Book of the summer: Factfulness

Summer is the time when you can finally relieve yourself of the pain from the mountain of unread books that are piling next to your bed. Always amazed and impressed with myself when I read the same book as Bill Gates, I will write about a book that both Bill (yes, we are on a first-name basis) and I loved: Factfulness by Hans Rosling, Ola Rosling, and Anna Rosling Ronnlund.

I had heard of Hans Rosling ages ago when I watched his famous TED talk. He is a medical doctor and global health professor who worked his life to increase health care around the world. At the same time, Hans, alongside his son and daughter in law, set up the Gapminder foundation as a tool to fight ignorance. Both the foundation and his TED talk aim to show that - despite the negative images we see in the media and the menacing feeling that the world keeps getting worse every day - the world is actually improving. In his TED talk he introduces the now-famous moving bubble chart which visualizes the progress humanity has made over the past 100 or so years. Since the talk, Hans has been touring the world trying to inform experts and leaders around the world about the amazing progress we've made and where action is still needed. The book factfulness is a culmination of his life's work, and sadly, Hans passed away before it was finished. His collaborates Ola and Anna finished writing it and today I finished reading it.

What is factfulness?
Most simply, factfulness is the practice of only holding beliefs for which you have evidence that they are true. For example, believing that the planet is warming is a belief backed by the data. The problem Hans identified throughout his life and the central premise of the book is that people tend to not be very factful when they think about the state of the world. In fact, we tend to think that the world is worse than it actually. We think fewer children are vaccinated, more species extinct, and more people in poverty than the data actually shows. The reasons for this are various but Hans identifies 10 instincts we have that make us pessimistic about the state of the world.

This matters because if we stress and worry about the wrong things then we don't spend our resources as efficiently as possible. After working in government all summer "value for money" is deeply ingrained into my brain. Most of us care about suffering around the world and want to improve our societies but if we guide our efforts according to where we feel help is most needed we might not achieve as much good as we could. Instead, Hans argues, we should let the data guide our way and see where we can have the biggest impact. At the same time, we ought to be careful not to rely only on data and take any insights with a pinch of salt. Overall, the book teaches its reader to adopt a more differentiated world-view, to not take everything we read and hear as a given, but instead inquire and ask questions to gain a better understanding of our world.

The book is an extremely honest account of a very experienced and wise person and we see how Hans has learned from his own mistakes and how he himself has struggled to practice factfulness throughout his life. This is because the instincts he describes are there for a reason and often they can help simplify things or help us make decisions. But when it comes to complicated systems and decisions - as they usually are in the social sciences - we need to step back and take a breath before acting.

The most important thing the book thought me was to be humble. Reading about how Hans has struggled to overcome his own stereotypes showed how it is a life long process. In many of his accounts of his time when he was a doctor in countries on lower income levels than the West and different cultures too, he has become aware to the assumption he makes about people in other living situations and how often they can be misguided.

Factfulness is an amazing book for everyone interested in the state of the world and potentially improving it. Most of all, however, it is a reminder - among all the worrying of the state of the world and the many things we could be doing better - to celebrate and appreciate the progress we have already made and be inspired to take action to continue these achievements. 

The Heavy Price Tag of Fast Fashion

You may have seen Missguided's recent summertime offer of the £1 bikini being advertised, or criticised online in the last few months. As the name suggests, this bikini (pictured above) is sold for £1 for a limited time. Missguided's "one pound bikini statement" explains that
It cost us more to produce than one pound and we're absorbing the cost so we can offer it at an incredible price as a gift to our customers.
In spite of this cost sacrifice, this product can still be seen as a symbol of the ever-popular fast fashion industry. Fast fashion translates the latest trends at affordable prices through increasingly cheap production methods, often heralding reduced cost at the expense of more intangible social costs as well as material and design quality. This post is focusing in particular on the disconnect between the social costs of fast fashion production and the prices they are sold to illustrate the economics term 'negative externalities'
What is an externality?
Externalities are the third party costs from production and consumption of goods and services for which no appropriate compensation is paid. In other words, externalities are the costs which don't have a market price and so are not included in the market costs and pricing models of products. Things like the environmental impact of production are not traded in a market and so do not have a price. This means that even those these costs are very real, they are often disregarded when charging a customer and competing for lower price points. Negative externalities are an example of market failure because the spillover effects of production or consumption are occurring outside market mechanisms.
Externalities can also be positive. For example, when you consume education this provides the private benefit to you of your knowledge and skills (human capital) however this also provides a social benefit if you use this education for the benefit of others. This social benefit is not included in the price of education as this social contribution is something that is once more difficult to quantify with a market price, particularly as the extent of social benefit varies dramatically between individuals.
The case of fast fashion provides an example of a production negative externality market failure. Let's try to illustrate this graphically

