How Long Until Pregnancy?

Time until one expected pregnancy for some birth control methods. Rates are for typical use.

Unprotected: 7 months
Spermicide: 3 years
Withdrawal: 5 years
Diaphragm and spermicide: 6 years
Condom: 6 years
Calendar method: 8 years
NuvaRing: 11 years
Contraceptive patch: 12 years
Birth control pill: 12 years
Depo injection: 32 years
Copper IUD: 125 years
Tube tying: 200 years
Progestogen IUD: 500 years
Combined injection: 500 years
Vasectomy: 650 years
Implant: 2,000 years

The Trouble with Transfer Payments

GDP is a funny number. The simple version is that a government statistics office takes every transaction in the economy, adds up the amounts, and spits out a total. In practice, it’s a bit more complicated.

Suppose Peter buys an apple for $2. This transaction makes Peter happy – if he paid $2 for the apple, he probably got at least $2 of value from it. $2 is added to GDP, and we can mostly assume higher GDP is better: a higher GDP implies more Peters are buying more apples.

The thing we care about, the thing we want to optimize for, is the apple, not the $2. The $2 is just two bits of paper, or a few numbers on a computer. You can’t eat paper; the end goal is sitting down and having a meal, not paper moving around. The paper is just an accounting device. We add up dollars because it’s simpler than adding up apples; apples are of different shapes, different types, different quality, and are of course only one good out of millions, while a dollar is the same as every other dollar (fungibility). The money is a little tag we attach to the apple to keep track of it, like tagging an elephant so you can follow it through the African jungle.

Now, suppose Peter likes his friend Paul, and gives him $2 for lunch. This is a transaction, but it is not counted as part of GDP. There’s no apple; no goods or services are produced; money has just gone from one pocket into another. The economic term for these transactions is “transfer payments”. On a broader scale, if the government pays $1 billion for a new road, this is part of GDP, because a real good or service is produced (the road construction). But if the government writes people $1 billion in Social Security checks, this isn’t counted. It’s just moving money around from A to B; nothing is produced.

So far, all is well. However, it turns out many government programs are de facto transfer payments, even if they have some other nominal purpose. As a real example, suppose the government spends $400 million on new tanks. The tanks are designed, built, tested, and shipped off to the Army, where they sit around in warehouses because the Army didn’t need them. Clearly, in such a case, the government isn’t really exchanging money for goods, since the ‘goods’ are useless.

If you ask a (relatively) honest politician why this happens, they’ll say it’s to create jobs. But people (mostly) don’t want jobs for the sake of having jobs. They want jobs for the money. Hence, what the government is really doing is transferring money to the politically influential, under the nominal guise of purchasing an (actually worthless) product. It’s as if Peter felt sorry for Paul, bought Paul’s plastic apple for $2, and then promptly threw the fake apple away. The real goal is moving money, not the exchange of value. Call these transactions “quasi transfer payments”.

Quasi transfer payments artificially inflate GDP. Suppose that, in 2010, the government spends $1 trillion on roads, $1 trillion on tanks the Army doesn’t want, and $1 trillion on Social Security. In official statistics, the government share of GDP will be counted as $2 trillion – $3 trillion total spending, minus $1 trillion in transfer payments. But a fair accounting would also subtract the $1 trillion in quasi transfer payments. Hence, the real number is $1 trillion, not the official $2 trillion.

This isn’t quite as bad as it sounds. What people are mostly concerned about with GDP isn’t the absolute number of dollars exchanged (the dollar is an arbitrary unit anyway), but how good things are relative to other times and places. If GDP is 5% higher this year, that’s good; if GDP is lower than some other country, that’s bad. If, say, 20% of the economy is quasi transfer payments, this doesn’t affect GDP growth numbers, because the same extra 20% is added to both this year and last year. An economy that grew at 2% will still grow at 2%.

However, quasi transfer payments do introduce some important biases:

- They cause overestimation of the benefits of government spending. Suppose the economy is $10 trillion, 40% government, 60% private. Half of the government’s spending ($2 trillion) is quasi transfer payments, so the ‘real’ economy is only $8 trillion. Now, suppose all government spending goes up by 20%. The new GDP figure is still $10 trillion – $5 trillion government, $5 trillion private – so it’s like nothing changed. However, quasi transfer payments are now $2.5 trillion, not $2 trillion, and so the ‘real’ economy is only $7.5 trillion; things actually got worse.

