S. aid on state killings and repression of its citizens is weaker following the end of the Cold War.

Given the evidence that foreign aid can sometimes cause conflicts, but at other times have no effects or even reduce conflict, the natural next question is how we implement foreign aid projects in a manner that minimizes its harm, thus maximizing overall benefit.

That is from a recent and really quite excellent talk on development by Nathan Nunn.  He also has an especially interesting discussion of the geographic centralization of RCTs in economics among numerous other points of note.  Recommended.

Can you impose pecuniary externalities upon Korean squirrels?

Look out, squirrels of the world. It turns out acorns are good for humans, too.

Here in South Korea, the popularity of acorn noodles, jelly and powder has exploded in recent years, after researchers declared the nuts a healthy “superfood” that can help fight obesity and diabetes.

In the U.S., where some Native Americans once made acorns a staple of their diet, restaurants and health-conscious blogs are starting to explore recipes for acorn crackersacorn bread and acorn coffee.

That is bad news for squirrels and other animals that rely on oak trees for sustenance. In South Korea, where human foraging has multiplied, there are now fewer acorns on the ground, and the squirrel population has dwindled.

Is this a reductio ad absurdum of the idea that pecuniary externalities are irrelevant?  Ask your friendly neighborhood squirrel!  If you can find him, that is.  Then there is this:

Safeguarding acorns for squirrels is proving to be a tough nut to crack. That’s where the Acorn Rangers come in.

Formed at Seoul’s Yonsei University, the nascent Acorn Rangers group polices the bucolic campus, scaring off other humans from swiping squirrel food. Taking up the cause are students like Park Ji-eun, who skipped lunch on a recent day so a squirrel could eat this winter.

Strolling across campus, Ms. Park, a junior, sprung into action after spotting an acorn assailant: a woman in her early 60s, clutching a plastic bag stuffed with the tree nuts.

“The squirrels will starve!” barked Ms. Park, her voice booming so loudly that other acorn hunters—human ones—scurried away. The two argued for nearly an hour until Ms. Park emerged with the plastic bag in hand.

Here is the full WSJ story, by Dasl Yoon and Na-Young Kim, via the excellent Samir Varma.

Middlemen, China story of the day

Five hitmen have been jailed for attempted murder, after each one avoided carrying out the contract themselves so they could make a profit.

Chinese businessman Tan Youhui was looking for a hitman to take out a competitor, Wei Mou, and was willing to pay 2 million yuan (£218,000) to get the job done.

The hitman that Mr Youhui hired, decided to offer the job to another hitman, for half the original price.

The second hitman then subcontracted to another hitman, who then subcontracted to a fourth, who gave the job to a fifth.

However, hitman number five was so incensed at how much the value of the contract had fallen, that he told the target to fake his own death, which eventually led to the police finding out about the plot, Beijing News reported.

Here is the full story, via Yana.

My Conversation with Henry Farrell

An excellent episode, here is the audio and transcript.  We ranged far and wide, starting with Huawei and weaponized interdependence, moving later to the Facebook supreme court, Karl Polanyi, Ireland, and Gene Wolfe and Philip K. Dick.  Here is one excerpt:

COWEN: Arguably, dominant firms are easier to regulate. And since you seem to favor some kinds of additional regulation on the major tech companies, does this mean we’re too worried about monopoly, that we actually want to keep around a few dominant firms, and that if we split them up into many small parts, there would be more chaos or more fake news or more privacy violations?

If some parts of what they do are bad, and you get more competition in the bad, don’t we just want to put in GDPR barriers to entry, not quite public utilities, but keep them big and fat and happy and somewhat not so dynamic, yes or no?

FARRELL: It depends on what you value.

COWEN: But what you value.

FARRELL: Yeah. Let me put the tradeoff to you this way. If you value security, if the highlight is on security, then the answer is, you probably want to keep big companies around because you’re going to want to impose broad standards. You’re going to want to create collective security goods, and the only actors that can really do that in a substantial way are big businesses of one sort or another.

If, alternatively, you value things like privacy and other kinds of rights, then you probably want to move towards an equilibrium in which there are far, far fewer big firms. So that’s where I see the fight being played out. I see the fight being played out between people who value security and people who value privacy. I think they point in somewhat different directions.

COWEN: And where are you on that spectrum?

FARRELL: Well, it depends on the time of the day, and I find myself —

COWEN: It is 2:22 p.m.