This graph might seem a bit intimidating at first but all the logic from the initial explanation is here. Private cost refers to the market costs a producer has had to face, in the case of fast fashion this will include the costs of materials, labour, transport, design etc. The social cost is the aggregate cost of private costs and the externalities that do not have a price. External costs within fast fashion may be the environmental impact of outsourcing to use cheap labour, as well as the environmental consequences of the disposable quality of the product that is likely to find its way to a landfill after a handful of uses. Therefore there is a difference between the marginal private cost (the additional private cost from the production of 1 more unit) and the marginal social cost (the additional aggregate costs from the production of 1 more unit) due to the presence of externalities (social cost = private cost + externalities).
The market allocation of quantity sold and the price charged is illustrated by Q1 and P1. Conversely, Q2 and P2 represent the socially efficient equilibrium. As you can see from the graph, the socially efficient price is higher than the market price. This reflects that the market prices we pay for our products are not charging us for externalities, but they aren't paying for them either. This is where market failure occurs. The triangle formed by each dot on this graph represents the deadweight welfare loss or the loss of economic efficiency. This is an inefficient market.

So there you have a brief introduction into externalities as exemplified by the case of fast fashion.

No one escapes economics

Despite the common misconception that economics is mostly finance and banking (I haven't done a single finance module in my entire university career), economics is actually everywhere and it is almost impossible to escape it.

Today's world is as interconnected as it could possibly be; whether its next-day deliveries on amazon, ordering some cute Shiba-Inu themed socks from Canada, or paypal-ling a pal in a different country. Internationally, our economies are as connected as never before, both through trade and finance. Unions such as the EU have increased mobility enormously, it is now a lot easier to move to a completely different country, study abroad or simply travel than 50 years ago.

This interconnectedness brings many many advantages with it but it has also significantly increased some risks. Along the material interconnectedness through trade, for example, has also come financial globalization; banks nowadays hold monetary assets in other countries and people might have accounts abroad. While I won't bore you now with the details of financial integration (given that I barely grasped it myself in my last macroeconomics course) it is important to recognize the price we pay for EU-wide free roaming and ordering random stuff from across the ocean. Because this highly integrated system means that problems in one area can easily spread across the whole network as happened with the EU-crisis just a few years ago. How to remain connected while reducing the risk of crisis is a problem policy-makers still haven't solved. That has also to do with the nature of the crisis, given the complexity of the system no person understands all of it. That means you can put safety nets in place and try to anticipate potential problems but you won't know if your solutions work until the crisis hits.

But even if you ignore this international network and decide to consume and live only within your country (looking at you Trump) you will not escape economics. Because while nowadays we associate economics with big words like GDP, or labor markets, or stock prices, initially economics meant barter. Before money hit society people used to exchange goods for goods, one pair of shoes might have been worth 20 apples. We haven't lived in a full barter economy for many years but you have smaller forms of this in smaller units - such as prisons, where cigarettes act as a sort of currency.

I think the most striking example of how you can't escape the economy is that of the Westovers. Last weekend, I read the memoir "Educated" of Tara Westover, a woman who grew up in rural Idaho without any contact to the outside world. Her family were Mormons and her father did not want to interact with the government/ the establishment in any way, so Tara and siblings were born at home with a midwife, didn't have birth certificates (initially), didn't go to the hospital in any case, and weren't educated at a public school. It's a great book and I definitely recommend reading it to everyone, but one thing I noticed was despite trying to be completely self-sufficient, in his preparations for the end of the world Gene (pseudonym) Westover still couldn't escape the economy. He had to work so he could earn money, to pay for electricity and food, and later their family built a business around their mothers' herbal medicine - a business which could be explained with economic theories. I just found it impressive that no matter how hard you try to escape society, economics will always stay with you and the economic theories that we discuss on this blog can help organise and explain structures in almost any society.