The Shortfall Master List

My goal is to fix the world by focusing on the big problems first. This one is mostly about the USA, its problems, and how to fix them. First, a summary of major problem types, then a list of the largest problems we face in moving society forward, a note on political parties, and a set of solutions. This essay can be used as the basis for discussion or a class on critical thinking, society, and the future.

I am a heretic. A heretic challenges the fundamental assumptions of basic beliefs. In my view, the next thirty years are going to be breathtaking. We want to go into that future without dragging too much of the past with us. We should look at everything and ask, “If we were starting over, how could we get the big things right and worry less about the small stuff?”

The Goal: Reduce Poverty

I believe moving the most people from poverty into the middle class should be the number-one goal of most governments, institutions, wealthy families, and NGOs. We’re making progress, the last thirty years have been spectacular, but the global pandemic has set us back substantially.

Poverty is a trap that brings everyone down and perpetuates on its own. It takes a strong effort to increase the proportion of the middle class, and it’s that strong effort I want to focus on. I will argue that the main ingredients in any solution are better monetary policy, innovation, and much less regulation.

In the chart below, dark red is poverty. It shows how far we have to go.

Six Actual Problems

Many problems are just made up. If you get all your information from mainstream magazines, you will see mostly fictional, short-term problems that are very visual. True problems are harder to see. They come under one of six headings:

A lot of problems are structural, not circumstantial or political. Understanding the age structure of a population, the geography of a region, or the cultural differences between trading partners are fundamental to understanding solutions in those places. There’s a good reason there is no “Amazon of South America.” The average life span of a human is now around 73 years, but soon it will be 90 years. We should be planning on that rather than be surprised by it.

When a resource is free, people will take advantage of it. If they don’t have to pay the cost of damage, they will do more damage than society wants. In many cases, like drones and genetically modified crops, regulators apply the precautionary principle and don’t allow it at all. But that stifles innovation. In some cases, like overfishing, we should work on reducing demand, because we don’t need fish protein to live. I will argue that markets are generally best at allocating resources, but there are times when governments should make sure the playing field is level.

As I pointed out in my speech to the EU parliament, too many politicians don’t suffer the consequences of their own decisions. The real-estate agent is far more interested in making the sale than in getting you the right house at the right price (we know this because they sell their own homes differently). The vast majority of government regulations are an attempt by politicians to get re-elected. But it is also pervasive in business, education, nonprofits, and other areas. The words we should use more often in the US are corruption and kleptocracy (Vox, Atlantic). Rarely are the incentives aligned.

It is the wet dream of every venture capitalist — vendor lock-in, category domination, and multibillion-dollar valuations. It usually leads to an inadequate equilibrium in which a small number of people make decisions that affect a large number. Our digital society is increasingly a winner-take-all market, where the big get bigger and eat their competitors. They become the new gatekeepers, the new status quo.

Venture capitalists invest in people who look like they do. Companies don’t promote women the same as they do men. People over 50 face extreme prejudice in the job market. We believe that going to a brand-name university is a sign of future success. We believe that past success is a signal of future success. 58 percent of CEOs of Fortune-500 companies are over 6 feet tall, while only 14 percent of the population are. We throw the dice harder when we want a higher number. Politics makes people stupid. Bartenders with PhDs make more than bartenders who simply have masters’ degrees. Most people believe they are above-average drivers, even in the hospital after the accident. The list of cognitive biases is long and growing, and no one is immune.

“We throw the dice harder when we want a higher number.”

Not only is the average person statistically illiterate, but the average researcher is, and many statisticians and data scientists are. Statistics is hard. Over the past decade, we’ve seen many long-held beliefs destroyed by rigorous analysis. Examples:

This is a must-watch video:

My favorite quote on this is from Andrew Gelman, a Stanford statistician, who wrote a blog post entitled Too big to fail: Why it’s unrealistic to expect scientific journals to retract their huge backlog of erroneous papers:

“Let’s just put a bright line down right now. 2016 is year 1. Everything published before 2016 is provisional. Don’t take publication as meaning much of anything, and just because a paper’s been cited approvingly, that’s not enough either.”

