it may well leave most of them destitute but a few of them free. which, ex ante, they may reasonably view as better than all of them destitute with notionally higher but still fully insufficient bank balances. 1/

if u have a $1000 + your kid is held for ransom for $30K today, there is no means of borrowing or sourcing a gift, and the kidnappers mean it, putting it all on one number on the roulette wheel is perfectly rational, even though it is a terrible bet and almost certainly you’ll lose everything. /fin

i think there’s a difference between what is being referred to as financial nihilism and ordinary risk-taking. i think “financial nihilism” is a close analog to an older debate about “increasing marginal utility” among the poor. 1/

the distinguishing characteristic is that under some circumstances it makes sense to take risks not that have high volatility compensated by high expected value, but risks that have negative expected value compensated by long right tails, ie the “risk” compensates expected loss. 2/

in conventional finance, this is a characteristic of out-of-the-money options, but out-of-the-money options trade approximately at expected value, while “financial nihilists” pay (and arguably reasonably pay) more than expected value! 3/

the explanation is that there’s nonlinearity in welfare terms in that right tail. 4/

ordinary returns don’t let people escape a kind of gravity well of low welfare, but above some threshold, there’s the possibility of escape velocity, so people behave as if money in the far right tail is worth even more than its high amount would suggest. 5/

@jburnmurdoch.ft.com suggests homeownership as that escape, but i think the phenomenon is more general. /fin

you are making an argument about the rate at which noise overwhelms an error prone measure. you are saying that 25 years isn’t enough. i’d say that about a decade is easily enough to render comparisons problematic to the point of uselessness. 1/

that’s not “my empirical argument breaking down”. it’s a dispute over the noisiness of a measure. you might be right or i might be, but perhaps it’s better to characterize the dispute charitably and accurately. /fin

i think the outlook will depend upon our capacity to organize ourselves well enough to think beyond simple scalar measures of growth. 1/

cars and suburbanization are great for gdp precisely because they are so expensive! we get a lot of real miles and real homes for all that money, but the g in gdp really bites, this is spending on rapidly depreciating, expensive to maintain assets (homes, cars, physical and social infrastructure) 2/

economists’ first presumption is that if something is expensive but people buy it anyway, that means it adds just that much value, is a revealed preference that contributes commensurately to welfare. 3/

but that’s too simple, as individually we don’t really get to choose between a far-flung and pedestrian lifestyle, these things come in bundles which we have to take all or none. 4/

we need government to observe this fact, and make judgments about costs and benefits that individuals cannot effectively make and aggregate through consumer choice in markets. 5/

in general, we need government to observe facts like this — there are many — and act well. but no data can tell us what “well” would be. if you poll people you’ll get garbage, the polled don’t have adequate information about what plausible alternatives to the status quo would look like. 6/

if you leave it to some class of technocrats, you’ll get their biases, whatever those are. 7/

there is no alternative to building a democracy capable of acting with reason and foresight, institutions which people trust to act consequentially because they believe their values and interests are taken into account in ways deeper than flawed polling. 8/

that is the difficult project our kids’ outlooks depends upon. sometimes it seems like an impossibly steep climb. but we’ve had trusted, reasonably effective government before, and though times have changed, we have more tools, we could potentially do it even better. /fin

As I really emphasize is the piece, I think the question is subjective, and what’s mischievous is pretending there’s some “science” or “data” that should make the rest of us defer to your, or to my, point of view. 1/

This is the realm of politics, not of science, and it’s dirty pool to try to pass off your — or my! — politics as science. /fin