Articles, Blog

How should we balance efficiency and equality?

November 30, 2019


(light music) – Economists are sometimes
accused of focusing too much on efficiency and not enough on equality. They spend too much time,
so the criticism goes, thinking about whether the pie is as big as it could possibly
be, and not enough time thinking about how it’s carved up. So should economists and
policy makers think more about distribution, and if so, how? Welcome to a special
edition of “The Big Question,” the monthly video series
from Chicago Booth Review. We’re filming in front of a live audience on the campus of the
University of Chicago. I’m Hal Weitzman, and with me to discuss the issue is an expert panel. Marianne Bertrand is Chris P. Dialynas Distinguished Service Professor of Economics at Chicago Booth. She’s
also the faculty codirector at Booth’s Rustandy Center
for Social Sector Innovation and faculty director of the Poverty Lab at the University of Chicago Open Labs. Erik Hurst is V. Duane
Rath Professor of Economics and John E. Jeuck Faculty
Fellow at Chicago Booth. He’s also deputy director of
the Becker Friedman Institute at the University of Chicago. And Nicholas Epley is
John T. Keller Professor of Behavioral Science at Chicago Booth and faculty director of the
Center for Decision Research. He’s the author of
“Mindwise: How We Understand What Others Think, Believe, Feel, and Want.” Panel, welcome to “The Big Question.” Marianne Bertrand, is
there an inherent tension between efficiency and equality? – Yeah, definitely, and as economists, we’re really focused on,
you know, efficiency. I think the idea behind it is
that we have scarce resources and we are trying to always think about how we are looking
at these resources to create the most value possible. That’s really our focus. That’s the pie that you were talking about; but, you know, issues of distribution of this value that’s being created, distribution of these resources come up
typically as a second step. – But inherently, there’s
tension between the two? – There will be a tension. – OK, Nick Epley, if
we’re trying to kind of, you know, go after two goals
that are diametrically opposed, that will trade off in this way, is that always inherently
a hard thing to do? – Whenever you have a situation
where you’ve got two goals you could be pursuing at the same time, it turns out to be a very hard thing for any individual to do,
and that then produces a general bias in behavior,
you might think of, in pursuing one goal at a time, often at the expense of others. So if you’re thinking
about what might be good for me today, it can be
hard at the same time to think about what might be good for me a month or a week
or two months from now. If you want to cut a
piece of paper, right, you might choose the thing
that only does the one thing that satisfies that goal best instead of choosing a tool that
maybe serves many goals, like a Swiss Army knife that
could also cut this paper but isn’t only meant for
cutting a piece of paper. So in general, you find that
decision makers are myopic, and so when you have tensions like this between one thing we might
value on the one side and something else we might
value at the same time, generally what happens is you’ll end up prioritizing one over the other. – But economists would argue that the right thing is
indeed to focus on efficiency because then we do indeed
have the biggest pie possible and then there’s a second
problem for society, or policy makers, or others to decide, which is how they want
to put in place policies to redistribute this
value among, you know, among people. But then questions emerge because economists also have some views as to, kind of, efficiency considerations that go in that second
stage of that process. – And there’s some assumptions
built in there, right? Particularly about, Erik
Hurst, about labor markets: Isn’t there an assumption
that labor markets clear in some sense, that workers
transition to other jobs? – So now we’re talking about, you know, very specific types of shocks. So usually when we start
thinking about: Is trade good for the populace or not? In an efficiency standard, we write down models
and we take derivatives and we kind of say: it’s
good where countries could, you know, move toward
their comparative vantage, and one country specializes in Good X, another one specializes in Good Y, and we trade for each other.
But the people who used to— if you think about manufacturing
in the United States— who used to produced tradable goods that are now being produced abroad, they no longer, you know,
have the same demand for their employment as they did before, and they get dislocated.