Two things that generally aren’t problems:

  • I don’t think economic inequality is a problem. I think it’s a symptom of other problems. I actually don’t mind the rich getting very rich as long as poor people can move into the middle class.
  • Most dilemmas are not true dilemmas. They vanish when you actually understand the situation.

The List of Major Shortfalls

Innovation is slowing down across the board, especially in slow-growth countries where there are more old people than young. Robert Gordon summarizes this well in his book, The Rise and Fall of American Growth. Tyler Cowen addresses the problem in his book, The Complacent Class.

The financial sector is stuck in a deep dark hole of low innovation brought about by overregulation, lobbying, rent-seeking, huge platforms, branding, and gatekeeping. There isn’t going to be an Elon Musk of banking, because we don’t need banks. Banks and financial institutions are artifacts of regulation.

Organized religion plays a significant, but not lead, role in armed conflict. Identity also plays an important role in conflict, and religion and identity are closely tied. Religions prey on people’s insecurities while redistributing wealth and power to the few who run the organization. We are better off embracing our differences, not emphasizing them.

Education is a disaster, a shared delusion, expensive babysitting. It does not suffer from cost sickness, it suffers from zombie-ism. It is not fit for purpose and probably hasn’t been for 120 years. There are rational reasons to destroy education and build something better.

Health care is a disaster. The usual tradeoffs are fictional. Basic care and basic drugs are hugely beneficial — think of dentistry, antibiotics, CT scans, and anesthesia. The expensive half of the medical-treatment spectrum doesn’t move the needle much. One of the best summaries of this comes from Robin Hanson’s book, The Elephant in the Brain. We are in the middle of a crisis of reproducibility, researchers routinely look at the wrong models or continue to reproduce known errors, and we don’t know if most of the drugs doctors prescribe actually work. In addition, the way we pay for health care is a huge part of the problem. We are getting too little bang for too many bucks. Michael Porter has a better way.

Most rules that try to choke off supply just create more effective ways of delivery. Most attempts to ban the trade of endangered animals end up creating the perfect conditions for poachers. Think of banning alcohol — if you can understand how that doesn’t work, apply the same reasoning to all other supply bans and look instead at demand.

Smoking cigarettes is still the leading cause of preventable disease, disability, and death in the United States. Most of what we have tried hasn’t worked. Education doesn’t work. Restricting supply and even increasing the price doesn’t work. Will nudging work? I haven’t seen a good answer to this, but we could use one. Smoking hurts the poor disproportionately. New Zealand is trying a multi-pronged approach.

Marriage is a failed institution. I have no problem with marriage. My question is: why is it a government franchise? Why can’t people just create their own private contracts? Too much friction and bad incentives interfere with the natural course of human events. It’s true that fathers often don’t support their children, but I don’t see what that has to do with marriage.

The precautionary principle is a shortfall because fear sells, and the approach really never turns out to be the right framing of a situation. It’s a good tool for selling your preferred policy, it’s great for keeping defense budgets enormous, but the world isn’t black-and-white. The alternative — cost-benefit analysis — also has issues and biases, but if the precautionary principle is warranted, it will come out in the cost-benefit equation.

How we decide what we want and don’t want is pretty fucked up. I don’t see much difference between Republicans and Democrats — they are both equally bad at doing anything positive for the American people, even when they agree on the goal. The drug wars have been ineffective. Housing policies have exacerbated racism. The Federal Reserve Bank has single-handedly caused most recessions. The war on cancer has had mixed results. You have to measure both the costs and the benefits. In general, humans are much more interested in signaling and career advancement than helping poor people move into the middle class. Business is full of nonsense, yet it still manages to get a lot done. Labor unions made some sense in the 1920s but are now mostly self-serving.

