Globalization and Free Trade

It's important to remember that with most, if not all, major changes, there are those who come out ahead and those who come out behind. In some of those cases, people will choose to act rationally, but in a way that, on a societal level, seems irrational, like many of the reactions to other changes that we've explored in this blog. One great example of this is what happened with globalization and free trade.

As someone who loves economics, it always rustles my feathers when I hear about the "merits" of protectionism and the pitfalls of free trade. The whole point of free trade is to free up our resources to do things we are most efficient at doing while letting others do what they are most efficient at doing.  Of course, while free trade helps societies, it can hurt individuals.

The most well-known example of this comes from the United States manufacturing sector. After the Second World War, most of the world's economies were in ruins, leaving the United States as the manufacturing giant, and it quickly grew, employing many Americans and supplying the world. That lasted for a while, but in the 1970s, the Germans and the Japanese started catching up with their rebuilt economies, and then Deng Xiaoping opened up the Chinese economy.

The United States manufacturing sector started falling, and the United States economy started shifting to a postindustrial footing, which was good for America, so long as you weren't a blue-collar manufacturing worker. To those workers, however, power started slipping away. Technology and outsourcing of manufacturing jobs served to erode the economic standing of the blue-collar worker.

Protectionism has a long history, most notably taking form in the Smoot-Hawley Tariff, which is now credited with worsening the Great Depression. Then and now, it exists virulently because some people want to reverse the change that occurred due to globalization. They want to "protect" the United States economy, and in that way, try to get back some of the standing that they had before. Of course, regardless of how high tariffs go, the United States economy is not going to go back to what it was before. However, many people who lost jobs or standing because of the globalization choose to oppose the change because the change puts them at a disadvantage and because reversing the change would be best for them. For those harmed by the economic changes involved with globalization, promoting protectionism is something we haven't much examined in this blog: a rational response to a change.

However, if one looks at this reaction on a macroscopic level, this is far from a rational choice. Protectionism tends to reduce efficiency and increase scarcity, which is the fundamental problem that economic policies try to solve. By implementing protectionist policies, the government would be sacrificing the best interests of the many for the change-reversals of the few. And yet, that is exactly what the pro-protectionism lobby has managed to accomplish, especially with the recent debate over the Trade Promotion Authority. By responding rationally to the change, the pro-protectionism lobby has caused an irrational response to the change by society and government.

The point of all this, however, isn't to simply say that protectionism is bad and that free trade should be the government's policy (although that certainly is a point of this post), but rather, to look at a situation of a change that we haven't explored much: when a rational response to a change by one set of actors results in a terrible reaction for the society as a whole. Nonetheless, the outcome, sadly, is the same as many situations we have examined: an irrational response to a change that hurts people.

Stress, Panic, and Illogic: The College Application Process

For the last few weeks, I’ve been thinking a lot about college. And it’s not just me – many of the people around me are going through the same thing, to the point where I (quite literally) can’t even have a conversation about the weather without talking about college. So I suppose it’s only fitting that this post be about that topic.

Of course, all of that agony is making me wonder: why are we all so worried about college? Of course, there are the obvious reasons: a major step away from home, a very important part of our future, will likely determine our careers, very competitive, and so on.

But I’m always reminded of what my biology teacher mentioned last year. When he was in high school, just a few decades ago, he never thought much about the standardized tests, the top colleges didn’t have such low acceptance rates, the cost of tuition wasn’t so high, and in general, the process was not as stressful as it is for us now. That’s a sentiment I’ve heard from more than just him. So the question is: why do we find the process so much more stressful?

The simple answer, many say, is supply and demand. Over time, the number of people trying to enter college has increased significantly, while the number of seats, especially at the top universities, have not increased nearly as significantly, resulting in far lower admission rates. There are many reasons, of course, for this, but regardless, college is becoming more and more necessary for today’s workforce, and thus, demand for a college education continues to skyrocket.