And as they get dislocated, they pay some costs. Now, in
a frictionless labor market, those costs are pretty
small. You get fired on this side of the room,
you just move to that side of the room. Everybody gets
a job. Everybody’s fine. We all get the benefits of
lower prices from trade. If there’s a little
bit of a barrier, though, between moving from this side of the room to this other side of the room, or from Labor Market A to Labor Market B, that provides some sort
of costs to those workers, that you know, when we start thinking about how the cost, the distributional
effects of trade, that’s a cost that many of our models that we write down in textbooks
don’t have because we assume these frictionless
markets in the labor market. – And just to be clear there, I mean, this could also be—if we assume these perfectly functioning labor markets when we do, say, a series of trades— we may, even if we just
solely focus on efficiency, make the wrong calculations,
is that on nets, there might not be efficiency gains from the trade policy if you realize that indeed there will be
permanent losses for some of the workers that have been displaced by other trade, right? – Yeah, exactly. – And so that’s no longer
a distributional question because it might mean
that we start with models that assume perfectly
functioning labor markets and then once we kind of look
at the real labor markets and the losses that will be
created in the labor market, in fact, the policy did
not increase the pie. – [Weitzman]: So that might upset the first-order, second-order prioritization we talked about earlier. – Yes, this is exactly right, so I think that this is a problem beyond, kind of, the one I just described.
The problem I described first, OK, so it seems reasonable to try to make the pie as big as possible and then focus on distribution after, but sometimes, in the models that we use to define some policies,
may also not increase the size of the pie because they build on assumptions that are not realistic. – So can you say more specifically what these frictions actually
are that economists— – Let me give you an example first, and then we could talk about specifics of what these frictions might be. The example might
be that historically, 120 years ago, 140 years
ago, most of us were farmers. OK, and then some
technology comes along, a robot. We called the robot
a “tractor” at that point, and then it created tremendous amounts of efficiency gains in
the farming industry in a way that dislocated workers. The tractor substituted for labor, and then over that 120 years, most of us in the population migrated from farming to other types of
sectors. So when you think about these transitions,
there’s an inherently, you know . . . we always know
that labor markets aren’t perfectly frictionless,
but how quick the speed of adjustment is from Sector
A to Sector B is important. So with Marianne’s example early on, with a trade shock, might not raise the pie in the short run, when we take into account these distributional effects. If enough adjustments
occur in the long run, then maybe the pie gets bigger. So what are these frictions
that we usually think about in the labor market?
Those frictions come along in, I’d say, kind of three dimensions. One dimension is people could move sectors within a given location
for a same level of skill. The second thing is they
could move locations and get jobs in another place, again, for the same level of
skill. And a third thing, which is what we see over
long periods of time, is they could accumulate more skill. They go to school, get
training, etc. In those types of models, we tend to move up the skill distribution. So the frictions are: How costly is it for people to move
places? How costly is it for somebody to move to
another sector within a place? And then third, how costly is it for them to go and acquire skills for them to have the labor, you know, endowments that the market is demanding at a time? So if there’s frictions
in any one of those or if those frictions are
getting more pronounced today relative to the future,
which I believe they are— relative to the past—
than I believe they are, then that could make
these issues more salient. – And we do have some estimates. I think in the labor literature, there’s lots of work on trying to estimate how long-lasting the effects are of job losses or, you know, mass layoff, and suggest that you go 20 years later, and people that are being laid off in such a way have certainly not returned to
the earnings they had before. I think
the kind of magnitudes that exist, like someone that loses a job via mass
layoff loses $100,000 in the present value of lifetime earnings. – The question then is:
Can the young come in and adjust? Is it the
short run in the sense that it might be long for the individual but short run for society as a whole because the young come in and adjust? And I do believe—we can talk about it later— that frictions are more pronounced today for different reasons than
they were in the past. – OK, well, let’s come to that question. – Let’s move to it now. That’s great. – I wanted to ask you, Marianne Bertrand, if this tension has always been with us, what is particularly acute now? Is it to do with globalization, or populism, or why do we care about