Electing humans to govern other humans is so 18th century. Representational government has failed because it long ago turned into a game. Those who game the system win. The agency structure assures that elected officials will always take care of themselves first, their constituents second. Voting is an ineffective way to get what we want. Society is too often hijacked by the tyranny of the minority. We should let markets take over many of those functions.

We should throw away the tax system and replace it with a consumption tax. Could even couple that to universal basic income if it seems like a good way to go (I’m intrigued but not sold).

Death by overregulation. In my view, regulation is the result of political posturing and pandering to voters, it doesn’t protect the public, and it’s strangling our economy with very little benefit. On the one hand, politicians look good when they enact bills to solve the most recent crisis; on the other hand, no regulator wants to see her picture on the front page of the newspaper when something bad happens. The result: mountains of paperwork and a culture of prohibition.

Free trade lifts all boats. Trade restrictions only hurt the end consumer. It doesn’t destroy jobs, it improves the quality of life for all.

Open borders benefit everyone, and the horrors aren’t real. As usual, the “dilemma” really isn’t one. Listen to Bryan Caplan demolish your objections.

Rules often have unintended consequences. As an example, everyone in finance and trade has to comply with Anti-Money Laundering Laws, even though they are completely ineffective. It’s worse than that — Anti-Money Laundering laws create the perfect conditions for money launderers! They actually prefer the AML regime to no laws! Rather than trying to redesign them, I would ask why we have these laws in the first place. Too often, laws are enacted by politicians seeking votes, yet many people suffer for decades after the election.

Professional licensing is a scam. Not only for real-estate agents and hair dressers, but also for pilots and doctors. Those who give the licenses watch out for themselves first and foremost. We need watchdogs and reform.

Monetary policy is inept and hurts everyone. The 2008/9 Great Financial Crisis was manufactured by the Fed (not knowingly, but deliberately). That same mistake (tight monetary policy) then caught on among other central banks, causing a worldwide recession. The Fed printed money in 2020, but the way they do it is suboptimal.

Humans are not causing the climate to change. Energy policy has been hijacked by ideologues who care only about their “Great Reset” agenda that has nothing to do with science, is a return to central planning, and will hurt the poor in particular. My blog, Shortfall, explores this in depth. My work on climate shows you the data so you can decide for yourself. We should reconsider all energy subsidies.

Healthcare policy suffers from many symptoms. As the global pandemic has shown, entrepreneurs were fast but regulators did more harm than good. The list of mistakes made by the FDA and CDC in trying to fight Covid is long and full of partisan, structural problems. The FDA needs reform. We probably do need something to coordinate global response to biological threats, but I’m not convinced the WHO is up to the task. What should it be?

Science is fucked up because the incentives are fucked up. The biggest problem with science today is that so many people think it’s a reliable enterprise. It isn’t. Too often, we substitute expert opinion, consensus, or media repetition for science. People hijack science to serve what they think should be, not what is. Today we mostly have the policy dog wagging the science tail — when a new group comes to power, the science and the cost-benefit equations should not change. We need to redesign science.

Scientists say they’re forced to prioritize self-preservation over pursuing the best questions and uncovering meaningful truths. — Vox

The media are a big problem everywhere. If researchers don’t know they are wrong, and if scientists are incentivized to skew their findings, how can journalists discover the truth? There are many cries for journalists to admit they have a point of view, acknowledge and disclose their biases, and strive to be more objective. Even though a single large study showed no bias in the political topics journalists choose, it’s still very possible to manufacture consent, and PR is critical to the success of any project. I think the advertising model is hopeless — no one expects to find structured truth on Facebook. There’s less bias in the projects where people pay to consume (like Medium.com). In general, media truthiness will probably always be an arms race of ever-escalating tactics to win the eyeball wars.

Putting humans on the moon and other planets is always a vanity project, nothing to do with science, destruction of earth, nuclear war, or advancement of the species. We are spending far too much on exotic problems and not paying enough attention on the basics.