And:

FARRELL: Well, I guess the question for me is — and again, this is a wide open question because we simply don’t have enough good empirical research — but what is the relationship and the broader ecology between companies like 8chan and companies like Facebook? I suspect that companies like 8chan will be far, far less successful if there weren’t much bigger platforms like Facebook that they could effectively grow upon.

So here are the arguments, something as follows. If you think about 8chan, and if you think about 4chan before it, they were basically meme factories. They were basically these places where these bored individuals hung out. You also created these memes in a kind of process of frenzied Darwinian evolution, where you desperately want to make sure that whatever you had said was on the front page because otherwise it would disappear forever. So you’ve got this survival-of-the-fittest thing, where incredibly valuable or incredibly effective memes go out and begin to populate the entire space.

But you need two things for that to work. First of all, you need a process of generation, and secondly, you need some kind of process of dissemination. You need other platforms which have far greater reach, which can then allow for these memes to propagate through the atmosphere.

I suspect that if we were in a world in which everything was at the scale of 8chan, rather than having a mixture of companies at the scale of 8chan and companies at the scale of Facebook, that the likelihood of this stuff spreading and becoming epidemic across the entire community of internet users would be far, far less. Obviously, we would have other problems then. But I think that the problems that we would face would be a very, very different set of problems from the problems that we face in the current environment.

Finally:

FARRELL: Yes. [Gene] Wolfe misleads us systematically, and clearly Severian is not a reliable narrator, but then neither is Proust’s narrator either. I think that if you really want to understand where Wolfe comes from, it really is Proust. His writing style is Proustian. His concern with time, with how it is that time works, is quintessentially Proustian.

And you don’t look to Wolfe any more than you look to other science fiction for characterization. I don’t think that’s the particular strength. What you do look for is a kind of a sense of the world. And in Wolfe, in particular, he provides this real understanding of how it is that the workings of society, and interestingly, conservative understanding of the workings of society.

I think of him almost as being Proust in reverse. Proust is describing a world in which the modern world is overtaking aristocracy. And that clearly is one of the great problems of Proust, what is happening on the social level. You have all of these aristocratic understandings: the Merovingian, all of these histories, all of these castles, all of this wonderful art, and they are being replaced by the modern world with its telephones, with its electric lighting, and so on.

And how do you think about this? How would you try to preserve what was happening in the past? What Wolfe does, which I think is an extraordinarily interesting thing, which would be impossible for anybody who is not a science fiction writer, is to take that and to reverse this and to imagine a world in which modernity has disappeared.

Recommended!

Beware the Mediocre Robots!

It’s often thought that what we have to fear from automation and AI is super-robots. Acemoglu and Restrepo make the useful point that what we actually should fear is mediocre robots, robots only slightly better than humans. Think about robots replacing labor in various tasks. A super-robot replaces labor but has an immense productivity advantage which generates wealth and increases the demand for labor elsewhere. A mediocre-robot replaces the same labor but doesn’t have a huge productivity advantage. As a result, the mediocre robot is the true jobs killer because it replaces labor without greatly increasing wealth. Think about automated phone systems or chat bots.

In an empirical breakdown, Acemoglu and Restrepo suggest that what has happened in the 1990s and especially since 2000 is mediocre-robots. As a result, there has been a net decline in labor demand with no big wealth increase. Thus, Acemoglu is more negative than many economists on automation, at least as it has occurred recently.

More generally, Acemoglu and Restrepo create a new type of production function and use that to reformulate how we think about production and how we measure what is happening in the economy with automation and AI. This is one of the most important new pieces on automation and the economy.

Who tips on Uber?

Men tip 12 percent more if their driver is a woman, but that’s entirely because they give more money to the youngest female drivers. The premium men pay to women behind the wheel shrinks as the women get older. By the time the drivers are age 65, it has virtually vanished. Women also tip other women more, but they don’t significantly change their tips based on the driver’s age.

Tips are highest between 3 a.m. and 5 a.m., and not surprisingly:

Tips are highest in small cities and the middle of the country. Riders in California and the Northeast weren’t great tippers.

Here is much more from Andrew van Dam at The Washington Post.

Are intuitions about occupational licensing and minimum wages consistent?

The other day I asked whether our intuitions about minimum wages and also occupational licensing might be consistent.  In particular, if we think occupational licensing is very bad for employment and prices and welfare, is that consistent with monopsony/low elasticity of demand for labor models?