it particularly today? – I don’t know. I mean, looking back to the reaction that we had in class that triggered this event. – And just to explain, so this
conversation was talking— – This conversation was about
job losses in West Virginia. So this was very
locally a conversation about job loss in West Virginia. So I think the current political
environment very much triggered those questions and those reactions. I think that we now live in a moment where some of these groups that have been on the receiving sides of,
kind of, many of the shocks that may have been very good for society overall have been expressing themselves
probably much more than they were doing, you
know, 10, 15 years ago. – OK, Erik Hurst, is it
partly due to globalization affecting the labor market
more than in the past? – No, I mean, I think
globalization is a salient factor and that might have
started some of the changes that were occurring, particularly
in the industrial midwest around manufacturing and energy, but I think it’s more technology now than it was, and automation, in a sense, and that we just produce certain types of goods with technology
now more than labor, particularly low-skilled
goods, and as a result, that displaces workers with
lower levels of skills. Now, why is that different
than in the past? That has always happened. Think
about the tractor example. – But back when we had the tractor, the booming economy at the time, or the booming sector, was manufacturing. And if you take an agricultural worker and the skill set they had
and the manufacturing worker, the skill set they had, they
were very substitutable with each other. So again,
the friction was smaller because the migration was easier. Now, we’re basically moving lots of low-skilled jobs together and then— – So I very much agree with what you said. I think all the evidence would point that skill drives part of the change. Machines are a bigger factor than trade, but I think it is very clear, when we think about the narrative
of what’s going on right now, trade is the one thing that
people have picked up on because, I think, there’s
a much better narrative to be written by politicians that want to kind of take this energy,
which is that it’s hard to get people angry at machines. It’s easier to get people angry at the Chinese or at immigrants. – But the counterfactual—
and I think that’s one thing we should really hear
Nick’s thoughts on this— but the one thing counterfactual is if we start putting up trade barriers, manufacturing jobs are
about 6 million jobs less in 2017 than they were in 2000. OK, some trade might
have been some impetus, but technology has
contributed to that, right? Because manufacturing
output is actually up despite manufacturing
employment being down. And at least
from my perspective, putting trade barriers back on the market that look like 2000—suppose we get rid of China completely—
manufacturing employment in the US will look
nothing like it did in 2000 just because the automation was so severe. So even though that’s a focal point in the discourse, it is misguided in terms of the underlying forces that are going on. And I think that just means we keep that in mind when we talk about policy. – Yeah, there seems to be a deeper, psychological friction
here, and I’m just curious how economists think about this, and that has to do with
individual identity. So if we go back to the example of losing jobs in the coal
industry in West Virginia, these guys who are losing
their jobs are coal miners. That’s not just a job they have. It’s their identity. It’s who they are. It’s what their parents and grandparents, their fathers and grandfathers
were. It’s deep in them. So you could imagine that they could go to Walmart and make the
same amount of money, but that’s not gonna be the
kind of thing they’re gonna want to do. So switching jobs across sectors or into something that doesn’t seem as meaningful or as consistent with their identity
creates another friction. – That only kind of reinforces the point I think we were trying
to make in the beginning. That is, you know, kind of,
the efficiency calculations that we do without taking
into account, you know— not only do they put no weight on these job losses
because they assume people will move back to another job. You’re only reinforcing the fact that these job losses are really costly and increasing the pie
that we get via trade or via policy smaller
than our calculations, or these calculations that
economics would suggest. – That’s actually costly,
though, in other ways that don’t just have to
do with the job loss. That is just with the financial part. That is the loss of— – [Bertrand]: That’s what I’m saying.
– [Hurst] It’s in utility, utility. – [Bertrand]: And we’d like to value that. – The key thing, to Nick’s point, though, and I agree 100 percent, that
is a part of the friction in the labor market,
this cost of adjustment not only in dollar space but in utility space. But we’ve been doing that
for centuries as an economy. Now the question is: How
long does this period of lack of adjustment last?
Some farmers who got displaced by the tractor suffered.