Poverty is a serious issue everywhere. Is it a cause or a symptom? My view is that it’s a useful metric. If you’re doing something that works, poverty will go down and the middle class will increase. For example, when poor countries discover natural resources in the ground, poverty rarely changes as a result of extracting them. On the other hand, if trade and immigration improve, poverty usually goes down. Generally speaking, what works is improving people’s livelihoods. If you view poverty as a cause, then universal basic income looks more like a solution.

Broad-based growth, defined as the process that raises median income, is far and away the most important source of poverty reduction. There is no instance of a country achieving a headcount poverty rate below 1/3 of its population (at moderate poverty line of $5.50) without achieving the median consumption of that of Mexico.

— Econofact

We must do something about gun violence in the US. There is more than one mass shooting every single day. Should we ban guns or restrict access to guns? I guess that will backfire like everything else. Comparing to other countries doesn’t help. One approach is to look for the root causes. It could be a symptom of a larger public-health problem. We probably need better research before we fully understand what is happening and what to do. We need a complete framework, not a patchwork. Local experiments can probably tell us a lot.

Law enforcement is plagued by a host of perverse incentives, from district attorneys jockeying for promotion to police quotas and “professional courtesy.” Eliezer Yudkowsky has the solution.

AI Risk is serious. Several very smart people are deeply concerned about generalized superintelligence emerging from work in AI. Elon Musk has said this is far more of a threat than nuclear war. I’m very excited about the work being done at OpenAI, where they can work on intelligent systems using a “containment vessel” approach that helps prevent unintended consequences of experiments. While I prefer cost-benefit analysis to the precautionary principle here, it’s worth spending time at Intelligence.org to learn more.

The United Nations lost its way a long time ago. Top-down solutions usually favor the top. Everything they do is political in nature and self serving. Their programs are designed to benefit certain classes and build the franchise rather than help humans. I do in-depth coverage of their shameless attempt to hijack the world’s energy policy, and Bjorn Lomborg’s Copenhagen Consensus Center has done great work applying cost-benefit analysis to the Sustainable Development Goals. Their report includes a chart showing the return on investment for most of the UN’s programs:

Top-down solutions usually favor the top.

The Environmental Dilemma Doesn’t Exist

I grew up in Utah and Colorado, not in New York City. I’ve spent many nights in a sleeping bag near a rushing river staring at the stars, thinking about the bighorn sheep and eagles I saw a few hours earlier. I’ve led wildlife photo safaris to Africa. I’ve been vegan for 35 years. I’m convinced humans will naturally care for the planet (and not self-destruct) as we move more and more poor people into the middle class this century.

We’ve been doing exactly that for thirty years now. I think capitalism and neoliberalism have been hugely beneficial for humanity. The wealthier we become, the better care we take of the environment. I think long-run economic growth is generally the recipe for success. I’m not thrilled about the prospect of having ten billion people alive on earth at the same time, but I am sure we can handle it, and I am sure life will be better for a larger percentage of people.

Example: within 20 years, we will be growing a lot of our protein in labs and eating it in the form of hamburger, chicken nuggets, printed steak, etc. Humans eat far too much protein anyway, but if we consume half of our “meat” this way, we will return millions of acres of farmland and fisheries back to nature, possibly in fairly short order.

As products and services become virtual, we don’t need as much physical stuff. Future generations could use far less material than we use now. We could even be at “peak stuff” in the next decade or so. Too often, we imagine tomorrow as a linear extrapolation of what we have today.

Solutions

This isn’t going to be a long section. I believe the best way to fix a problem is to change the game rather than tweak the rules.

Long-run economic growth solves almost all problems all by itself. As humans become more affluent, they take better care of their home planet. This works its magic invisibly, without rules, programs, NGOs, awards, or meetings in Davos. In this ten-minute talk, I explain the role of central banks in laying the foundation for entrepreneurs to do the rest:

If you’re making the wrong assumptions, you’ll solve the wrong problem. This is so common that I would have to call it “normal.” Solutions include doing experiments, buying options, using red teams, pre-mortems, listening to introverts, rewarding challengers, internal competition, bounties, diversifying your teams, diversifying your approach, recognizing the role of luck in outcomes, and more.