Of course, that’s a major change, and like with all major changes, there are people who have to deal with them. In this case, that’s mostly the people who now have to deal with applying to the schools. We see that the situation has changed and that getting into college will be much harder for us than for students in the past. So how do we react to this change?

In large part, the reaction is an increase in stress. A great example is the online forum College Confidential, in which people largely seem to come together to have a constant and collective freak-out about the entire admissions process. People go ahead and do the craziest things to get into these schools. Test prep suddenly becomes a big deal, and being well-rounded doesn’t happen for the sake of being well-rounded, but for looking good to the admissions staff.

And, as with many of the changes we’ve discussed in this blog, this reaction can also lead to an overreaction; people who get rejected from their top choices start thinking that there’s no good place for them and that there must be something inherently wrong with them. Of course, as with most overreactions that we’ve seen, this simply isn’t true, but the idea takes root.

Unlike the other changes we’ve talked about in this blog, this is a reaction to a major shift in society that I can’t step back from and look at objectively, simply because I’m so caught up in it right now as well. But it is interesting to note once again that a major change invites reaction and overreaction.

Changes and Nukes

Most of these posts have been about people who have failed to adequately respond to changes, but today, we'll be discussing a man who has managed to adapt to changes far better than the people before him. That person is the new President of Iran, Hassan Rouhani.

Iran, of course, is hardly a liberal, change-embracing state. Far from it. It is ruled by a very conservative Islamist theocracy, and it resists changes. Nonetheless, even by those standards, the previous President, Mahmoud Ahmadinejad, was conservative. And his policies, predictably, were far from great for the country. Between denouncing Israel as illegitimate and the widespread election fraud, especially in 2009, President Ahmadinejad made many enemies and hurt his country's image. But nowhere was that more apparent than in his unyielding support of Iran's nuclear program.

The clash over Iran's nuclear program may be one of the most famous (or infamous) struggles that Western countries have faced in dealing with the Middle East. The Western powers say that Iran is building nukes, while the Iranians say that they want nuclear technology for peaceful purposes. After Iran began accelerating its nuclear program, the West began imposing crippling economic sanctions on Iran. Their supply of money essentially froze up, and the country's economy started falling.

And here's where the story of change (or rather, the lack thereof) comes in. By experience, most of us would probably know that it's very difficult to force people to change their behavior. That's just human nature, and it's what happened in the case of Mr. Ahmadinejad. He decided to stick to his guns and keep pressing forward. He continued to antagonize the Western nations, causing flare-ups such as the tensions in the Strait of Hormuz and continued support for the nuclear program. These sanctions were devastating the Iranian economy, but Mr. Ahmadinejad didn't seem to recognize how significantly the situation had changed against him, and he kept going. Even in the face of protests, attack from the Parliament, and the fact that he had to rig an election to win a second term, he kept on going.

However, when he got term-limited out this year, a new President took power. This was the moderate President Hassan Rouhani. Of course, compared to Mr. Ahmadinejad, most people would seem moderate, but this new President, to a great degree, has actually been more moderate, and one of his crucial recognitions thus far is that the current situation is unsustainable. And so, he recognized the change that had occurred, and unlike his predecessor, he took steps to change the course of the country. He stopped denouncing the Holocaust as false and started attempting to mend relationships with the Jewish community around the world through simple gestures, like wishing them all a happy Rosh Hashanah.

Most recently, and probably most significantly, he sat down in Geneva with the P5+1 and hammered out a deal regarding Iran's nuclear program that will, in the long run, hopefully help all countries involved. The deal calls for some sanctions to be eased while the Iranian state made some significant concessions regarding its nuclear program, concessions that they had not indicated considering under the previous administration. In other words, unlike President Ahmadinejad, President Rouhani recognized a change and reacted appropriately. And that has made the country look better, helped ease some of the sanctions, and, with luck, helped stabilize the situation for now and the future.