It just so happened that it was right around
the Great Depression, so people might not have been able to tease out the effect on well-being of the structural forces of agriculture with the big period of
the Great Depression, but the agricultural areas of the US suffered immensely during
the Great Depression. Some of it was weather-related, but some of it was the structural change. But adjustments happen. Now
the question is: How quick that adjustment happens and
is there something different about this type of
adjustment than other types of shocks we got that
were large in the past? – Well, I think the question is: What kind of adjustment was required in the past, perhaps compared to the
present? So in the past, if you lost your job as a farmer, there was probably
another manual-labor job you could take on, where
you were building something or creating something, which
is likely more consistent with your identity as a farmer. The coal miners are being asked to go back to school to work in a call center, and these are not comparable identities. – Here’s what I believe has been missing, and going back to the way
I started thinking about it, which
is step No. 1: we make the pie as big as possible. Step No. 2: we
think about the location of the pie. I mean, I
think it is very clear that the US does not spend much time on optimizing step No. 2,
in particular an environment where we’ve made the pie
bigger by shrinking the size of the pie for some groups, right? So maybe this is not . . .
One view I have is that there’s not as much of a
backlash against trade, for example, in Europe
as there is in the US, yet trade has been also
destroying a lot of jobs in Europe, you know, as it has in the US. I would hypothesize that the
reason why you don’t hear— and there are other forms
of populism in Europe, and we can talk about that—but you don’t hear as much backlash against trades in Europe because Europe has a
stronger safety-net model and a stronger social-protection system in place, so that whenever these jobs get destroyed, even if people lost sense of identity and things like that, there’s
more of a compensation that will come from the state
to partly at least undo some of the concentrated losses
that are incurred through trade. And I think the US has
kind of lagging behind on thinking more about redistribution. I mean we spend—I mean on the fraction— a very small amount of
the budget is spent on trade-adjustment programs. We don’t have a good sense. My sense is they’re not very effective. These are all afterthoughts. – What if the effort
was, and I’m wondering if you could perhaps align these goals a bit of efficiency and equality. If you thought more about
maximizing another attribute, not money but rather
well-being, which is something that other countries perhaps
attend to a little more by creating social safety nets and so on, and so this would do
things like consider, OK, if we’re . . . let’s take a particular region of the country that’s being
transformed by technology. Are we maximizing meaningful jobs— not just money going into an area, but actual meaningful work
or well-being in some way in a community? Because that then— money is part of that. Money is part of that calculation, but it’s only one part of that calculation, and it
may not actually be that big of a part of that calculation. – When we think about these
policies coming through, or this issue coming
through, there are margins of adjustment that are taking place. So let’s think about the
auto industry in Detroit. So, people don’t like
to move. We know that. But they do eventually. Detroit has moved from one of the top 10 largest cities, now well down in the distribution. Because people have migrated out. So these adjustments do take place. In the industry structure
that Detroit had at the time, manufacturing in particular
kind of fell out of favor. Other types of industries grew in other parts of the country, and people migrated to that. And that does have some
efficiency gains to it. People are moving to where
the comparative advantage is. So when you start thinking
about these policies, there is, right back to the beginning, an equity-efficiency trade-off even in the policies we’re talking about now. And so when I like to think about it, it’s like kind of saying:
What are the costs that we know these people are suffering? What are the benefits? Maybe
doing some margin of adjustment. Whether it be moving to a different place or going to school or, you know, getting some training for
another type of sector, or maybe changing social
norms, or whatever that is, take time and have cost,
they come with a benefit. And so thinking about the cost
versus benefits is important. We tend to spend a lot of
time about the benefits. We’re not always as focused
on potentially these costs or how they might be
changing across people or across time, and I think
that’s an important component. – But isn’t it the case that
usually, when you’re talking about costs and benefits, you mean money. – No, people maximize utility. – [Epley]: (laughs) Yeah, some people . . . we’ve had experience with psychologists in utility. – [Bertrand]: And then we put a double figure on it. – [Hurst]: We trade it into a
“compensating their money.” – [Epley]: You convert it to money. – [Hurst]: We convert it to money, but it’s in utility terms. (audience laughs) – [Epley]: (laughs) Problem solved. – When Nick and I have
had these conversations, all of behavior economics is economics, it’s just a different utility function. – [Epley]: (laughs) – [Hurst]: (laughing) And so I’m OK with that. – But there are certain aspects of utility that are harder to calculate than others. Money’s easy. Money’s easy, and I think . . . so to get back
to the original question about thinking about
efficiency versus equality, some of these costs are
just hard to calculate, like cost of well-being, cost of health, cost of civil society, and all of those. Those are hard costs to calculate. – And presumably people
themselves find it hard to say how much their own
well-being is worth as well. – [Epley]: Oh yeah. People think terribly about money. No, yeah. I mean the psychology of all
of this is very complicated. People often don’t know what
necessarily is good for them, what will make them happy down the road. They think more money
will make them happy. It often doesn’t. No.
