Tuesday , April 20 2021
Home / Chris Dillow: Stumbling and Mumbling / On Hans in Luck effects

On Hans in Luck effects

Summary:
In the Brothers Grimm fairy tale, Hans in Luck, the protagonist starts with a lump of gold but ends up with nothing after a number of trades each of which seems reasonable on its own. This is a metaphor for a lot of behaviour in politics and economics. The point is that you cannot always judge an outcome by the individual actions that lead to it. Each action Hans takes is understandable in itself but their cumulative effect is to impoverish him*. Which is an example of the Sorites paradox. If you take a grain of wheat you’ve got next to nothing but if you do so often enough you’ll eventually have a silo full of the stuff. The fund management business operates on this principle. A modest annual management charge looks like a single grain of wheat, not worth noticing. But if you take it

Topics:
chris considers the following as important:

This could be interesting, too:

chris writes On generational difference

chris writes Prince Philip & the communist ideal

chris writes The need for institutional brains

chris writes Complicated motives

In the Brothers Grimm fairy tale, Hans in Luck, the protagonist starts with a lump of gold but ends up with nothing after a number of trades each of which seems reasonable on its own. This is a metaphor for a lot of behaviour in politics and economics.

The point is that you cannot always judge an outcome by the individual actions that lead to it. Each action Hans takes is understandable in itself but their cumulative effect is to impoverish him*. Which is an example of the Sorites paradox. If you take a grain of wheat you’ve got next to nothing but if you do so often enough you’ll eventually have a silo full of the stuff. Hans_im_glueck_04

The fund management business operates on this principle. A modest annual management charge looks like a single grain of wheat, not worth noticing. But if you take it every year it eventually adds up to a silo full. An extra half percentage point a year in fees can easily compound over ten years to a charge of over £750 on every £10,000 invested. There’s a reason why fund managers are rich, and it’s not because of their investment skill.

Similar things happen in politics.

For example, any individual tax break might seem reasonable. But their cumulative effect is to produce an overly complex tax system which diverts entrepreneurial effort away from productive activity and towards tax planning and which merely enriches lawyers and accountants.

Ditto other fiscal measures. If a man gets a job with some boondoggle, he’ll feel grateful to the Chancellor for creating it. But if he gets a job because of good macroeconomic conditions he’ll feel less gratitude because it’s harder to link his good fortune to the Chancellor’s actions. In this way, Chancellors are incentivized to come up with gimmicks such as freeports rather than to focus upon proper macroeconomic management. Each individual boondoggle looks reasonable, but the aggregate effect is a political culture which devalues good macro policy and overvalues gimmicks.

Perhaps Brexit fits this pattern too. A bit of extra paperwork is only a small hassle, and who cares about prawn exporters anyway? But a small friction here, a small one there, plus macroeconomically imperceptible year-on-year impacts on productivity and innovation, eventually add up to something significant (pdf).

Yet other examples of Hans in Luck effects might be found in the Labour party. Many on the left have been perplexed by the fact that whilst most Labour economic policies in 2019 were popular on their own, in totality they were not. A similar thing might be true of Starmer’s use of focus groups. In any individual case, it seems reasonable to use such groups. But the total effect could be to alienate voters by giving the impression of somebody who lacks his own ideas or convictions.

Some forms of racism also look like Hans in Luck effects. Victims of racism often speak of a “drip, drip” effect. Any individual remark might seem innocuous to a white person: “why are you so touchy?”. And any single hiring of a white person over one of colour might seem a reasonable marginal decision. But the totality of remarks and marginal decisions and mild stereotyping adds up to something wholly different – systematic racism which is experienced as stressful and exhausting.

Which is why I agree with those who have criticized the Society of Editors’ claim that the press is not racist.

Let’s take the now-notorious contrast between the press’s coverage of Meghan and Kate. When Kate touches her pregnancy bump, she “tenderly cradles” it whereas when Meghan does so it is a show of “pride and vanity.” And so on. If we take each case individually, it seems hard to read racism into it unless you are predisposed to find it. If, however, you look at the totality of editorial judgments a clear pattern of systemic double standards emerges. As in the Hans in Luck story, innocuous individual decisions cumulate to something nasty.

In this context the Society of Editors’ denial of racism perhaps reveals a different kind of media bias – a failure to see the wood for the trees. If you look only at stories in isolation, as journalists tend to do, you can miss the pattern. To do that, you need a form of sociological imagination – the ability to pan out and see the big picture which is not necessarily the sum of the parts. But journalists are not trained in the sociological imagination. That’s part of their deformation professionnelle. There are therefore limits to what you can learn about society from even good journalism. And that is why we need social science.

* The opposite is also possible. Kyle MacDonald famously traded a paperclip for a house. That could be a metaphor for the story of economic growth.

About chris

Leave a Reply

Your email address will not be published. Required fields are marked *