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TiB 198: Abundance as policy; AGI and politics; Remote work and the cost of living; and more...

Matt’s Thoughts in Between
Matt’s Thoughts in Between
This week: Scarcity as a policy choice; cities, the cost of living and remote work; bottlenecks in a world of AGI; and more…

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Why is the politics of abundance so unpopular?
Derek Thompson has a good essay in The Atlantic on the politics of abundance (under the amusing title, “A Simple Plan to Solve All America’s Problems”). He argues that across a broad range of societal challenges lies a common theme of “scarcity as a policy choice”. From COVID tests to nuclear power, Thompson says that the US has chosen to make it hard for people to build, innovate and create (“Too much venting and not enough inventing”). I’m sympathetic to this as a policy agenda, though not as convinced as Thompson that this is good politics; everyone has their favourite regulation, alas. Concentrated benefits and dispersed costs strike again!
It’s therefore worth reading in conjunction with this excellent piece on “The housing theory of everything” by Sam Bowman, Ben Southwood and John Myers. The authors argue that a shortage of housing - driven by bad planning regulation - is at the heart of nearly every major domestic challenge facing the West. Alongside the obvious problems (people have less money!) are a swathe of non-obvious ones: lower productivity and less innovation because our cities are less dense than they should be; regional inequality (see next section); smaller families than people want; and perhaps even obesity and climate change (see the full piece for some interesting evidence).
What I like about the authors’ argument is that it gets serious about addressing the collective action problems that make the housing crisis so challenging. How do we build coalitions for more housebuilding and defeat NIMBY-ism? One possible answer is street-level votes on more permissive planning rules. The potential for increased property values might be enough to tempt some homeowners into backing higher density - and keeping the voting units as small as possible allows for more experimentation. It’s not a panacea, but it’s encouraging to see ideas for making the politics of abundance more, well, popular.
Cities, the cost of living and remote work
If you believe that housing density is one of the most important policy areas today, this new and fascinating paper by Rebecca Diamond and Enrico Moretti is a must-read. The authors have an amazing dataset - transaction-level consumption data for 5% of American households for a full year! - which they use to investigate how consumption levels vary across cities for households of different income brackets and education levels. The short answer is: a lot. San Jose is twice as expensive for low income households as Natchez, MS. Low income families in the least expensive cities consume 74% more than those with the same income in the most expensive.
Perhaps the most interesting findings show the relationship between education, geography and income. For college graduates, there is effectively no relationship between their city’s cost of living and their consumption. It seems that higher wages for high-skill jobs in the most expensive cities almost exactly compensate for higher costs. But this is not true for those with less education. Lower skill jobs in expensive cities don’t pay enough to offset the higher cost of living. On average a high school dropout moving from Natchez to San Jose and taking the best available job would see their consumption drop by 27%.
There are a number of important implications. One relates to the problem discussed above of building political coalitions for more housing: if the best educated don’t experience the costs of restrictionism, this is harder. Most interesting, though, is to imagine how remote work (see TiB 116 and TiB 171 might be changing this equation (the paper’s data is from 2014). Previously high-skilled workers couldn’t increase their consumption by moving to cheaper cities; their income would have fallen accordingly. In 2022, that’s likely no longer true. That’s likely, in equilibrium, to have a profound impact on the economic geography of the developed world.
AI, abundance and geopolitics
While we’re talking about abundance… Sam Altman, CEO of Open AI and Chair of Helion, a fusion company, asks an interesting question (Thanks Ian for the link):
Sam Altman
so interesting how wide the distribution of answers to this question is:

"what will the limiting reagents be in a world of nearly free intelligence and nearly free energy?"
Given Altman’s day job(s), I’m sure he sees this as a non-hypothetical question. There are some good answers in the replies. Lots relate to space, time or environmental constraints. Beyond that, in any world where humans remain the dominant species, positional goods will still be valuable and sought after; even if we have material abundance, status will remain scarce. This suggests that there’ll be a premium on objects and narratives not created by AI, even if they’re strictly inferior. But these won’t be limiting reagents, just rearrangements of human wants.
I suspect the true limiting factor will be politics. There’s not much on which I agree with Lenin, but he was right that the most important question in politics is “Who? Whom?”. What matters most is who has access to the “nearly free” intelligence and energy in this scenario. A world where abundant intelligence and energy are used by one group of nation states to cancel out similar resources held by another is both a horrific wasted opportunity and quite possible. It continues to be surprising just how little resource today goes into averting such a scenario.
Quick links
  1. The American dream? Social mobility - real and perceived - in the US vs Europe. Fascinating chart.
  2. A sense of scale. The Tonga volcano blast relative to the size of the earth. Unreal.
  3. Napoleon > France. We like individuals to set new winning streaks, but not groups. Interesting study.
  4. Amazon cut? Very good thread on why Amazon retail might shrink this year.
  5. Chips with everything. Excellent short-ish read on where the global semiconductor market is heading (Smartphones may not be the biggest category of demand by the end of the year)
Onwards and upwards...
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Until next week,
Matt Clifford
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