Chemophobia Part Three: Today's Society

In the first and second parts of this series of posts, we explored the history of chemophobia, discussing the growth of chemophilia in post one and the development of chemophobia in post two. All of that history has led us to the situation we are in today.

Chemophobia hasn’t gone away. Far from it. Today, chemophobia is a trait of our society that is often overlooked. You don’t have to look far to find products advertising themselves as “all natural” or “chemical free.” Of course, many of those claims are absurd, especially to anyone with enough chemistry knowledge to remember that everything is made of chemicals, so nothing can be free of chemicals. But nonetheless, there are many people who believe that the all-natural or the chemical-free stuff must be better.

And thus far, scientists have been making very little headway against this problem. Again, the chemophobia surrounding vaccines has served as a regrettably excellent example. A single study, now considered fraudulent, that “showed” some link between the MMR vaccine and autism, has led to countless people fearing vaccines, despite the appeals of scientists wielding study upon study refuting those results. Why? Why doesn’t the logic work? If people are shown that they have overreacted, why won’t they change?

Well, the problem is that the concept of the chemicals being safe is a new idea to many people. As we saw in post two, chemophobia has been growing steadily for a very long time. It isn’t just something that’s come out of the blue, and so, the concept that the chemophobia is irrational and that chemicals are good isn’t just a different idea, but rather, a new one. It requires people to change their worldview, and as Dale Carnegie explores in his book How to Win Friends and InfluencePeople, people rarely want to change once they have already made their choice, because at that point, they would be admitting that they were wrong, something that nobody wants to do. And so, new ideas are rejected if they are only pushed though coercion.

So what can be done? Well, one needs to understand that for many people, a life without chemophobia would be a dramatic change. In a culture that for so many years has embraced a fear of the industrial chemicals, produced by those evil corporations, it is very easy to see that as the only logical worldview, and many people will not take kindly to having the change forced down their throats. And so, to get the people to respond the change in the way we want them to, it must be done not through forcing facts at the disillusioned, but rather, acting as relatable friends with the society’s best interests in mind. Otherwise, as Dale Carnegie explored, in response to the new ideas of the chemophiles, society will shut down and dig in deeper. 

Chemophobia Part Two: The Growth of Chemophobia

As we explored in the last post, chemophilia arose in the early 20^th century through the Second World War. However, as Jon Entine explores, complications soon arose. In 1948, at Donora, Pennsylvania, noxious smog from two industrial plants descended for five days, sickening thousands and leaving the town far worse than it had been before. In 1952, a similar smog event happened in London, sickening 100,000 and killing thousands. This hit society hard, and a steady trend from chemophilia began.

Through the 1950s, concern grew over these chemical pollutants, and as before, Americans overreacted to compensate for the change. The first real overreaction manifested itself in the Delaney Clause, in which any substance that causes cancer in any dose in any species was deemed “unsafe.” This blatantly violated a fundamental principle of toxicity: the dose makes the poison. This amendment, in turn led to another national overreaction around cranberries near Thanksgiving 1959. These fears subsided when presidential candidates Richard Nixon and John F. Kennedy publicly ate cranberries, but a new crisis would soon develop, and this time, it would be more legitimate.

In 1957, a new “miracle drug” was released in West Germany, advertised as a cure to insomnia, coughs, colds, headaches, and morning sickness. This drug grew in popularity, spreading to other countries. It was then discovered, however, that this drug was causing birth defects. Thalidomide was never FDA approved in the United States, but nonetheless, millions of tablets had been sent to United States doctors for clinical testing, and so, in 1961, it was pulled from the market. This stunned the country and led to significant reforms, including stricter testing requirements, but it also fed fears: might the government not be able to do enough to protect the citizens from these chemical dangers? Once again, Americans were faced with a changing world, and they were getting even more jittery.