Try hard not to make rules. Whatever the rules are, people will generally game the system to make it work for them. As Tyler Cowen says, incentives matter. You have to understand game theory to design good incentives. Few people have the proper training, but you could include an economist, a designer, a game theorist, a data scientist, a statistician, a retired person, a student, and a historian on your team. When these people collaborate, they are likely to come up with better solutions than if the boss tells everyone what to do.

What you measure often determines what you get. How can you know whether it’s time to tweak the system or time to throw it out and change it entirely?

A Three-Step Approach

When you’re trying to think how best to redesign a system, you should always expect unintended consequences and adaptive adversarial behavior, because they are the norm, not the exception. You have to address the incentives. I recommend a three-step process:

  1. First, ask whether your assumptions are valid. Too many times, we say “we don’t want everyone high on drugs” or “we don’t want terrorists coming across our border,” or “we need to get to net zero,” or “we don’t want drivers speeding.” These goals are all based on faulty assumptions. Read Alex Cahana’s piece, The Opioid Epidemic is NOT About Opioids And It’s NOT An Epidemic. Go back to the beginning and ask what you really want. Assume you’re looking at the symptoms. Assume finding the actual cause is at least an order of magnitude more difficult.
  2. Second, ask how you can dismantle much of what is already in place to allow room for new ideas. For example, a town in England put sacks over all its traffic lights, and traffic improved dramatically, while accidents went down! They could always have put it back the way it was, but the quick experiment was so promising they redesigned the town to better serve motorists, cyclists, and pedestrians.
  3. Third, use game theory and experiments to design a system that evolves naturally and continues to reward the right behavior. Don’t specify the behavior, specify the values. Create a star to steer toward rather than a roadmap to get there. I think, for example, we could simply do away with most government agencies and focus instead on long-run economic growth, transparency, and enforcing contract law while letting markets allocate resources.

An example of using this method is my approach to fixing insurance.

For fixing media, I’m a fan of truth staking, where either journalists have to stake money and lose it if they are later found to make false statements, or where an active betting market provides fact-checking services. Unfortunately, truth staking hasn’t gotten off the ground yet, though it has been tried a few times. The Brick House Cooperative is an interesting media experiment.

Robin Hanson believes people act more responsibly when it costs them something to lose — when they have skin in the game. Here I interview him about his philosophy around futarchy, his system of letting people make bets to determine the true will of the majority, which could replace elected representatives entirely:

Why I’m Not a Libertarian

The reason I’m not a Libertarian is that luck plays a huge role in individual success. The world of Ayn Rand, Murray Rothbard, and David Nolan is purely fictional. Plenty of smart, hard-working people simply fail. Some recover, some don’t. There is huge variance in outcomes.

Max Roser explains:

“One of the most important insights of economics is that people live in poverty not because of who they are, but because of where they are. A person’s knowledge, their skills, and how hard they work all matter for whether they are poor or not — but all these personal factors together matter less than the one factor that is entirely outside of a person’s control: whether they happen to be born into a large, productive economy or not.”

I’m certainly not a socialist, but I think countries like Canada and Japan do a better job with health care and elder care; they have far fewer homeless people and gun deaths than the United States. I’m also concerned that the population structure of many nations will lead to problems as more people retire. On the other hand, I think we’ll find ways to cycle up and down across various thresholds for thousands of years here on earth — there will always be a “new normal” to adjust to.

I think the guiding principle behind most policy or philanthropy should be to increase and strengthen the middle class. As I write often, we do this through smart monetary policy, innovation, and minimal government intervention. In that respect, I am much more closely aligned with Libertarians than any other group. But I think we need something new, more rational, where we take each case on the merits and understand whether it contributes to building a middle class. For example, universal basic income may give many more entrepreneurs the safety net they need to take more risks, and that could benefit everyone tremendously. I think markets will naturally find a way to allocate resources in the energy sector, without any need for carbon credits or reducing CO2 emissions.