- They motivate politicians to spend on useless projects. Consider a road from New York to Chicago, to be built next year for $1 billion. This will add $1 billion to the GDP. Now, suppose a senator from Nowhere, Ohio wants to build the road from New York to Nowhere instead. On paper, this will make no difference, it’s still $1 billion added to GDP. However, in reality, the road is now a quasi transfer payment. If properly subtracted from GDP numbers, we’d discover that it makes the country $1 billion poorer, compared to the original road to Chicago.

Highways Are Socialist

Within the US, leftists often cite the interstate system as a government program everyone likes. Which is reasonable enough.

But US highways share the downsides of socialism, not just the upsides. Consider a Soviet breadline. The bread is free, so everyone wants lots of it, and demand exceeds supply. The way to reduce demand is making everyone wait so long that the annoyance of waiting deters them. Hence, long lines. (And this is a deadweight loss; when bread is expensive, at least the bread company gets rich, but a long line benefits no one.)

US interstates have the same problem. They’re free and well maintained, so demand is high. When demand exceeds supply, everyone wastes time in traffic jams, the American equivalent of the Soviet breadline.

If roads were privatized, they’d be pretty expensive, since infrastructure is a natural oligopoly. But from a road company’s perspective, traffic jams are terrible; they hurt the “customer experience” and reduce revenue (traffic jam = no one can enter the road = no tolls). The natural solution is raising prices until demand goes down. And then you’d never have to wait in traffic again.

Standby Costs

Consider an ice cream stand. Like any business, it has revenues (ice cream sales), and expenses (cones, refrigeration, city permits). One can figure what a cone ‘should’ cost by adding up its components – raw materials, labor, utilities. For example, suppose ice cream costs $2 per gallon wholesale, there are 20 scoops per gallon, it takes a minute to scoop ice cream, labor is $12 an hour, cones cost five cents, and the stand itself costs $144 for a twelve-hour day. A two-scoop cone then ‘should’ cost $0.65, and that’ll be the price in a perfectly competitive market.

But we’ve missed one assumption. What if we aren’t scooping ice cream all the time – what if there are dry spells? We have fixed capital costs (the worker and the stand), which have to be amortized over a large number of sales. If there are fewer sales – if the worker, having nothing to do, pulls up a chair and gazes down the wide open road every now and then – the costs are split fewer ways, making each sale more expensive. If the stand is out in the boonies and only makes one sale per hour, that one sale has to cover the whole hour of worker time and stand time, and that two-scoop cone now has to cost $24.45. A large jump!

Standby costs are a large component of many businesses. Restaurants still have to pay rent at 3 PM, when no one is eating. A rural store only gets a few customers a day, making its products expensive. The railroad mostly runs at rush hour, but the trains are around 24/7/365…

One can be very successful by finding new ways of eliminating standby costs. RelayRides, for instance, makes money by employing capital (people’s cars) more hours per year. Ultimately, self-driving cars will do the same, on a much larger scale. And what a bang that will make.

Microsoft vs. AirBnB

In 1981, Microsoft raised $2.5 million from the VC firm Technology Venture Investors, at a $50 million valuation. Its revenues were $40 million. (Current dollars.)

In May 2011, AirBnB raised a VC round. Like Microsoft, it had large and fast-growing revenues ($25 million). Its valuation, however, was higher. A lot higher. Over $1 billion, more than twenty times as much.

What changed?

The Coca-Cola Fallacy

(Related: Politics Is Suspicious)

Open up Facebook, scroll down, and you’ll see arguments about politics. “The US government is so incompetent, it can’t even handle X. Why can’t they do Y?”

For most, this is just a way to kill time. But the world is large, and there are also many who are really serious about Y. How could we make Y actually happen?

There is a standard theory of how political change works. Call it the Coca-Cola model. Every day, Coca-Cola spends millions of dollars advertising Coke. Their goal is to make sure every man, woman and child on Earth hears about Coke all the time. They buy billboards, go on television, make flashing Coke-shaped light displays, do everything they can to get people’s attention.