While all this was going on, this jitteriness was manifesting itself in a prevailing philosophy of the time: postmodernism. At the time, of course, the nuclear age was just getting underway, with the first nuclear bombs having been dropped in 1945 and unleashing a feeling of horror that soon culminated in an arms race of epic proportions. Anxiety was the prevailing feeling, and that translated into postmodernism, which grew out of those bombs and the newfound anxiety that science could lead to the extinction of the human race. And so, faced with changes caused by science that it was not prepared for, American society looked upon that science as something to be anxious of.

In 1962, Rachel Carson published Silent Spring, in which she fought against DDT and essentially launched the environmental movement. A chemophobic perception, that government couldn’t stop chemicals and that corporations wouldn’t, now took hold. After this, the fear and overreactions kept rolling in. In 1969, the cyclamate scare, where cyclamates were banned based on very spurious evidence, once again demonstrated the fundamental insecurity that the American society felt. The most striking overreaction was California’s Proposition 65, which created a list of remotely potentially hazardous chemicals and required businesses that might potentially expose the consumers to any chemical on that list to post the now-ubiquitous warning: “This product contains chemicals known to the State of California to cause cancer and birth defects or other reproductive harm.” This, as Entine notes, scared Californians with no measurable benefit.

By the 1990s, chemophobia was well entrenched. A prime example: the now-infamous and still-influential Wakefield Study, in which Andrew Wakefield “conducted” a “study” (both terms used loosely) that, through the magic of fabricated results, claimed that the MMR vaccine was linked to autism and bowel disease. This study, horrendous and fraudulent as it is, is still widely responsible for fears of vaccines and increased chemophobia.

I could list more examples, but the point is this: as the society began changing the way they saw chemicals, they overreacted, causing more change and more overreaction. And so, in that positive feedback loop, we have gotten to where we are today.

Chemophobia Part One: A Chemophilic Society

In the late 19^th century, and especially in the early 20^th century, the Second Industrial Revolution took off, building off of the successes of the First Industrial Revolution. This phase of the industrial revolution was distinctive in that many of the most significant innovations came from applied science. And so, science continued to grow and continued to improve the standard of living of those in the industrializing areas. From physics came electricity, telecommunications, and the light bulb. From chemistry came fertilizer, new and stronger alloys, and petroleum distillation. Other innovations include the automobile, bicycles, paper. I could go on, but you get the point: science was helping to make peoples’ lives better.

And the prevailing attitudes of the time reflected that. This blog is about how people respond to changes and new ideas, so this time period offers us a near-perfect natural experiment, in which people had their standards of living drastically changed by science. The result was a growing appreciation for science in the society of the time. This change is reflected in an important philosophy of the time: modernism.

Modernism was a philosophy that flourished in the early 20^th century, growing out of the massive changes of the Second Industrial Revolution. One of the principles of modernism is the idea that technology and science would serve to better man’s life and help man gain power. As this site explains, that thought was an extension of the experience man had in the modern world, in which technology had expanded the scope of his abilities. Technology, at this time, was seen as a driving factor for positive, not dangerous, changes.

Of course, when the society’s views of the technology changed for the positive, it only became a matter of time before a change in the society’s habits was seen, and that was exactly what happened. Especially in the 1920s, with its growing economy and affluence, consumption of this new technology took off. One can even go so far as to say that society overreacted in response to the technological change. (That overreaction is a theme you will be seeing again in the next few posts.) Bakelite, which we mentioned earlier, became extremely popular and was soon used to produce, as this article mentions, just about everything. The alloy technology of the Second Industrial Revolution allowed for automobiles to be built and popularized so much that, in the 1920s, families would choose buying cars, the status symbol of the time, over simple necessities like bathtubs. This was a very high point for views technology and chemistry in particular, evidenced by DuPont’s popular 1935 slogan: "Better Things for Better Living...Through Chemistry."

This attitude would carry into the beginning of the post-WWII years. As Jon Entine explores, the return of abundance in the postwar years led to increased demand for consumer goods that chemistry could supply. The pharmaceutical industry became more sophisticated in this time. Agriculturalists used pesticides and fertilizers to launch the Green Revolution. But the seeds of chemophobia were being sown, and this level of chemophilia would not survive much longer.