That is a tough problem, here is one approach:

If you think minimum wage hikes are fine, typically you believe something like:

“A 20 percent hike in the required wage will not much damage employment, if at all.”

What then would you say to this?:

“A 20 percent training surcharge on all worker hires will not much damage employment, if at all.”

It seems you should believe the second proposition as well.

Now, consider occupational licensing.  Typically it is not absolute (“only 300 goldsmiths in Florence!”), but rather it imposes a surcharge on entrants.  They have to pass a test, or undergo training, or receive a degree of some kind.  They must incur training costs to get the license, and you can think of those training costs as a tax on the employment relationship.  But if those costs are incurred, a worker passes through the permeable membrane of the licensing restriction into the active labor force pool of that sector.

Of course we all know that a tax can be borne by either side of the market, depending on elasticities.

Now, if you believe minimum wage hikes don’t much harm employment, you believe the demand for labor is relatively inelastic.  And if you believe the demand for labor is inelastic, the burden of the training costs for licensing fall on the employer, not the worker.  Taxes fall on the inelastic side of the market.

Now, you’ve already assented to: “A 20 percent training surcharge on all worker hires will not much damage employment, if at all.”

So the occupational licensing should not much damage employment either.  The employer simply picks up the tab, albeit grudgingly.

(The effect on consumer prices will depend on market structure, for instance you can have a local monopsonist shipping into in a largely competitive broader market — tricky stuff!).

The occupational licensing will not help workers as the minimum wage hike would, because there is (probably) greater rent exhaustion in the licensing case.  The workers get higher wages, but they are paid the higher wages precisely to compensate them for and pull them through those arduous training programs.

So the licensing and the minimum wage hike are not equivalent, for that reason alone.  But still, the licensing will not really harm the interests of the workers, again the burden being born by the employer, or possibly the consumers in the retail market to some extent.

So if you are finding occupational licensing results that damage overall worker welfare, you must not accept the premises of the low price elasticity demand for labor model!

Another way to put the point is that the occupational licensing papers are testing some of the common presumptions of minimum wage models, and flunking them.

First addendum: It is not an adequate reply to this post to reiterate, with multiple citations, that minimum wage hikes do not lower employment.  Even assuming that is true, other simple models will generate that result, without clashing with the occupational licensing studies.  For instance, the employer might respond to the minimum wage hike by lowering the quality of some features of the job.  In essence you are then suggesting the demand for labor may be elastic, but the real wage hasn’t changed much in the first place, and then it is easy enough in the occupational licensing setting for the burden of licensing to fall on the class of workers as a whole.

Second addendum: There is a longer history of minimum wage assumptions not really being consistent with other economic views.

Have you ever heard someone argue for wage subsidies and minimum wage hikes?  No go!  The demand for labor is either elastic or it is not.

Have you ever heard someone argue for minimum wage hikes and inelastic labor demand, yet claim that immigrants do not lower wages?  Well, the latter claim about immigration implies elastic labor demand.

Have you ever heard someone argue that “sticky wages” reduce employment in hard times but government-imposed sticky minimum wages do not?  Uh-oh.

It would seem we can now add to that list.  Maybe we will see a new view come along:

“Labor demand is elastic when licensing restrictions are imposed, but labor demand is inelastic when minimum wages are imposed.”

Third addendum: Of course there are numerous other ways this analysis could run.  What is striking to me is that people don’t seem to undertake it at all.

What is behind the spread of so many mass protests?

One frequent theme is people objecting to a price increase. In Ecuador,  a focal point of the protests has been a demand for restoration of fuel subsidies. Petroleum price subsidies also have been central to the Haitian protests. In Lebanon, citizens have been upset at a new tax levied on the use of WhatsApp, with a social media tax also having been an issue in Uganda. In Sudan cuts to food and fuel subsidies have been a major complaint. In Chile they are protesting subway fare hikes.

The trend is that price increases may continue to become less popular. And, crucially, the internet will help people organize against such changes.

Consider that an old-style labor-oriented protest can be organized through the workplace or plant itself, through on-the-ground techniques that long predate the internet. There is a common locale and set of social networks in place, including perhaps a union. Those who suffer from a price increase, in contrast, typically do not know each other or have common social ties. Just about everyone buys gasoline, either directly or indirectly. The internet, however, makes it possible to mobilize these people into protests with prices as the common theme.

In other words: Protests of workers seem to be becoming less important, and protests of consumers are becoming more important.