There’s lots of complexity, but we can find out what induces utility or well-being at the moment. But I think, getting back to your original question about efficiency versus equality, in general, our models
and the way we think about behavior are prioritized to focus on
the things we can measure pretty easily. And that just makes it hard to account for these other factors, like loss of identity.
Where do you put that in the equation? What
does that even look like? Right? A coal miner’s not
gonna go and work at Walmart. They’re just not. – But there are ways that you can do the efficiency calculations, I think, that would bring a bit more realism to, how far away from the fully
functioning labor markets that are assumed we are. I think the problem is that you have this
slippery-slope argument because then every model, every policy that we study has some
general equilibrium effects, and then we try to put those in the model, it has a slippery-slope
feeling. So we do this kind of efficiency calculation in a simple way. It gives us discipline, and I think there’s some benefits to that. – Erik Hurst, you talked
earlier about this slowdown in the adjustment in labor
markets, why is that happening? So, you know, I’ve been puzzled by this and I have some conjectures. So
I’ll tell you the puzzlement, which is, so, we lost lots
of manufacturing jobs in the ’80s as well, not as much as we did in the 2000s, and it didn’t show up in employment rates the same
way that it is showing up now. And margins of adjustments were occurring, and we could use our statistical methods that, you know, we as a profession use— I use a lot in particular—
as comparing locations that get a shock. See what happens to the people in those locations and see how they are after
the shock a decade or so later. And for a given-size manufacturing shock in some measured sense, you could look at employment rates of the
people who were exposed to that shock in the ’80s versus today, and it’s very different
today than it was in the past. And at the same time, we see declines in mobility across
space. We see correlation in the sense that not only
are manufacturing jobs going down now, but also lots
of other low-skill jobs— backroom office, things
of that nature—are moving in the same direction.
And this is something that I’ve been thinking about, in the back of my mind, which is: we’ve had lots of adjustments in the past to past shocks, and the people who haven’t adjusted yet to those past shocks
might be inherently different than the people who were exposed to those shocks in the
past. So think about it in just going to schooling.
So back in the day, very few of us ever
got a college education. And then a shock comes along, the return to skill goes up, and we
go and get some skill. Who’s gonna go get the skill? The people who’s the benefit of that skill is the most beneficial.
And you start seeing that. And who is left? The people for whom skill is less beneficial. And as, over time, the pool becomes more and
more toward the latter group, which just means for a given size shock, that group might just be less responsive to these margins of
adjustment than in the past. And that means, as societies grow and you have skill-based shocks where it’s harder to adjust and the skill could be skill-times-identity type shocks, the pool that is left
are just less responsive. And we’re moving in a way where many of us get skill, and so
those of us who are left might be just harder to
move than in the past. And I’m trying formalize that
and test that going forward. But it is something that
we need to be in the back of our mind for when we’re, you know, as an economy ages through time. – That’s very interestin,g but how much of that could also be simply the number of options for unskilled people today are not, are much fewer than
they were in the 1980s? – Yeah, so the question then
is: Do they go get skill? So the shock and skill
price might be bigger than it is today. That just pushes people toward getting more skill.