The Coca-Cola model says politics works just like that. Everyone gets on TV, shouts about their ideas, and whoever shouts the best/loudest wins. It’s a wonderfully seductive model. It’s also grossly misleading.

The Coca-Cola model works for Coke because:

- they are a giant corporation with a billion-dollar marketing budget; and
- Coke is already sold in every store from Seattle to Kigali.

In other words, they want people to do something very simple (push the Coke button on the vending machine), and they have the resources to push it on a huge scale. 99.99999% of political groups have neither. Their initial capital is small. And good luck implementing, say, single-payer healthcare through a series of actions no more complex than buying a Coke. Let alone anything more radical.

The real way to create serious political change is by assembling an effective organization of competent people who are dedicated to the problem. Unlike arguing on blogs that no one reads, or being a talking head on TV, this is hard. You have to get people interested. You need them to make a real commitment, not just sign a petition. You need to raise money. You need to resolve disputes. You need to make tough decisions without pissing everyone off.

The effective part is key. Effectiveness isn’t just writing blog comments; anyone can do that. It’s building bridges. Selling real estate. Passing bills. Raising capital. Winning wars. Flying to the Moon. Effectiveness is having the skills to do hard things, not just talk about them.

Unlike Coca-Cola, your goal is not to make your group as large as possible. Size has overhead costs – every person you add creates new complexity. n people need n^2 communication channels. And people aren’t all equivalent; they vary hugely by overall ability, level of seriousness, and how well their skills match the problem. The right person in the right job can easily do more than a hundred wrong people in wrong jobs.

History shows this well. To pick everyone’s favorite example, take the rise of the Nazis in Germany. The Nazis certainly had great propaganda. But before the propaganda – before anyone knew who Hitler was – they had an effective organization, which could do things like assembling three thousand men to risk prison and death staging an armed revolt against the government. How many modern-day pundits could pull that off? The mass popularity was an effect, not a cause.

Or, take Lenin. The Bolsheviks overthrew Kerensky’s provisional government in about twelve hours. And that twelve hours took twenty years of careful preparation, building alliances, writing books, planning, watching. And then the Communists had to fight an actual war on a massive scale, against the Whites, Greens, and numerous foreign armies. Suppose you have half a million soldiers under your command. Who’s going to feed them? Where will ammunition come from? How will they get to the battlefield? Which generals will lead each division? What if they betray you? The Communists had to actually figure all this stuff out, which is why they won.

Or, take the American Revolution. The whole thing was run by only a few hundred guys, but those few guys were competent and could manage to work together. The Constitution didn’t emerge fully-formed from the aether; it was the product of a long tradition of political philosophy among much of the colonial elite. The French Revolution ditto, although the ‘working together’ part didn’t last and things fell apart quickly. The abolitionist movement, women’s suffrage, unions in the late 19th century, it goes on and on.

Elphinstone’s Valley

In 1838, a division of the British Army invaded Afghanistan. They marched in, captured Kabul without much of a fight, and set up camp outside the city.

Several years later, the Afghans began launching guerrilla attacks. It was December, and the army was running low on supplies. Should they retreat through the mountain passes? Hole up inside the city? Negotiate?

The commander, General Elphinstone, was an elderly man crippled by gout. He decided to do none of these. In fact, he soon stopped issuing orders at all, and since he was a beloved old general, no one else was allowed to take command. By the time the army started to retreat, it had ceased to function effectively. A panicked mass of soldiers, civilians, and Indian sepoys tried to limp through the mountains, under fire all the way. All but one were killed.

Some leaders are smart and well-organized. Their groups usually do well. Others are lazy, and this forces someone else to step in and fill the gap. But the worst place to be is in the middle – the “uncanny valley”, where a leader can’t do anything himself, but has enough power to stop anyone else from doing anything either.

Hierarchy is the same way. With no hierarchy, people will cooperate naturally (well, at least some of the time). With a strict, disciplined hierarchy, people cooperate because they are forced to. But in between – where managers can’t make their underlings do stuff, but can still block them from doing anything independently – nothing gets accomplished and the organization falls apart.


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