A sideways look at economics

Economics is the study of trade-offs. How much of something we want are we prepared to give up in order to get one unit of something else we want? And how much must we give up?

Those trade-offs change over time – and particularly in extraordinary times like these. A previous TFiF looked at how much we’d need to be compensated to give up various forms of social media and other online resources. It is extremely likely that those metrics have changed over the last month: how much do you need Netflix now? Or Amazon? Or even, get thee behind me, Facebook?

We’re all optimising subject to constraints. And before you object: I don’t mean in a narrow, homo-economicus kind of way. We optimise across many dimensions, not all of them of the easily measurable sort that obsess homo economicus.

We have preferences, and there is scarcity so we can’t have an infinite amount of everything. So, we have to budget. For students of economics (and for engineers, from whom economists pinched this concept along with many others) the ‘Lagrangian’ is an equation that captures constrained optimisation, where the parameter lamda measures the trade-off between our objective function (weighing together the various things we want more or less of) and our budget constraints.

COVID-19 will cause my budget constraint to tighten. I can only spend what I can earn or borrow, and both of those are lower now — which means my material standard of living, how many goods and services I can enjoy, will be lower too.

But we act under other, non-budgetary constraints too. If there’s one thing that COVID-19 has brought home to me it’s the impact of changing those non-budgetary constraints.

Those other constraints have already tightened, and it hurts. There are constraints on our behaviour now that have never bitten in my lifetime. It’s like when you do Pilates (exceptionally rarely, in my case) or something; afterwards you feel muscles ache that you previously didn’t realise you had. As Joni Mitchell pointed out, you don’t know what you’ve got till it’s gone.

Being forced to stay at home means that I am being forced on to a lower level of welfare (or utility, or happiness), with quantity constraints applied to some of the activities I previously took for granted. At that lower level of welfare, with those quantity constraints in place, many of the trade-offs that applied a month ago are different now.

In English, I now spend time doing things that I would have considered a grotesque waste of time a month ago — like binge-watching barely adequate thriller series on Netflix, or checking out what my friends are claiming to do on Facebook. I’m even considering taking up watercolour painting or re-learning the guitar. Given the option to go to the pub, none of those would register as having the potential to improve my welfare at all. So much so that tonight I will be joining a virtual pub, and tomorrow, participating in a virtual pub quiz.

How much would I need to be compensated now for the loss of Facebook, for example? A month ago, my answer would have been £0.00. Now, however, I’d need a quid at least. And for Netflix etc., substantially more. Even YouTube, which I essentially never looked at, has started to register on my radar of potentially welfare-enhancing activities.

If we extrapolate my behaviour across the population as a whole (I know, it’s a stretch, but just for the sake of argument), it’s easy to see how the value of online services will increase — especially those that allow online, virtual networking, such as Zoom, whose share price is currently rocketing.

But the big problem for me is that I’m basically ignorant about the content provided by the vast bulk of online platforms, since until now I haven’t used them. What I would really like is a gatekeeper of some sort, to point me in the right direction. I don’t just mean advice, like: don’t bother with YouTube. I mean, supposing I’m on YouTube, which one of the billion or so channels should I look at? Which should I ignore? There’s no gatekeeper — instead, there’s just everyone else, and the algorithms deployed by YouTube and the others to bring certain channels to our attention.

These algorithms reward the amount of content that is uploaded as well as how new the video is (in addition to the number of viewers, the number of likes etc.). So even the questionable critical faculties of the mass of humanity (I mean, the Kardashians? Really? Why?) are not the sole driver of where one’s attention is focused on YouTube. It’s also how much stuff has been uploaded and how recently.

That structure opens the door to success through drivel (and also incentivises the use of bots to ‘view’ and ‘like’ content). Drivel, provided in huge quantities, will rise to the top and draw the attention of naïve new users such as this author. How about, for example, 5-Minute Crafts? What could be better? Learn how to make a paper swan or something in only five minutes. I know, who wants a paper swan? But if I can’t have the pub, maybe I do.

It turns out that some of the ‘life hacks’ presented on that channel and others are obviously false (such as the proposition that by applying apple cider vinegar to a bruise you will make the bruise disappear within an hour or so). And some are downright dangerous (such as turning strawberries white — for what purpose is unclear — by dousing them in bleach, before eating them). More generally, though, it’s absolutely extraordinary just how much content there is on this channel, as on so many others. Who creates this stuff? Why?

Someone, somewhere, is taking the opportunity provided by these platforms extremely seriously, and is using it to bombard naïve users like me with the utterest tripe imaginable. No doubt the money is good, but the overwhelming impact (for me anyway) is dilution: dilution of interest on my part; dilution of material that might otherwise have been interesting. The structure of the algorithms rewards massive quantity over quality, so the good stuff, presuming it exists at all, is swamped by the rubbish. The only way the rubbish can win is by being produced in colossal quantities. So that is what happens.

YouTube and the others should perhaps introduce a quantity constraint to their algorithm. Just as we are only allowed out once a day, so (for example) it might only be the first thousand uploads that can influence the positioning of a certain channel on YouTube. Then the trade-off between quantity and quality would improve in favour of quality (at least until the providers of rubbish find another way to advance their material).

The very fact that I’m contemplating such things, or looking at YouTube at all, is evidence that my trade-offs have changed thanks to the tightening of my non-budgetary constraints. A month ago, I would have dismissed the idea of even thinking about this. I’d much rather go to the pub.