Chemophobia: An Introduction

Recently, I read a piece in Nature on chemophobia, and it got me thinking. As someone who loves chemistry, it always rubs me the wrong way whenever I hear someone claim that something is “chemical-free” (which is impossible) or “all natural” (which is irrelevant). Still, I never really thought about the issue as a society-wide problem before, treating it instead as a case-by-case cause for annoyance. And so, this article spurred me to do some more research, and what I found, to a degree, surprised me.

In the next few days, I will be writing three posts on this issue of chemophobia. In the second part, I will explore the rise of chemophobia, and in the third, I will discuss the role of that issue in today’s world. A significant part of that discussion will center around the role that change and new ideas have played in developing and perpetuating chemophobia. But first, it’s important to remember that this phobia did not come up in a vacuum, but rather, in an environment where chemistry and its derivative technology were originally hailed as heroes, not villains. That will be the focus of the first post, and it will be coming shortly.

Change and The Bottom Billion

For Social Studies this weekend, we were supposed to read the first chapter of Paul Collier's The Bottom Billion, a book addressing the issue of the poverty of much of the world (link to Wikipedia page). So on Saturday, I sat down to read it. A little while later, I looked up at the clock and realized I had been reading for a few hours. Then I looked at the page number and realized that I had just read more than a third of the book. Of course, I regret none of it; it was obviously very interesting, and I would have had to read it later anyways.

Much of the book, as one might imagine, focuses on African countries, and it identifies several traps that failing countries can get caught in. It struck me how easy the traps were to enter, and how difficult they were to exit. For example, it just takes one person with $10,000 to start a rebellion, but once started, the chances of future conflict increase dramatically. All the while, the country gets poorer. Or more accurately, it sometimes gets poorer and often doesn't change.

And that's the really striking thing about the traps; those horrifying changes in the country's political and economic statuses essentially halt change in incomes. That may not seem like a huge problem until you realize that as the income of the rest of the world is steadily climbing. However, in Africa, that isn't happening because the traps prevent economic growth, and the countries of the bottom billion end up with stagnant economies.

Now that was an interesting concept, at least to me. The worst thing about the changes that these societies face is the lack of change that it engenders. What struck me as worse was that our attempts to fight these changes have, ironically, remained largely static. As Collier discusses, after 9/11 (possibly the most world-changing event thus far in the 21st century), US aid to failing states didn't really change other than increasing by 50%. While this may seem like a major change, it really wasn't, for one major reason: it doesn't work.

We have empirical evidence that simply throwing money at the problem doesn't work. And yet, we still continue to fight our problems in the same way. It's as if we believe that the situation really isn't all that different from what we've faced before, such as with Europe after World War II, and that if we stay the course and don't get tempted to change, we will succeed.

And so, we have an interesting and tragic situation. The countries of the bottom billion, most of which are African, faced changes (namely, decolonization) that led to other changes that ended up creating stagnation. Their response to the change was to largely flounder and keep doing what they were doing.  Over here in the United States, we tried to fight those changes by essentially not changing our plan, but rather, staying the course more strongly than ever.

Both societies didn't know what to do in the face of such changes, and so, they largely decided that the current way was the only way. They resisted changes to their plans of action.

And all the while, the divide between the countries of the bottom billion and the rest of the world only grew -- and grows -- larger.

The Nobel Prizes

It's been Nobel Prize week, when the world learns who the most influential and world-changing pathblazers have been in the fields of physics, chemistry, physiology and medicine, literature, peace, and economics. (Mathematics, sadly, is not represented.)

Many of this year's winners (link to source)did indeed lead the world through fundamental shifts in the understanding of their respective fields. The prize in physics went to researchers who developed the groundbreaking theory of the Higgs boson. The prize in chemistry went to researchers who developed a new field, computational chemistry. The prize in physiology and medicine was awarded for for discovering the mechanism by which vesicle traffic is regulated. The prize in economics went to three professors for fundamental analysis of asset prices. The prize in literature went to Alice Munro for mastering the short story. It would be an understatement to say that these researchers revolutionized their fields.

