The lure of zero
We intuitively understand that, when we want to maximize something that is good for us, there are almost always trade-offs involved. But are we equally astute when we want to minimize something that is bad?
One of the employers I have had the pleasure to work for had a pretty developed system of benefits, that went by the rather apt name of Choices. The whole idea of offering benefits in addition to a salary is that the value to the employee is higher than the cost to the company — a true win-win. But while the cost to the employer is easy to calculate, a given benefit may not have the same value to every member of staff. Offering flexibility, and allowing every employee to choose from a menu those benefits that fit their current needs and lifestyle the best made great sense.
Striving for an optimum
One of the more intriguing elements of Choices was the option to increase the number of days’ vacation from the standard allowance of 25 days per year. By sacrificing the equivalent of one day’s pay, we could ‘buy’ an additional day off. Almost everyone either stuck with the status quo, or went for the maximum of five days extra, which confirms offering the choice had been a clever idea.
But my inner economist couldn’t help wondering what would happen if the benefit were not capped to five days. Imagine you had a job where you could actually freely decide how many days’ vacation you take in any one year. Where would your optimum be? All else being equal, more free time is good — but all else is not equal: more leisure means less money. There is a trade-off to be made.
This is true for many things where, on the face of it, we take it as given that more equals better. Almost always, it goes together with extra cost, or more generally, additional demand on something we only have in limited quantity — money, space, time, capacity etc. We intuitively grasp the trade-off: more is better, yes, but up to a point well before infinity (although that doesn’t necessarily mean we find it easy to locate the optimum, but that is a different story).
What if less equals better? A question that is popular in introductory economics classes is this: what is the optimal level of environmental pollution? Our intuition here would suggest that the optimum level of pollution is no pollution at all — none, nil, nada. A world without pollution would be awesome, just like a world in which we all had a zero carbon footprint, in which no children died on the road between their home and their school, in which there were no fatal industrial or traffic accidents, no drink driving, no fraud, or no crime. How could the optimum level be anything else than zero?
Zero as an optimum?
The mere suggestion that the optimum might not be zero, and that businesses should be allowed to pollute, that it is OK that people die on the shop floor or on the road, that crime and fraud are acceptable fills us with horror and outrage. This is just the kind of idea that gives economics, and economists, a bad name — the reputation that they have no regard for what truly matters. Is that a fair judgement?
In a recent series of tweets, the American journalist Megan McArdle provides an interesting narrative argument that striving for zero is misguided. Early in her career, she had worked as a temp for a company that operated a policy in which employees were given just one pen. Obtaining another pen required handing in a malfunctioning or an empty one. This was, ostensibly, a measure to eliminate the fraud of illegitimately taking home company-provided office supplies.
Young Megan was advised to safeguard her personal pen painstakingly — etching her name in it, keeping it locked in her desk while not using it, even if only to briefly respond to a call of nature, and of course, take it home at night (the desk locks were not very solid). For pens were being stolen: whoever was unlucky enough to lose their pen had no option but to appropriate one from a colleague.
An inordinate amount of office time thus went into either keeping one’s own pen secure, or trying surreptitiously to replace the pen that someone else had just pinched. In addition, the policy had turned every colleague into a potential thief of one’s precious pen (and other office supplies, as the rule covered notepads, folders, pencils and other goodies that sometimes found their way to the homes of the employees). The resulting atmosphere of widespread mutual suspicion had, unsurprisingly, not been benefiting productive collaboration.
Her conclusion is that the optimal level of fraud is not zero: it is best to accept that sometimes, some people steal some of your pens. And so it is with pollution, carbon footprints, traffic and workplace fatalities, drink driving, crime etc.
Always a trade-off
Getting closer to zero means making sacrifices. Of course, if we visualize pollution as an evil factory owner whose production plant spews out vast quantities of toxic material without constraint, and who pockets vast profits as a result, then stopping that practice would likely be easily achieved, without much sacrifice. But that kind of situation is rarely the starting point. In reality, businesses do take measures to abate pollution, interventions are taken to prevent fatalities on the shop floor and in traffic, and enforcement keeps drink driving and crime in check.
Do we always get the balance right? Certainly not. But just like the flexible holiday thought experiment at the start of this piece, any change involves a trade-off. Is another day of leisure worth the sacrifice of a day’s pay? At some point it no longer is. And at some point, the cost of reducing pollution, fraud or drink driving further, or of preventing one more traffic fatality or COVID-19 death is more than we are prepared to bear.
So next time when we feel the outrage bubbling up because there is more than nothing at all of something undesired, let us just take a deep breath, and resist the lure of zero. Zero is the easiest answer, but it is the wrong answer.
Originally published at http://koenfucius.wordpress.com on November 20, 2020.
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