Links - Three Examples of How Magnitude Matters

And all three have positive angles.

Let’s start with a quote of a quote before getting to the three links.

Don Boudreaux shared a note from David Simon that perfectly encapsulates how magnitude matters. David wrote: “Sociologists [and other non-economists] ask ‘does something matter.’ Economists ask ‘how much does it matter’.” [emphasis added with slight grammatical correction]

Link one is from Arnold Kling discussing productivity data. From food to entertainment to healthcare to transportation to communication, the improvements to living standards are astounding and generally under appreciated. As he says,

One of the most interesting phenomena among people my age is the lack of interest that our adult children have in our possessions. They do not want our furniture, our appliances, our stuff. They turn down what we offer as not useful or easily replaced.

Nobody wants our accumulated books, record albums, and tools. And of course people no longer need typewriters, Princess Phones, stereos, or portable radios.

People talk about all the stuff not being made here any more because of imports. But there is a lot of stuff not being made here any more because the share of our consumer desires that are satisfied by stuff is much smaller than it used to be.

I am not trying to claim that the last fifty years have seen more improvement in the standard of living than the previous fifty years. But I contend that it is more of an open question than what the usual statistics would lead you to believe.

The numerical precision of productivity comparisons is deceptive. Just because government statistical offices produce numbers that include digits to the right of the decimal place does not mean that we know enough to confidently speak of a “productivity slowdown.”

The MM connection is in appreciating how inherently imprecise productivity measurement is.

Link two is from Alex Nowrasteh explaining the actual risk posed by foreign-born terrorists (immigrating illegally or legally).

So, how much should the U.S. government spend on counterterrorism to prevent one terrorist attack that would kill 15 people (to take an extreme example)? Furthermore, what restrictions on beneficial activities like immigration should the government impose to prevent one terrorist attack that would kill 15 people? We’ve already established that the amount shouldn’t be infinite. Economists like to use the value of statistical life despite its problems and generous assumptions could bump that value up to $15 million for deaths committed by violence. Let's assume the VSL is $25 million just to be extra generous. It would be worth spending up to $375 million to stop a terrorist attack that would kill 15 people.

Let’s further assume all counterterrorism spending, immigration restrictions, and other rules that prevent mutually beneficial activities intended to reduce terrorism in the United States cost $2 trillion since the 9/11 attacks (surely an undercount). At a value of statistical life measured at $25 million and $2 trillion spent to stop terrorist attacks, that money would have to have prevented 80,000 murders during that time to break even. In reality, 44 people have been murdered by foreign-born terrorists on U.S. soil since 9/11. Either those counterterrorism actions and spending prevented at least 99.95 percent of deaths in foreign-born terrorist attacks on U.S. soil that would have happened otherwise, or the government is overspending on counterterrorism and restricting too many of our freedoms. Which do you think is more likely?

The MM connection is in understanding that risk, especially highly emotionally-salient risks, have to be put into proper perspective.

Link three is from Timothy Taylor describing the size of international trade relationships between countries/regions and the United States. Here I share a graphic from Brookings that he shares in his post.

The MM connection is as he says,

I won’t try to draw out any implications or lessons here. I’ll just say that when thinking about or discussing how international economic ties affect the US economy, it’s useful to have some magnitudes in mind.

The positive spin I mentioned in the subtitle is that productivity is probably understating advancement, terrorist risk is very low, and even if the worry of protectionists’ are appropriate, what they worry about is a small part of a big picture.