What those researchers found are both fundamentally important and interesting to anyone who enjoys those fields (and even those who don't). But the one that really piqued my interest this year is the Nobel Peace Prize.

Unlike the other prizes, this prize is not issued by Sweden, but by Norway, and in the past, the prize committee has been willing to push the envelope a little bit. This year, the prize was awarded to the Organization for the Prohibition of Chemical Weapons, a small organization which, as the name suggests, works to prohibit chemical weapons. This group has come into the spotlight recently with the use of chemical weapons in Syria. The organization has, reports suggest, entered Syria and begun the process of destroying chemical weapons.

Of course, this is fantastic news. Nobody wants those weapons to be used again, and the group is certainly to be commended for beginning that mission so swiftly. But this prize is the most interesting because, unlike the other prize recipients, the winner did not change the world dramatically. In fact, it did quite the opposite. OPCW's greatest contribution to the world was to maintain the status quo.

Until recently, the status quo had been one in which chemical weapons were not to be used. Period. This status quo has faced some challenges, but since the Geneva Convention, it's largely held. The recent events in Syria have challenged that status quo, and OPCW has started to work on restoring that. While this is a good thing, it is hardly synchronous with the rest of the prizes awarded this year. The prizes from this year have been ones that have celebrated change at its best. And yet, the committee chose to stand away from the change in awarding the Peace Prize, choosing instead the status quo.

That's a rather strong choice to make, implying that the current situation is acceptable as is. Of course, that's oversimplifying the situation a bit, but by choosing a status-quo-maintaining organization to receive the prize for furthering the efforts of peace the most, the Nobel committee has said that maintaining the status quo is more significant than some of efforts to change the world for peace. They are excluding the efforts of others, people who don't just do their jobs for upholding a norm, albeit a very important one, but who work to further peace and understanding, even through personal danger.

Many other nominees, most notably Malala Yousafzai, would have satisfied that criterion easily. It's a little strange that when they had a chance to celebrate real progress towards greater peace, the Nobel committee chose to back away from change and celebrate the current situation.

Why?

If you've stumbled upon this blog, you're probably wondering what this is about, and more importantly, why it matters. This post is here to help clarify that.

My name is Rohan, and I love economics. The way people make decisions in general interests me, but what really captivates me is the relatively new branch of economics: behavioral economics. This discipline analyzes how humans (as flawed individuals, not as societies acting under the invisible hand) make choices in the absence of perfect information and flawed logic.

This sort of analysis is especially important in times of change, when it becomes impossible to have perfect information. Change is something that happens to everyone, and with changes comes changes in situations. One of the goals of behavioral economics, one of my greatest interests, and the focus of this blog, is to assess how people use their flawed logic to deal with these changes.

This topic has significant relevance and importance to our world. For example, a little while back, I read a story about Ben Bernanke, the Federal Reserve Chairman, announcing that the Fed would not be keeping the economy on life support forever. Of course, this move was a little surprising, and it was certainly a change from the previous situation, but the change in the markets was stunning. The domestic markets fell dramatically, and abroad, the markets were also alarmed. In particular, I remember reading about the value of the Indian rupee dropping by 20%. All this was based off one speech that talked about one change to the present situation.

Of course, it's an open question as to whether or not that change was justified, but the point is this: when people saw a change that, at least in the back of their minds, probably wasn't all that unexpected, they let their flawed logic take over and made decisions that, if viewed objectively, might be seen as irrational. This is a feature we all have in common. When we find ourselves realizing a situation has changed and we know less about it than we would like to, we start making irrational decisions.

This is an important concept in understanding how other people around us (and we ourselves) work, and understanding it can help us not only work with others, but also understand the fallacies in our own thinking. That's what I hope to get out of this blog. I hope you get a little something out of it with me.