The people I feel closest to in philosophy are Robin Hanson, Eliezer Yudkowsky, Bryan Caplan, Alex Tabarrok, and Matt Ridley. I am absolutely intrigued by the work of Henry George and Glen Weyl. I like Annie Duke’s mindset. I enjoy reading Nassim Taleb and Tyler Cowen — I don’t fully agree with them, though if you are going to disagree with those two you had better have a good reason. On the economy, I am a disciple and friend of Scott Sumner. And Richard Feynman was always right.

You could describe me as a capitalist who favors cost-benefit analysis for everything, a complete overhaul of the way we govern, fourth-generation nuclear power, and some kind of universal basic income. I would add minimal yet smart rules for wildlands, endangered animals, and oceans to protect them from the tragedy of the commons, and a better plan for taking care of the elderly as our population pyramid continues to straighten. Something like that.

Summary

Humans generally suck at getting what they want. Most successful people are smart and work hard, but so do many others who are much less successful. Most stories of cause-and-effect are told in reverse; they could never have been predicted beforehand.

Critical thinking is hard. I’m always adjusting my model of the world as I get new data. Too many of us are stuck in political or ideological camps and don’t take each case on its own merits, look at the data, and try to see the big picture.

I didn’t really write this to tell you about me. I wrote it to pull and stretch your understanding of the world. I wrote it to get you to question your own assumptions, and possibly your personal or professional goals.

Next, I want to build a “factory” that will help others build these skills and grow a movement of young rationalists who can design and build the world of the 21st century. To make it okay to ask hard questions, to disagree, to look for the truth rather than the next promotion. To move people out of poverty into the middle class. If you want to join me, help me raise money for the Giordano Bruno Institute.

We don’t even know what skills may be needed in the years ahead. That is why we must train our young people in the fundamental fields of knowledge and equip them to understand and cope with change. That is why we must give them the critical qualities of mind and durable qualities of character that will serve them in circumstances we cannot now even predict.

— John W. Gardner

For more in-depth coverage of humanity’s failings and the surprising solutions to our biggest problems, sign up for my blog, Shortfall.

Resources

Inadequate Equilibria, by Eliezer Yudkowsky

The Machine Economy

Futarchy, by Robin Hanson

The Case Against Education, by Bryan Caplan

The Foundations of the Financial System are Rotten to the Core

Thinking Fast and Slow, by Danny Kahneman

Factfulness, by Hans Rosling (everything but the chapter on global warming)

Radical Markets, by Weyl and Posner

Randomistas, by Andrew Leigh

Hans Rosling on population and aging

Stubborn Attachments, by Tyler Cowen

Rule Makers, Rule Breakers, by Michele Gelfand

My speech to the EU parliament in 2019

Michael Porter on fixing health care

How to promote long-run economic growth

Red Team Thinking

Skin in the Game, by Nassim Taleb

The Century of the Self

Are America’s Cultural Struggles the Result of Risk-Averse Incrementalism?, an interview with John Paramentola

Statistics Done Wrong, the Woefully Complete Guide, by Alex Reinhart

The Flaw of Averages, by Sam Savage

The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing, by Michael Mauboussin

Uncontrolled: The Surprising Payoff of Trial-and-Error for Business, Politics, and Society, by Jim Manzi

Be aware of the Fundamental Attribution Error

Abandon Statistical Significance, by Andrew Gelman et al.

Finally, if you’ve gotten this far, you may be interested in my big essay, Inreality.show.

David Siegel is a serial entrepreneur in Washington, DC. He is the founder of the Pillar Project. He is the author of The Token Handbook, Open Stanford, The Culture Deck, Climate Curious, and The Nine Act Structure. He publishes a climate blog and gives speeches to audiences around the world and online. His full body of work is at dsiegel.com.

Provocateur, professional heretic, slayer of myths, speaker of truthiness to powerfulness, and defender of the Oxford comma.

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