And we’re actually seeing less. So I don’t know if Marianne
knows that the propensity to go get schooling, particularly
for men, has flattened pronouncedly over the last 20 years relative to the prior 100 years, even though the return to skill, the price of skill is actually growing during this time period. – We’ve tapped out the limit of the male brain. – [Presenters]: (laugh) – Just so you guys know—
I don’t think you can see it from back there—she looked directly in my eyes when she said that. (laughs) – [Epley]: She was looking at me too! – [Hurst]: It wasn’t really at you, Nick. (laughs) – Good work, Marianne. (laughs) – They put me in the middle
for a reason. (laughs) – I think you’re gonna be OK. – OK, we’ll see. We’ll see. – It raises, I think, an
interesting question, though, which . . . all of this also
kind of flits around morality and ethics,
too, about what we ought to expect from people and, as a society, when we’re forming these policies. What ought we be trying to do? And so I think one thing
that’s maybe just worth highlighting here is that economic models of efficiency assume that people ought to be responsive to shocks,
that is, maximally responsive. So the working mother whose
job is lost should, now, because this job is no longer available, should just be willing to up and move to another job. The coal
miner who loses his job in West Virginia but
wants to continue living in this community and
be part of this system should just be willing to
up and leave the community and go to California where there are jobs. And I don’t know that
there’s a clear answer to that, but I think that’s
just an important assumption that’s in the economic
models. And we may decide that that’s not, kind
of, the country that we want to live in, where we have lots of money. And you can imagine that
we could make people happy where they are, and I think if you thought . . . I think maybe if we thought
more about well-being, actually incorporated some of these other, nonmonetary factors into well-being, that might lead to very
different kinds of policy, because we wouldn’t assume
that people would want to do things or should do things. – Do you think psychologically we underestimate the impact of loss? You talked about that loss of identity. – I think that people probably do in the sense that if they
were to actually change jobs, they would pick up a different identity and probably be OK in the long run. That doesn’t mean, though, that
people are gonna necessarily, in the current moment, choose some outcome that’s gonna achieve that ultimate goal. People act on loss
aversion. That’s not always a sensible thing to do in
terms of future happiness, but it’s what drives
choice, and that’s what these models have to be sensitive to. – OK, so let’s talk about
what the model might look like. You talked about how we could look more at these second-order considerations. How would that affect the
first-order considerations? How would that affect the
whole economist model? – Well, it’s like I said . . . I mean, going back to the efficiency calculation, I think there are ways, and
some people have been working on this—I think Eric Posner is one person here at the law school—
that have been thinking about how we could do these kind of cost-benefit calculations
and incorporate whatever numbers we have gleaned from working labor
economics as to what are the permanent impact of these job losses. And so, I think you
could do your standard, you know, “what’s gonna happen to prices and what’s gonna happen to
costs” and also kind of really incorporate “this is the number of jobs that I expect will be destroyed”
and “this is what I think will be in total, the dollar
value of these job losses” because skills that people have
invested in have disappeared, and this may lead to different choices. I mean, the other approach I think— – That’s . . . but you’re suggesting
that something’s happening. If it’s technology, that’s
just a natural approach— – Well, that’s surely different. I mean, so here I’m talking
just about the things where we are looking at policy decisions that are being made based
on these calculations. So should the EPA, you
know, pass this rule versus that rule? Should we open the door to trades? They are concrete ways. They will try to proxy for
what you are talking about. Let’s try to proxy for
putting a dollar figure on this identity factor and
what kind of loss you get from losing your identity. But we could certainly try to move in this direction. I mean, I think the other thing, I believe that that’s already happening is also maybe paying more attention
to whenever we decide to pass a policy or not,
looking at concentrated losses. I think there’s such a thing
as visibility analysis that someone should come and engage in, where a certain policy may
pass the cost-benefit test but would really mean shutting
down 80 percent of the plants in a particular county,
and that’s something we deem to be infeasible. – [Weitzman]: You’re saying that—
– What’s different there is looking at two things: looking at your cost-benefits and then determining, there’s gonna be a threshold
as to how many job losses you are willing to have
in a particular part of the country and then you find a way to balance these two considerations. I don’t know how. – You’re saying that’s already happening? – I’m saying, yes, there are some parts of government that do these feasibility analyses, at least as I understand it. – I think they would, at least
during the Great Recession. There was the auto bailout had the concentration in there for a particular area. We don’t have a lot of
policies that are designed to deal with these long-run adjustments. So if you think about the
big transfer policies, particularly for men, that
are in the United States, there’s unemployment insurance,
and those are usually for short-term fluctuations.