You may recall that one of the original demands of the “gilets jaunes” protests in France was for free parking in Disneyland Paris. If you think that sounds a little crazy, you haven’t yet internalized the nature of the new millennium.

In the future, efficiency-enhancing or austerity-induced changes in prices may be much harder to accomplish politically. The new trend is neither central planning nor market liberal reforms, but rather frozen prices, especially when those prices are set in the political realm.

Here is the rest of my latest Bloomberg column on that topic.  Two further points: my global warming point I pulled from Noah Smith, though I could no longer find his tweet to cite. Furthermore, many of the recent protests, such as in Spain, fit a more political and ethnic model, I am not saying price increases are always the major factor.

Summers on the Wealth Tax

Larry Summers is my favorite liberal economist because even while maintaining his liberal values he never stops thinking like an economist. That makes him suspect among the left but it means that he is always worth listening to. The video below with Saez, Summers and Mankiw (with Rampell moderating) is excellent throughout. I cribbed a number of points from Summers:

“I have studied last week’s twitter war very carefully and I have to say that I am 98.5% convinced by the critics that the Zucman-Saez data are substantially inaccurate and misleading.”

The arguments around political power are not persuasive. Most of what is wrong with politics is because that is what the people want (I’m filling in a bit here from comments throughout). A wealth tax does nothing about corporate lobbying and would increase the incentive to give to political organizations. If you cut wealth at the top by 30% that wouldn’t change relative political power in the slightest.

Wealth is up in large part because interest rates are down which means that permanent income hasn’t increased.

Forced savings programs like social security and unemployment insurance mean that people at the bottom need to save less and thus their wealth falls even as their welfare increases.

A wealth tax increases the incentive to consume instead of save and invest.

On employee stock ownership plans: “When you put workers in control of firms and you give them substantial control–see Israeli kibbutz’s, see Yugoslav cooperatives, see universities where faculties have a powerful voice–the one thing you do not get is expansion. You get more for the people who are already there. That does not seem to be an attractive position for progressives.”

In the Q&A Summers just goes to town on Saez when Saez claims 90% tax rates are a great American invention. “The people who were around in the Kennedy administration who were at least as progressive as you are were united in the belief that 90% tax rates were a bad idea….The number of people who paid those 90% tax rates was trivial and it wasn’t because there weren’t a lot of rich people.”  Greg Mankiw, who gives a nice parable in his remarks, has to stifle a laugh as Summers lets rip.

The body language in the Q&A is very interesting.

Trust, Airbnb, and Himalayan villages

An excellent short essay, with many points of note, here is one:

In Himalayan villages like mine, there is deep social uncertainty because of Airbnb and other online marketplaces. The opportunity cost of doing business with one’s nephews and cousins is now high. There is the real problem of nephews who run away on the flimsiest of pretexts. The stakes are higher, and there is much to gain by trading with outsiders. You can’t even run Airbnbs well without breaking free from closed relationships with your family and tribe, and forming spontaneous relationships with strangers.  It’s hard for me to do justice to my Airbnb listings without being free to run them in a fairly entrepreneurial fashion.

And there is this:

Millions of people stay in Airbnb homes every night. It’s not trust which makes this possible. My pup is fearless when he sleeps with the door wide open, in a cottage in the woods. There are leopards around. Dogs here don’t live very long. He doesn’t trust leopards, but he knows they are afraid of humans. My pup sleeps on my bed, and so is well-protected from the vicissitudes of life. But I’m not the living proof that dogs can trust leopards. Dogs wouldn’t need humans to guard them if they could trust leopards. Similarly, Airbnb puts hosts and guests in a position where behaving badly would ruin their reputation. In one of my bad moods, I held my pup quite firmly. At midnight, he ran out of the cottage and barked for hours. I couldn’t bring him back to my bed. I did something he thought I wouldn’t consider. He felt I betrayed his trust in me. I’m, here, talking about a more meaningful form of trust. Intellectuals miss this obvious distinction, because they’re not the wonderful people they think they are. The distinction between trust and assurance is all too obvious. But if doing wrong doesn’t fill you with moral horror, you won’t get it. You can’t trust anybody who doesn’t feel that way, and there are not many such people. Unconditional trustworthiness is one of the rarest things in the world. Institutions can’t produce this kind of trust, because people aren’t conditionable beyond a point. In any case, how do you produce something you don’t even understand?

By Veridici, and I believe Shanu Athiparambath.