Tag Archives: macro

Community Organizing and the Free Rider Problem

As a community organizer, I am all too familiar with the free rider problem and with economically rational ways to circumvent it. Under the right conditions it’s not as daunting as it first appears.

I’ve seen two classical ways around the free rider problem. The first is democracy- everyone makes a decision to invest collectively and then contributions are mandatory (ie taxes.) The second involves punishment, in a multi-stage game free riders can be punished for their actions, creating a an incentive for everyone to chip in.

Unfortunately as a community organizer I don’t have access to either of these tools. I don’t have the authority to impose taxes, and punishing free-riders tends to just drive people away. Assuming I have no leverage over the people that I’m trying to organize, how can I ever motivate them to collaborate around a public good?

The answer, in my experience, has to do with transaction costs. Let’s say I’m hosting a potluck. Under strict economic logic, no one should bring food. Since people who don’t bring anything still get to eat, all of my guests should come empty handed. Is bringing food to the potluck an irrational behavior? Guilt and game theory aside, bringing food to a potluck lets my guests investing in their relationships with me and the other people at the party. This investment lowers transaction costs within that network of relationships, and those lowered transaction costs can far outweight the cost of some tofu pad thai.

Say that I’m looking for a job. Job searches typically have high transaction costs, and I’ve been fruitlessly cold calling and sending off resumes to no avail. By bringing my tofu pad thai to the potluck I can ingratiate myself to people who might know potential empoloyers, possibly lowering the transaction cost of finding a job. The same holds true if I’m worried about the transaction costs of organizing to improve my kids’ school or of finding a date. Communities that have some form of shared investment tend to be closer-knit, and therefore more transaction-friendly, than those which don’t.

The trick as a organizer, then, is to create a community which meaningfully lowers the transaction costs of people investing in a shared (or even public) good. The League of Pissed Off Voters performs a public service by putting voter guides together for young people and distributing them around the city, but the League’s all-volunteer membership stays involved because it lets them become close to a tight-knit network for young progressive activists. If anyone is looking to grab a beer and talk politics or to organize a rally, transaction costs are low. Though we all believe in the group’s mission, the achievement of that mission is nto ultimately what keeps us engaged in the group. Grassroots organizations which reward their members only with altruistic feelings tend to fall apart quickly, ones which built highly valuable communities among their volunteers tend to last.

Economically this means that the free rider problem is sovlable whenever:

a) the people benefitting from the shared or public good can benefit from low transaction costs with one another
b) contributions to the shared or public good can be recognized

All you have to do is create and maintain a mechanism for contributors to form relationships with one another, and the rest will sort itself out.

3 Comments

Filed under Uncategorized

Reading Notes:Macroeconomics in Context, Chap 8: The Structure of the US Economy

Neva Goodwin, Julie A Nelson, Jonathan Harris

The US Economy can be broken up into 3 sectors:

The Primary Sector– Extracts natural materials and feeds them in to industry. This includes mining and agriculture.

The Secondary Sector– Takes natural materials and turns them into finished products.

The Tertiary Sector- Sells finished products and uses them to perform services.

The Primary Sector

Though important, is a tiny section of GDP. This is mostly becuase natural resource extraction has become highly labor efficient and financially efficient (if not necessarily energy and resource efficient.) Does this mean that we can potentially double the cost of these raw materials to get them sustainably without a major impoact on the global economy? If anything, this would employ more people.

The Secondary Sector

The US is still the largest manufacturer in the world, though other countries are catching up to us. Though the value of what we produce has stayed constant, the jobs it takes to produce those things have had a huge drop. Many of those jobs have gone overseas. while many more have been eliminated due to labor efficiency. (Even in China net manufacturing jobs have gone down due to increases in efficiency.) A focus on material and energy efficiency, rather than labor efficiency, would create demand for higher skilled jobs while lowering overall costs. This could reduce the ecological impact of manufacturing while increasing the # of people employed. 

The Tertiary Sector

This sector is by far the biggest and the fastest expanding. A huge chunk of it is (was?) financial services, though areas like healthcare and education are also significant. GNAW states that a big chunk of this sector is used managing and optimizing the system, including growing sectors of data and waste management. Continued growth of this sector, with skillsets similar to those in the financial sector, seems like it could line up well with a shift to a more sustainable economy. The only question in my mind is how the demand for such an economy can be effectively expressed in market terms. 

Leave a comment

Filed under Uncategorized

Reading Notes: Ecological Macroeconomics: Consumption, Investment, and Climate Change

Jonathan M. Harris

GDP Sucks

Traditionally, the goal of macroeconomic policy has been to grow GDP as exponentially as we can. This has resulted in (go us!) exponential GDP growth, which has in turn resulted in an exponential growth in carbon emmissions. If GDP stays closely tied to carbon emmissions and degredation of the biosphere then our exponential growth will be halted- sharply- by the climate change and the collapse of our ecosystem.

Growth Without Throughput

This requires a massive reorientation in macroeconomic theory, one which takes as a condition a net decrease in material throughput. This does not necessarily mean a decrease in growth, nor does it mean economic collapse. Harris posits that it would put us somewhere between exponential growth and a “steady state” economy.

Having an economy that operates without more stuff flowing around will require drastic changes in the way that we think about consumption, capital investment and government spending.  To model this, Harris breaks down the traditional GDP equation (he’s talking about the global economy, so there’s no imports or exports):

Y=C+I+G

Into something like this

Y=energy, material and land intensive(C+I+G) + non-energy, material and land intensive(C+I+G)

We don’t have to give up on growth, just identify and encourage growth not linked to material throughup. According to Harris this kind of growth could solve urgent problems that are currently not addressed by our economy- problems like healthcare, education, community building and ecosystem conservation. All of these tasks are human labor intensive but not necessarily capital or energy intensive. Creating economic incentives to accomplish them could shift our economy to a direction of sustainable growth.

Eco-Keynsian Reforms  

In order to shift from eco-degrading growth to “good growth” we’ll need major shifts in tax and monetary policy, using traditional Keynsian methods. Essentially we make old forms of material-intensive growth more expensive and new forms of service-oriented growth less expensive. That coupled with market mechanisms for intangibles like healthy ecosystems could create an economy with significant demand for ecosystems maintenance and social equity.

While this could certainly keep people employed, I’m still not certain how this demand for ecosystem and social services is aggregated and represented in the market. 

Leave a comment

Filed under Uncategorized