You go into a recession. You want to help somebody
for a couple of months or maybe for up to a year or two, kind of ride out the storm.
And then we have disability, which is basically a long-term insurance program, usually for health shocks, to kind of smooth out those types of shocks. The policies we have for industry decline and such, which are not health
and they’re not temporary, like unemployment insurance,
are relatively underdeveloped. We have a little bit around
trade-adjustment-type policies. If you’re exposed to trade,
you could get a little bit of help on the margins,
usually around retraining. And that’s about it. So
it doesn’t really get to any of the types of stories
that Nick might have said would be around in the
background, doesn’t talk about some of the long-run
dynamics that we’d see, doesn’t talk really about
this long-run skill adjustment. And so, when you think about those, then how do you implement
those policies that also don’t have large efficiency
effects on the background? – [Bertrand]: That’s right.
– And so that’s the kind of the trade off because if
you start transferring money to people in certain areas,
that might slow down adjustments for the next generation
or the generation after that. So how do you get the right policy to kind of manage these? Suppose we want to do these efficiency-gain types of policies, there are some losers. We want to redistribute the pie. We really don’t have
any mechanism right now for that redistribution for the types of shocks we might be
experiencing in recent decades. – Nick Epley, what would be, you talked about kind of general well-being. What would a policy that,
specifically a policy that had that in mind look like? – Well, so I would think it would take into account a few things and obviously, you would sacrifice a
bit on efficiencies here. But let’s go back to the concrete example of the coal miners in West Virginia. So, there are analyses of
what really drives well-being. Social connection turns
out to be hugely important on a day-to-day basis
for sure, much bigger than effects of income,
on day-to-day well-being— at least happiness—and so it would take into account things like
the cost of relocation when somebody picks up and moves and now they’re not around
friends and relatives that they’ve been around a long time, which is likely to affect their health. So it might do something like,
let’s take these coal miners. They’re involved in the energy
industry. That’s part of their identity. They’re making power for the planet. You can imagine a policy that tries to keep them
there, tries to subsidize some other social good like wind power instead of blowing the
tops off of mountains, you could put windmills on top of them, retrain these workers to stay close. It’s probably not the
most efficient outcome. It’s probably not the best
place for the windmill so you’d sacrifice on that a little bit but the question would
be: Would the overall gain in utility, not just for those people, but for society as a whole
of keeping them there, retraining them to do green energy in the state of West Virginia, would that be better
overall for well-being? And I think if you were to add well-being and health into some of these metrics, not just money, in terms of efficiency, I think some of these policies that wouldn’t perhaps make sense on a pure efficiency, a
monetary-efficiency calculation, might start to make more sense, might seem better for overall welfare. – OK. Well, on that very practical note, unfortunately our time is up. My thanks to our panel, Marianne Bertrand, Erik Hurst, and Nick
Epley. For more research, analysis, and commentary, visit us online at Review.ChicagoBooth.edu,
and join us again next time for another “The Big Question.” Goodbye. (light music) (applauds)

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1 Comment

  • Reply Ruben Kogel December 16, 2018 at 5:19 pm

    love those videos but can you please cut the intros? it's getting ridiculous listing all the affiliation and honorific titles. a good intro should focus on the question at hand not the researchers titles.

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